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THE DIGITAL TELEVISION TRANSITION: WHAT

WE CAN LEARN FROM BERLIN

HEARING

BEFORE THE

SUBCOMMITTEE ON TELECOMMUNICATIONS AND

THE INTERNET

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JULY 21, 2004

Serial No. 108–101

Printed for the use of the Committee on Energy and Commerce

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

COMMITTEE ON ENERGY AND COMMERCE

JOE BARTON, Texas, Chairman

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

RALPH M. HALL, Texas

MICHAEL BILIRAKIS, Florida

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

RICHARD BURR, North Carolina

ED WHITFIELD, Kentucky

CHARLIE NORWOOD, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi, Vice Chairman

VITO FOSSELLA, New York

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

DARRELL E. ISSA, California

C.L. ‘‘BUTCH’’ OTTER, Idaho

JOHN SULLIVAN, Oklahoma

JOHN D. DINGELL, Michigan

Ranking Member

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

LOIS CAPPS, California

MICHAEL F. DOYLE, Pennsylvania

CHRISTOPHER JOHN, Louisiana

TOM ALLEN, Maine

JIM DAVIS, Florida

JANICE D. SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

BUD ALBRIGHT, Staff Director

JAMES D. BARNETTE, General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

FRED UPTON, Michigan, Chairman

MICHAEL BILIRAKIS, Florida

CLIFF STEARNS, Florida

Vice Chairman

PAUL E. GILLMOR, Ohio

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

STEVE BUYER, Indiana

CHARLES F. BASS, New Hampshire

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

JOE BARTON, Texas,

(Ex Officio)

EDWARD J. MARKEY, Massachusetts

Ranking Member

ALBERT R. WYNN, Maryland

KAREN MCCARTHY, Missouri

MICHAEL F. DOYLE, Pennsylvania

JIM DAVIS, Florida

CHARLES A. GONZALEZ, Texas

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

C O N T E N T S

Page

Testimony of:

Cooper, Mark N., Director of Research, Consumer Federation of America . 11

Goldstein, Mark L., Director, Physical Infrastructure, U.S. Government

Accountability Office ..................................................................................... 9

Hartenstein, Eddy W., Vice Chairman, DIRECTV Group, Inc ..................... 32

Lawson, John M., President and Chief Executive Officer, Association

of Public Television Stations ........................................................................ 26

McGrath, Carl J., Corporate Vice President and Chief Technology Officer,

Broadband Communications, Motorola, Inc ................................................ 37

Schmidt, Gregory, President of New Development and General Counsel,

Lin Television Corporation ........................................................................... 15

Snider, James H., Senior Research Fellow, New America Foundation ....... 43

Willner, Michael S., Vice Chairman and Chief Executive Officer, Insight

Communications ............................................................................................ 20

Additional material submitted for the record by:

National Cable & Telecommunications Association, prepared statement

of ..................................................................................................................... 63

(III)

(1)

THE DIGITAL TELEVISION TRANSITION: WHAT

WE CAN LEARN FROM BERLIN

WEDNESDAY, JULY 21, 2004

HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON TELECOMMUNICATIONS, AND THE INTERNET, Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room

2123, Rayburn House Office Building, Hon. Fred Upton (chairman)

presiding.

Members present: Representatives Upton, Stearns, Gillmor, Deal,

Shimkus, Pickering, Buyer, Bass, Bono, Terry, Barton (ex officio),

Wynn, Boucher, Stupak, and Engel.

Also present: Representatives Burr, Norwood, and Issa.

Staff present: Howard Waltzman, majority counsel; Neil Fried,

majority counsel; Will Nordwind, majority counsel and policy coordinator; William Carty, legislative clerk; Gregg Rothschild, minority counsel; and Peter Filon, minority counsel.

Mr. UPTON. Good morning. Cardinal fan, you are in trouble.

Today’s hearing is entitled ‘‘The Digital Television Transition:

What We Can Learn From Berlin.’’

Mark Twain once said ‘‘I don’t believe there’s anything in the

whole earth that you can’t learn in Berlin, except the German language.’’ Fortunately, for us today we are simply trying to learn

about Berlin’s recent experience with implementing a hard date for

its DTV transition. This is an important evaluation because there’s

growing concern that without a hard date, we may never see the

timely end to the DTV transition here in the United States.

With public safety—not to mention commercial, wireless carriers—in need of spectrum currently encumbered by broadcasters,

time is of the essence. While opinions differ on how to bring the

DTV transition to a timely conclusion, I believe that Congress may

very well need to act, so we need to explore all the options.

Last month, we examined a proposal by the FCC’s Media Bureau

which would interpret the 85 percent penetration test in a fashion

that gets all of the Nation’s broadcasters’ analog spectrum back by

2009, while many broadcasters would have to return it well in advance of that. While I still view the Media Bureau’s plan as bringing a lot to the table and worthy of our continued attention, some

view that plan as fundamentally flawed, particularly it’s reliance in

its calculations of the 85 percent penetration test on cable companies down converting broadcasters’ digital signals to analog at the

cable subscriber’s home. Others view that plan as not aggressive

2

enough and still favor a hard date, perhaps as soon as December

31, 2006.

While the DTV transition intimately involves many industries, it

is still, above all, about the consumer. And as we debate the terms

of the broadcasters’ surrender of the analog spectrum, it is critically important that we put ourselves in the shoes of the average

American consumer before we act. That’s why I, and a number of

our my colleagues, on both sides of the aisle, commissioned the

GAO to do a study of Berlin’s hard date implementation which occurred in August 2003.

We wanted to learn more about this implementation to determine where, if anywhere, we could draw lessons for application

here in the U.S., particularly as it relates to the consumers’ experience. Based on my review of the GAO’s work, I think the title of

the GAO testimony today sums it up best, German DTV transition

differs from U.S. transition in many respects, but certain key challenges are similar.

To be sure, there are many differences between the TV marketplace in Germany and the TV marketplace here. There are also

many differences with respect to the overall DTV transition implementation in our respective nations. Nevertheless, our process can

be informed by the Berlin’s government implementation of the hard

date and its attempt to ease the impact of the transition on its citizens, particularly those who rely solely on over-the-air TV.

Based on Berlin’s experience, we should carefully examine both

the need and feasibility of providing a subsidy to low income households for the purpose of digital to analog converter boxes. Presumably, such a program could be underwritten by tapping a portion

of the proceedings derived from the auction of the reclaimed spectrum. Also, the implementation of such a program, along with a

hard date might very well spur mass production of such boxes and

over a relatively short period of time bring the price down significantly. That could be very good for every consumer.

While on its face such a program may have considerable appeal,

we may need to determine what the scope of such a subsidy should

be. Would we limit to low-income households? Would we limit it to

one box per household? Would we limit it to those households that

rely solely on over-the-air? The answers to those questions could

dramatically impact the potential cost and scale of such a program.

Moreover, we have to ask ourselves tough questions about how

a program would be administered and whether it could be effectively administered. So I hope that we can begin to answer some

of those questions today.

In closing, I want to particularly welcome the GAO with its

newly coined name, the Government Accountability Office. I want

to congratulate the GAO on a job well done with its testimony and

as always, it provided an invaluable resource for the Congress.

And I would yield to my colleague, Mr. Boucher, for an opening

statement.

Mr. BOUCHER. Well, thank you very much, Mr. Chairman, I want

to commend both you and Chairman Barton of the full committee

for the innovative thinking which has led to today’s hearing.

I think we all agree that the digital TV transition should be accelerated. We would all welcome an early return of the analog specVerDate 11-MAY-2000 12:31 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 95459.TXT HCOM1 PsN: HCOM1
3

trum which could then be utilized for a variety of valuable communication services. I think that all of us would also agree that the

owners of analog television sets should not find themselves with

stranded equipment as the conversion to digital television takes

place. It’s a difficult balance to strike. Accelerating the digital transition while holding harmless the owners of analog television sets.

The Berlin experience is interesting and while in major respects

it does not translate well to the very different characteristics that

we have here in the United States, it is certainly worth our examination this morning and I again, commend the Chairman for convening this outstanding panel of witnesses in order to address the

subject.

In these remarks this morning, I want to strike a cautionary

note and underscore some problems that we would encounter were

we to employ the Berlin strategy in this Nation. Berlin used public

funds to subsidize the purchase of digital to analog converter boxes

for some of its population and I’ll underscore the word some in that

sentence. The idea of using public funds to purchase set-top converter boxes has a certain appeal. In theory, ample revenues would

be available for this purpose when the analog spectrum in the

United States is returned to the government by the television

broadcasters and then auctioned by the Federal Government. But

there are some obvious complicating factors should we attempt this

strategy in our country.

First, I would note that Berlin is a city with a high penetration

of cable and satellite access, only about 8 percent of the homes in

Berlin relied, prior to this transition, on terrestrial television

broadcasts. In the United States, at least 15 percent of homes receive their primary television signals over-the-air, and this is very

important, in at least 30 percent of homes, one or more television

sets receive their signals from over-the-air broadcasts even though

other televisions in the home may be connected to satellite of cable.

In rural areas of the United States where over-the-air signal reliance is high, cable is often not available at all and local-into-local

satellite delivered television service is not offered.

Funding by government means the acquisition of set-top converter boxes in the United States would be far more costly than

funding the 6,000 boxes that ultimately were purchased with government subsidies in the city of Berlin. I’ve seen estimates that in

the United States, 20 million analog television sets receive signals

today by over-the-air broadcasts. At today’s price of $150 per converter box, it would cost $3 billion to fund the conversion, a problem that is of a very different kind than that faced in Berlin.

Second, I think it’s far from clear that the Berlin strategy will

be carried out in the balance of Germany, including the rural areas

of the Nation where more people rely on over-the-air reception. So

far, that experience is restricted to the city of Berlin.

Third, only the people who qualified for welfare got public subsidies in the Berlin experiment. Everyone else was basically on

their own. Let me say very clearly that that approach absolutely

will not work here in the United States. We cannot have a means

test if we decide on government funding of converter box acquisition. The owners of analog sets must, in my view, be held completely harmless as this transition occurs.

4

And fourth, if we adopt a modified Berlin strategy and fully fund the $3 billion cost of buying converter boxes, we have a challenge

in making certain that proceeds from the analog spectrum auction

actually get spent for the purpose of subsidizing the purchase of

the converter boxes.

Our Federal budget is replete with dedicated revenue streams

that are frequently under appropriated for their intended purpose:

The Highway Trust Fund, the Abandoned Mine Reclamation Fund,

the Airport Trust Fund and the list goes on.

As the Representative of an area with a very high percentage of

over-the-air signal recipients, I will not be able to support a hard

analog transmission cutoff date with public funding for the purchase of converters, unless the measure that mandates the transmission termination also contains an appropriation of money sufficient to fund the entire converter box purchase and I hope we keep

that principle in mind should this committee decide to go forward

with a measure similar to that in Berlin.

Mr. Chairman, I thank you very much for a stimulating conversation today. I think it is a subject worth our examination and

with these notes of caution, I very much look forward to today’s

testimony. Thank you.

Mr. UPTON. I recognize the chairman of the full committee, Mr.

Barton.

Chairman BARTON. Thank you, Mr. Chairman. I appreciate you

for holding this hearing. I think it’s important that we have a debate on this particular idea of digital transmission in Berlin. I personally believe that we should complete the DTV transition here in

the United States as soon as possible. I believe that we can learn

much from what happened in Berlin.

Obviously, the German television industry is very different than

our own. As the GAO has indicated, Germany and the United

States do face the same obstacles in the DTV transitions, however,

and that is fear that consumers relying on their old analog sets and

over-the-air broadcasts will sit there and watch their television sets

literally go blank. Berlin addressed this problem by setting a hard

date, educating their consumers, and subsidizing digital to analog

converter boxes to help their low-income households. We should

consider a similar approach.

The education campaign and hard date would promote the transition by giving industry and consumers the necessary information

and importantly, a concrete date for which to plan. The increased

auction value that the certainty of a hard date would provide would

more than offset the cost of any subsidy of the broadband spectrum. Approximately 12 million households in the United States

now rely on over-the-air analog broadcasts. There will likely be

many fewer than that by December 31, 2006, as more people buy

digital receivers and subscribe to cable and satellite services. If we

presume 10 million people will still be relying on over-the-air

broadcasting at the time of the hard date, near the December 31,

2006 deadline, you can assume that it would cost as much as $1

billion to provide the set-top box to convert to digital.

One billion dollars is a lot of money and it’s nothing to scoff off,

but auctioning the reclaimed spectrum with a hard date in place

would bring in many, many more times that amount to the United

5

States Treasury. If a hard date can accelerate the transition, free

valuable spectrum for public safety and commercial use would

more than cover the cost of a subsidy and still produce additional

revenue for the United States Treasury. It’s an idea that is well

worth considering.

I am encouraged by the FCC Media Bureau’s idea to continue for

their DTV transition proposal. We discussed that some at our last

DTV hearing. However, that proposal does not, and cannot, completely avoid a certain amount of delay that will result from the

current statutory provision that requires 85 percent digital penetration before the spectrum can be reclaimed. The time has come

to end the bottleneck created by that provision and the Berlin proposal is an idea that has been shown to work.

In contemplating a hard date deadline here in the United States,

we have to consider a number of fundamental questions. No. 1,

what date should we set? As I’ve stated in the past, right now, I

would favor December 31, 2006 date.

No. 2, should Congress subsidize digital to analog converter

boxes? Should the subsidy be available for only one box per overthe-air household? Should it only be available to low-income households? How would Congress administer such a subsidy?

No. 3, should hard deadline legislation also impose other requirements such as multicast, must carry obligations.

Four, should the hard deadline legislation prohibit down conversion?

These are all questions that hopefully we may get some answers

to at today’s hearing. I look forward to the hearing today and asking questions of our witnesses. I want to thank you all for attending and I hope that we have a very productive hearing. With that,

Mr. Chairman, I would yield back.

Mr. UPTON. I recognize the gentleman from the great State of

Michigan, Mr. Stupak.

Mr. STUPAK. Mr. Chairman, first, I’d like to commend you and

Ranking Member Markey for their dedicated pursuit of digital television future prompted both by the benefits to consumers that digital television has to offer, as well as the desire to turn over spectrum to other important uses.

As co-chairman of Law Enforcement Caucus, I share in the interest that public safety community has in obtaining this spectrum.

It’s apparent that there is little or no chance of full digital transition by the end of 2006 and further delays in the transition will

only hamper efforts to improve communication systems amongst

our public safety agencies.

We need to find a way to make this transition happen once and

for all. However, I also know that when it comes to the transition

to digital television in my rural District in Northern Michigan, the

challenge is great. We’ve had many hearings on this subject and today’s discussion will also be informative in helping us to determine

the right strategy to implement this transition so that no consumer

loses television service while freeing this valuable spectrum for

public safety communications.

So with that, Mr. Chairman, those are the areas I’ll be focusing

on and I look forward to hearing from our witnesses.

Mr. UPTON. Thank you. Mr. Deal.

6

Mr. DEAL. I’ll waive, Mr. Chairman.

Mr. UPTON. Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman. Just briefly, this is

really an interesting hearing and I want to thank you for calling

it and reading some of the documents in preparation for this. The

issue falls down for me, theory and practicality, how do you actually practically do this and move everybody, but also, I’d like the

German debate and discussion on the fact that they wanted their

broadcasters to have more signals to be competitive to satellite and

cable. And we have had the same debate as far as do we still accept

the premise of free over-the-air broadcasting? And is there still a

need?

So if we want a really competitive market with multiple signals,

providing broadcasters a little bit more of spectrum so that they

can be really competitive with satellite and cable, may not be a bad

idea and so that’s why I think this hearing is a good idea, Mr.

Chairman. I thank you and I look forward to hearing the testimony

of the witnesses.

Mr. UPTON. Mr. Stearns.

Mr. STEARNS. I thank you, Mr. Chairman, and like my colleagues, thank you for holding this hearing. We all recognize the

challenges that cable operators, broadcasters, content community,

manufacturers and retailers face in making digital television a reality and as such, the light at the end of the tunnel, I think, is

starting to grow bigger as the players in the different fields industry are working together to make it a reality. I might point out,

Mr. Chairman, in Florida, we have the home of several broadcast

companies that focus on programming for under served and distinct

constituencies, not just only in the public educational area and the

religious area, Spanish language and family friendly area. Many of

these stations are smaller and are independent and are not part of

the major network groups. I believe their service is invaluable in

bringing local and varied viewpoints to my District, State and to

the country. And some of these companies are making the transition ahead of the curve, others aren’t.

I think we have to, when we look at this transition and what we

can learn from Berlin, we must take into account the valuable services of these local and varied broadcasters. For example, a public

station in Jacksonville, Florida, WJCT, provides quality, educational programming and a high definition prime time schedule.

It’s on target to introduce two more broadcast streams focusing on

children and lifelong learning and in addition, the local cable provider has offered a commitment to carry four streams of the WJCT

programming, just as soon as it is available. That, my colleagues,

is the kind of vision and cooperation that’s needed in this industry.

If they can do it, others certainly should be able to do it in making

the successful transition.

It’s vital that we ensure that an expedited transition to digital

remains a top priority for the government and industry. While

progress has been made in broadcast, cable, satellite and consumer

electronics, we still lack the certainty of a specific transition date

and I think that’s the key, despite all of us mandating the termination of analog signal by the year 2006.

7

Now I’m glad we’re looking at how Germany is handling this. I

notice that Germany has additional taxes by the government as incentives. I’m not sure we want to do that, but it’s worthwhile looking at that. They include the issue of consumers who will likely be

left in the dark once analog signals cease. There are many differences and the size and the variability of the U.S. market in

terms of broadcasting sources offer, I think, more complex challenges than in Berlin. Still, it’s a welcome opportunity to study

what happened in Berlin. And I look forward to the testimony and

I thank you, Mr. Chairman.

Mr. UPTON. That concludes the testimony. I’m going to make

unanimous consent that all members on our panel be allowed to

offer their statement as part of the record. So done. And I would

just note too that a number of subcommittees are meeting and I’ve

got a mark-up as an example in the Education Committee. There’s

a very important hearing that Mr. Shimkus has run off to on methyl bromide which is a major agriculture issue. So he’s got my proxy

on that.

So you’re going to see members come in and out, but those opening statements will be part of the record.

[Additional statements submitted for the record follow:]

PREPARED STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF WYOMING

Thank you, Mr. Chairman.

This is our second hearing in two months on the Digital Television, or DTV, transition. Since Congressional and FCC policies are not crafted in a vacuum, this hearing will give us an opportunity to review the successes and failures of the Berlin

digital transition.

Not that the American and German television markets are identical—they aren’t.

But there are similarities such that we can assemble some lessons learned from the

Berlin transition from last August. The matter that affects both transitions is the

percentage of residents who are unable to receive the new digital programming over

the air when the transition occurs. How we address that situation is very important.

Clearly, no Member of Congress wants to be responsible for turning off a television

signal.

But there is a need to complete the Digital Transition, as that will free up precious spectrum for important national interests—like first responders and advanced

wireless services. The longer this transition drags on, the longer we put off a windfall to the U.S. treasury, and the allocation of highly desirable spectrum assets.

The December 31, 2006 deadline is rapidly approaching. This Committee has

heard from many panelists on this matter and is seeking to establish a record of

deliberation on how to make the transition a success. There are still difficult decisions to be made, and I believe this requires Congressional action. Inaction, and retention of the current statutory framework for Digital Transition could mean that

December 31, 2006 could slip to 2010 or later before we reap the benefits of DTV

and advanced wireless services.

That’s why I look forward to hearing from our distinguished panel on these matters today and want to continue our dialog as we take the next steps in this transition.

I yield back the balance of my time.

PREPARED STATEMENT OF HON. ELIOT ENGEL, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF NEW YORK

Thank you Mr. Chairman,

I am very pleased we are looking into the issue of how to help facilitate the transition to the digital television format. I am truly appreciative that the Chairman of

the full Committee has hinted that he supports providing subsidies for at least the

neediest among us.

8

A small step forward has already been made with the FCC’s digital tuner requirement. This will turn into a big step when all televisions sold include one.

In reviewing the Berlin model, I find that the most compelling effort was the public education campaign. I suspect that most people, if they have heard of digital television, think it is just for aficionados. They do not understand that, at least under

existing law, every analog TV will need to be either replaced or have a set top box

attached.

I think we should be looking at producing public service announcements that can

be used to educate the American people as to why we are undertaking this enormous change. We are all aware that there is a desperate need for interoperable

radio communications for our first responders. The additional spectrum set aside for

public safety will help ameliorate this problem greatly. I believe that is one way to

start the dialogue with the American people about digital television.

I do want to note that some have advocated a hard date in 2006 to turn off the

analog signal. I want to clearly state that the number one media market will not

be able to meet such a deadline. Most of our TV transmission facilities are temporarily located atop the Empire State Building. The Empire State Building does not

have the electrical capacity for all our needs. We lost our primary location on September 11th and are waiting for the Freedom Tower to be built.— The builders hope

that it will be complete sometime in 2008 or 2009. Until then, the people of New

York and northern New Jersey will not be at full digital capability. Should an effort

be made to set such an early hard date, I would hope that the Chairman would

work with me on a waiver.

I want to explore ways that move this process forward more quickly without causing undue harm to our constituents—or our political careers.

PREPARED STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF MICHIGAN

Thank you, Mr. Chairman, for calling this hearing.

In August 2003, the state of Berlin, Germany completed its transition to digital

broadcasting and successfully shut-down all broadcasting in the analog format. According to news reports at the time, Berlin was able to take this step without damaging its broadcasters and without leaving its residents unable to receive their television broadcast signals.

Shortly thereafter, Mr. Chairman, you, Mr. Tauzin, and I asked the GAO to take

a close look at what happened in Berlin and to report back to this Committee on

whether there are lessons for us on how to improve upon and, perhaps, expedite the

transition here in the United States.

I have reviewed the GAO testimony. Though there are certainly substantial differences in the U.S. and German broadcast markets, there are also many similarities and much that we can learn from the Berlin experience.

First, our top priority must be to protect the consumer and ensure that our constituents are able to continue to receive free-over-the-air television. As in Germany,

both government and industry must work in partnership to implement a major consumer education campaign. We must work together to ensure that America’s television households are aware of the transition and what they must do to receive digital programming. Government cannot do this without the full participation of the

private sector.

Second, we must work to ensure that all households have the financial means to

acquire converter boxes or other equipment essential to receiving digital broadcast

signals. If the transition results in stranding millions of American homes without

the ability to receive their local broadcast signals, we will have failed miserably, and

the voters will know who to blame.

Finally, the Berlin transition demonstrated that a firm deadline was essential to

focus the attention of industry and consumers. The transition suggests we must at

least consider the option of establishing a date-certain for the cessation of analog

broadcast signals and the return of the analog spectrum. It is very possible only a

hard deadline will induce all parties, including consumers, to make final preparations for the digital conversion. Clearly, there are many questions that must be

asked and answered before Congress makes a final decision to adopt such a hard

deadline. The hearing today will put the issue squarely before us.

The GAO has done a fine job in researching the Berlin transition. I thank them

for their effort, and I look forward to working with you, Mr. Chairman, as we consider legislation in this area.

9

Mr. UPTON. We are delighted to have the panel that we have this

morning. We are joined by Mr. Mark Goldstein, Director, Physical

Infrastructure from the U.S. Government Accountability Office; Dr.

Mark Cooper, Director of Research, The Consumer Federation of

America; Mr. Greg Schmidt; Vice President of the New Development and General Counsel of LIN Television Corporation; Mr. Michael Willner, Vice Chairman and CEO of Insight Communications;

Mr. John Lawson, President and Chief Executive Officer, Association of Public Television Stations; Mr. Eddy Hartenstein, Vice

Chairman, The DirecTV Group, Inc., Mr. Carl McGrath, Corporate

Vice President and Chief Technology Officer of Broadband Communications for Motorola; and Mr. Jim Snider, Senior Research Fellow

of The New America Foundation here in Washington.

Gentlemen, your statements are made part of the record in their

entirety. We’d like to limit your remarks to about 5 minutes apiece

for your opening statement.

And Mr. Goldstein, we’ll begin with you. Welcome.

STATEMENTS OF MARK L. GOLDSTEIN, DIRECTOR, PHYSICAL

INFRASTRUCTURE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; MARK N. COOPER, DIRECTOR OF RESEARCH, THE CONSUMER FEDERATION OF AMERICA; GREGORY SCHMIDT,

PRESIDENT OF NEW DEVELOPMENT AND GENERAL COUNSEL, LIN TELEVISION CORPORATION; MICHAEL S. WILLNER,

VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER, INSIGHT

COMMUNICATIONS; JOHN M. LAWSON, PRESIDENT AND

CHIEF EXECUTIVE OFFICER, ASSOCIATION OF PUBLIC TELEVISION STATIONS; EDDY W. HARTENSTEIN, VICE CHAIRMAN,

THE DIRECTV GROUP, INC.; CARL J. MCGRATH, CORPORATE

VICE PRESIDENT & CHIEF TECHNOLOGY OFFICER,

BROADBAND COMMUNICATIONS, MOTOROLA, INC.; AND

JAMES H. SNIDER, SENIOR RESEARCH FELLOW, THE NEW

AMERICA FOUNDATION

Mr. GOLDSTEIN. Good morning, Mr. Chairman, and members of

the subcommittee. I’m pleased to be here today to report on our ongoing work on the DTV transition. The DTV transition offers the

promise of more programming options, interactive services and

high definition television. To facilitate the transition, the Congress

and the Federal Communications Commission temporarily provided

television stations nationwide with additional spectrum to broadcast both an analog and a digital signal simultaneously. This simulcast is mandated to end in December 2006 where 85 percent of

American households can receive digital broadcast signals. At that

time, TV stations will return valuable radio spectrum for public

safety and other commercial services. However, as we reported in

2002, the deadline seems unlikely to be met.

In Berlin, Germany, a rapid DTV transition culminated in the

shutoff of analog broadcast television signals in August 2003. To

gain information on the German television market and the Berlin

TV transition, we met with a variety of Federal, State and—with

Federal and State government officials in Germany as well as representatives of public television stations, private television stations,

cable providers, a consumer group and several other key stakeholders. My statement will summarize our findings.

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First, 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 in the telecommunications sector, it manages the allocations

of the German radio frequency spectrum, 15 media authorities organize and regulate broadcasting services within their areas of authority. The two public broadcasters, whose broadcasts capture

about 40 percent of viewers’ time are largely financed through a

mandatory television license fee of 16 Euros or the equivalent of

$19.68 per household per month. Overall, this fee amounts to about

6 billion Euros, $7.38 billion per year.

Today, only 5 to 7 percent of German households rely exclusively

on terrestrial broadcasts and the remaining households obtain either cable service which typically costs less than 15 Euros, about

$19 per month, or satellite service which is free once the household

has installed the satellite receiving dish and receivers.

Two, 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 return after the transition. The

transition only pertains to terrestrial viewers, households that subscribe to cable or obtain satellite television are not affected. Also,

German officials made the decision to transition major metropolitan areas, or islands, in particular timeframes rather than to attempt to transition all areas of Germany to DTV at once.

Officials from the Media Bureau in Berlin, as well as representatives from industry, engage in extensive planning for the rapid

DTV transition which took less than 1 year. The media authority

in Berlin also made a decision to provide financial and nonfinancial

support to private broadcasters to cover their costs and transition.

The media authority, along with the Social Welfare Office, provided

subsidies to certain low-income households for the purpose of necessary set-top boxes. Additional, government and industry worked

together to undertake an extensive consumer education effort.

Three, certain aspects of the DTV transition in Berlin and other

regions in Germany are relevant to the on-going 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 challenges for completing the transition. In particular, we found that leading up to

and during the brief simulcast in Berlin, government officials focused much of their attention on ensuring the households obtain

the necessary consumer equipment to support the switchover to

digital. In the United States, most broadcast television stations are

now providing a simulcast signal. Thus, the concern today, as was

the case in Berlin is how to coax consumers to purchase set-top

boxes or digital televisions. The key components of the Berlin transition that enabled the rapid deployment of set-top boxes to terrestrial consumers and thereby enable the switchover to digital television 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.

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Mr. Chairman, this concludes my prepared statement. I’d be

happy to respond to any questions that you or other members may

have at this time or once the panel is finished.

Thank you.

[The prepared statement of Mark Goldstein appears at the end

of the hearing.]

Mr. UPTON. Thank you.

Dr. Cooper.

STATEMENT OF MARK N. COOPER

Mr. COOPER. Mr. Chairman, members of the committee, I appreciate the opportunity to give the consumer answer to the question

what can we learn from Berlin. For me the answer is quite clear.

The gatekeeper model of exclusive program licensing, spectrum licensing, is kaput. The digital transition in America has been

botched by the policy of driving broadcasts and cajoling cable operators so that we just haven’t even barely started this transition.

Fortunately, while they were dragging their feet, technology has

made a whole new approach to digital spectrum management possible. Thus, there are two transitions going on. One is technological

from analog to digital. The other is sociological and legal, from licensed to unlicensed. If we accomplish the technological transition

without the socio-legal transition, we will have failed and I believe

by that standard, Berlin has failed.

Spectrum is not property, real establish or resource. It provides

the capacity to communicate by transmitting signals electronically

at a distance. The nature and extent of the capacity is defined by

the power of technology, but the opportunity to use the capacity is

established by public policy, by law, regulating where, when and

how people can transmit signals, thus technology determines capacity. Law defines opportunity.

Because the communications capacity defines and is defined by

the first amendment right of free speech by all citizens, spectrum

‘‘belongs’’ to the public. Now I placed the word ‘‘belong’’ in quotes

because citizens don’t own it, they all share it as a common right.

Licensing was an intrusion on the free speech rights of people driven by the fear that a free for all in spectrum would create interference and noise and drown out all voices. Better to allow a few

to have a clear electronic voice, it was argued than to risk having

no voices at all.

To offset the compromise, the fact that only a few would speak

through spectrum and the vast majority would not have a voice, we

imposed public interest obligations on those who were given the

give of an electronic voice. Thus, the highest use of spectrum is not

now and never has been to maximize the economic value of the opportunity to speak. It’s highest use has always been to maximize

the opportunity for citizens to have a voice. Of course, when commercial interests are given the opportunity, they should pay for it.

The compromise embodied in licensing is no longer necessary.

Rules that reduced interference by excluding speakers, because

technology was dumb and weak, can now be replaced by rules that

instruct smart and powerful technologies to not interfere with each

other. The unlicensed wireless networks that result promote democratic discourse. The decentralized investment in communication

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and computer capacity expands the opportunity for innovation. The

distributed nature of communications and capacity transforms passive listeners into active speakers.

This digital transition attracts a great deal of attention because

the part of the spectrum that has been devoted to analog television

provides some of the best capacity for communications. These signals pass through physical objects and therefore they are a place

where people really would like to be able to have an electronic

voice.

I believe that the technological possibility of unlicensing makes

licensing unconstitutional because licensing prevents me from

broadcasting and the Supreme Court does not take kindly to people

who infringe my right to speak. So I anticipate that when

unlicensing is demonstrated, the Supreme Court must conclude

that it is the only constitutional use of spectrum and they will give

me back my rights to speak.

Nevertheless, a transition is necessary so that we can prove this

is the right model to maximize the first amendment right to speak.

We must take care of the needs of citizens first and consumers second. At least half of the spectrum that is freed up in this transition

should be dedicated to unlicensed uses. All licensed uses should, in

fact, pay for the opportunity to use the spectrum. Broadcasters who

continue to occupy spectrum on an exclusive basis should continue

to be obligated to provide public interest programming and over

time they must accommodate more and more sharing or bear the

burden of proving why they cannot share spectrum.

For the consumer, public policy must not allow television sets to

go dark. The broadcast industry has not driven the transition. The

costs of that transition cannot fall on the public. We must not allow

the quality of pictures to be deteriorated in order to achieve the

transition. And we must allow consumers to enjoy the benefits of

the maximum use of digital spectrum.

In short, if we speed the transition, it must be to promote the

interest of citizens first to protect the interests of consumers second

and ensure that we expand the right to speak to the digital spectrum that we share.

Thank you.

[The prepared statement of Mark N. Cooper follows:]

PREPARED STATEMENT OF MARK N. COOPER, DIRECTOR OF RESEARCH, CONSUMER

FEDERATION OF AMERICA

Mr. Chairman and Members of the Committee, my name is Dr. Mark Cooper. I

am Director of Research of the Consumer Federation of America (CFA). CFA is a

non-profit association of 300 groups that was founded in 1968 to advance the consumer interest through research, advocacy and education. I have testified several

times on digital television in Congress and CFA has filed comments in the numerous proceedings at the Federal Communications Commission on various aspects of

the digital transition, including public interest obligations, the broadcast flag, the

digital tuner mandate, plug and play, and spectrum management.

I appreciate the opportunity to appear today to provide the consumer and citizen

answer to the question posed in the title of this hearing—The Digital Television

Transition, What Can We Learn from Berlin? For me the answer is quite clear. We

must learn that media moguls have far too much power in America. The policy of

bribing broadcasters and cajoling cable operators into treating consumers fairly and

giving citizens new avenues for expression has failed. The gatekeeper model of exclusive spectrum licensing on which this country has relied for three-quarters of a

century is kaput. The digital transition in America has been botched so badly that

an entirely new approach should be tried.

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In one sense, we should be thankful that the media moguls have been so slow

and acted in such an unfriendly manner to consumers and citizens. Not only has

their mismanagement of spectrum demonstrated the bankruptcy of the old, gatekeeper model, but while they were dragging their feet a revolution in digital technology has made an entirely new appraoch to spectrum management possible. The

end of the tyranny of spectrum licensing is at hand.

There are actually two transitions going on in the use of spectrum. One is technological—from analog to digital. The other is sociological and legal—from licensed to

unlicensed use of spectrum. I am much less concerned about how quickly the former

takes place than I am about ensuring that the latter occurs. If we accomplish the

technological revolution without the socio-legal revolution, we will have failed miserably.

THE END OF LICENSED GATEKEEPERS

Spectrum is not ‘‘property,’’ ‘‘real estate’’ or a ‘‘resource.’’ It provides a capacity to

communicate by transmitting signals. The nature and extent of the capacity is defined by the power of the technologies—transmitters and receivers—that send signals through the spectrum. The opportunity to use the capacity of spectrum to

transmit speech is established by public policy (by regulating where, when and how

people can transmit signals). Thus, technology defines capacity; law defines opportunity.

Fortunately, three-quarters of a century ago, when technology first created the capacity to use the spectrum to communicate electronically at a distance, Congress

and the Supreme Court recognized that use of spectrum critically affects the ability

of citizens to speak. Because this communications capacity defines and is defined

by the First Amendment right of speech enjoyed by all citizens, spectrum is considered to ‘‘belong’’ to the public. I place the word ‘‘belong’’ in quotations because citizens do not own it; they all share it.

The highest use of spectrum is not to maximize the economic value of the opportunity it provides; its highest use is to maximize the opportunity for citizens to

speak. Of course, when commercial interests use the spectrum for profit, they should

compensate the people for the opportunity.

Licensing was an intrusion on the free speech rights of the people, allowed by the

Supreme Court only because it was believed that exclusive licensing was necessary

to allow at least some people to speak. Policymakers feared that a free for all in

the use of spectrum would deteriorate into a babble of interference and noise in

which all voices would be drowned out. It was deemed better to allow a few to have

clear electronic voices, than risk having no voices at all. To offset the exclusion of

the vast majority from the ability to hold broadcast licenses, the few who received

the licenses were required to serve the public interest. Unfortunately, they became

gatekeepers, a handful of wealthy and powerful corporations that enriched themselves, much more than enriched (some would say the impoverished) our cultural

and political life.

The compromise embodied in licensing is no longer necessary. Interference, which

was reduced by excluding speakers because technology was weak and could not

manage interference, can now be managed in a different way. Rather than preventing people from speaking, we can now manage the flow of voices. Rules that

exclude can be replaced by rules for sharing. Smart transmitters and receivers can

share the spectrum without interfering with one another.

The unlicensed wireless networks that have grown up around the country, indeed

in this very building, promote democratic discourse. The decentralized investment

in communications capacity that typifies unlicensed uses of the spectrum expands

the opportunity for innovation. The distributed nature of communications and computer capacity transforms passive listeners into active speakers, consumers into producers. Citizens, consumers and democracy all win.

The possibility of unlicensing exists throughout the spectrum, but the digital transition attracts special attention because the part of the spectrum that has been dedicated to the exclusive use of analog television signals provides some of the best capacity for communications. The characteristics of the signal transmitted in those frequencies are such that they pass through physical objects readily, which makes that

a very inviting place for people to broadcast their messages.

I am confident that the socio-legal revolution is inevitable, because the technological possibility of unlicensed use of the spectrum makes licensing unconstitutional. To wit: licensing prevents me from broadcasting and the Supreme Court does

not take kindly to such an infringement of my right to speak. It should jump at the

chance to eliminate this impediment to speech, an opportunity I am certain it will

get quite soon.

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Nevertheless, I agree that it is important to recognize that a transition phase is

necessary and to move the transition as quickly as possible. It is especially important to manage the transition in such a way that the viability of an unlicensed approach will be demonstrated. Public policy could slow the transition down and we

should not be naı ̈ve about how hard the media moguls will resist the revolution. An

ancien regime dies just as hard in cyberspace as it does in physical space.

Therefore, it is appropriate to ask how to speed and manage the transition to unlicensed use of the spectrum. I believe that a rapid a transition is in the public interest, if and only if, it ends the model that subsidizes corporate gatekeepers and replaces it with one that empowers citizens and consumers. First, we must take care

of citizen needs; then we should see to consumer interests.

FOR THE CITIZEN

First, the part of the spectrum currently occupied by licensees who use it to

broadcast analog TV signals needs to be vacated as quickly as possible so that a

large part of this wonderful opportunity can be dedicated to unlicensed uses. At

least half of the spectrum that is made available by the transition should be dedicated to unlicensed uses (net of what is set aside for security and safety uses, which

are public functions of equal, but not greater, importance with freedom of speech).

All spectrum that is set aside for exclusive television licenses but is presently unutilized should be converted to unlicensed status. All spectrum that is set aside for television licenses and is currently utilized should be placed on notice that, over time,

it will have to accommodate increasing levels of sharing with unlicensed users. A

heavy burden of proof should be placed on those claiming the need for exclusivity

in access to the opportunity to broadcast.

Second, all licensed, commercial users of the spectrum should pay for the opportunity to exploit it. All license fees, whether collected at auction or as a recurring

charge, should be dedicated to public purposes—supporting non-commercial broadcasting and promoting program diversity. The legacy of allocating the right to distribute radio and television signals through licenses and franchises is very powerful.

A handful of corporations, all of whom have benefited mightily from the exclusive

right to distribute television programming, now dominates the TV screen. Six corporations own all of the national broadcast networks and account for three-quarters

of the total TV programming and writing budgets, as well as the TV audience. Vigorous steps to support noncommercial programming, community media, and educational and civic voices should be taken to balance the immense impact and reach

of the commercial broadcasters who have been favored by licenses.

Third, the broadcasters who occupy the spectrum being used for transmission of

digital television signals have squandered a golden opportunity, but they remain the

recipients of an immensely valuable gift. Indeed, one might even argue that there

are 75 years of uncompensated opportunity costs due. On a going forward basis,

they remain obligated to provide public interest programming that serves the cultural and political needs of the citizenry, not the narrow commercial interest of the

broadcasters.

FOR THE CONSUMER

First, public policy must ensure that television sets do not go blank. Congress had

hoped that the industry would drive the transition to digital television by making

compelling programming available, so that consumers would voluntarily replace

their analog sets with digital receivers of one form or another. That approach has

failed. Almost no progress has been made. Just last week the cable industry estimated that a full transition to digital set top boxes for the public it serves would

cost $34 billion and that does not include the twenty million TV sets in households

that receive their television signals over the air. We think the number is overstated,

but there is no doubt that billions of dollars will have to be spent, if public policy

seeks to accomplish the transition on an accelerated basis without obsolescing a substantial number of television receivers. The public, which has received no compensation from broadcasters for the use of spectrum, should not be forced to bear that

burden. These costs should be covered by the use of fees collected from the entities

that make commercial use of the spectrum.

Second, since digital delivery is supposed to expand consumer choice, and it dramatically lowers the transaction costs of choice, any television service that relies on

use of the spectrum should be required to offer consumers a la carte choice of programming. Because distributors of multichannel video programming force consumers to buy their service in huge bundles of channels, the rapid increase in channel capacity made possible by digital delivery has resulted in a dramatic increase

in cost imposed on the public. The consumer is forced to buy about 70 channels beVerDate 11-MAY-2000 12:31 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 95459.TXT HCOM1 PsN: HCOM1
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fore he or she can enter the digital tier, even though they do not watch three-quarters of those channels.

Third, efforts to diminish the ability of consumers to enjoy the use of legally obtained programming, as with the broadcast flag or digital rights manglement (DRM)

should be halted. The ultimate value of the digital transition is not in a prettier

picture—if that were the case, the television industry would not have failed so miserably. The ultimate goal is to provide consumers with a wider array of

functionalities that empower them as users. This has been the driving force behind

all digital technology. The attack on consumer fair use rights is a dagger aimed at

the heart of the digital transition that will ultimately diminish its ability to fulfill

its promise, if it does not destroy its value entirely. Of course, if an assault on the

value of digital television by diminishing its functionality is a concern, the strategy

of reducing the quality of the picture (reducing the resolution or downrezzing) is so

absurd it should be too embarrassing to even mention. If we sell tuners and TV’s

that are programmed to limit the quality of the picture, the public will rightly be

outraged and should reject them, along with the policymakers who concocted such

a scam in the first place.

A decade ago Congress debated whether to charge broadcasters for the use of the

spectrum. It chose to give them a free ride, hoping that they would drive the transition to digital television with compelling content. That approach, grounded in the

old licensed-gatekeeper model, was ill conceived and has failed—failed to produce

meaningful new avenues of expression for citizens or vigorous competition for consumers. Technology has made an entirely new approach to spectrum management

possible and I urge you to embrace and speed the socio-legal revolution that digital

technology has ignited.

Mr. UPTON. Thank you, Dr. Cooper.

Mr. Schmidt.

STATEMENT OF GREGORY SCHMIDT

Mr. SCHMIDT. Thank you, Mr. Chairman. I’m afraid my remarks

will be somewhat less provocative.

I’m Greg Schmidt with LIN Television, a licensee of WOTV in

Kalamazoo, Michigan. Thank you very much for having this hearing today. I’m pleased to report on the status of the transition to

digital television and comment on some possible lessons from the

Berlin experience.

There are reasons for optimism in the DTV transition. We now

have 1411 television stations on-air and digital serving 207 markets that encompass more than 99 percent of U.S. television households. Over 88 percent of U.S. households are in markets that are

served by five or more digital signals.

This season we will see over 2500 hours of broadcast high definition programming. We commend both the committee and the FCC

for their leadership in the transition by implementing a phased-in

tuner mandate and the broadcast flag protection. Television broadcasters have every financial incentive to see this transition brought

to a timely close. Our industry has already spent billions of dollars

rolling out DTV services. My mid-size company has now spent over

$70 million just in digital transmission capital and is spending millions more each year on maintaining dual transmissions, all of

which has generated exactly zero dollars in incremental revenue.

One major piece of the puzzle has yet to fall in place. Cable companies continue dragging their feet, resisting bringing the full benefits of over-the-air digital to the American consumer. A digital

must carry rulemaking has been pending at the FCC for 6 years,

but there are still no rules. Cable carriage of digital signals is highly relevant to the subject of today’s hearing. In Berlin, mandatory

cable carriage was a crucial component of the plan for a rapid transition. Cable companies were required to carry all broadcast signals

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and to protect analog-only households after the switch over to digital. Any transition that does not contain such a component will

take far, far longer to implement.

There are also, of course, many other reasons that Berlin uniquely, not only in the world, but in its own country was able to flash

cut to digital. The biggest single reason was the compelling proposition offered to consumers. For a one time expenditure in the

neighborhood of $100, a household with an analog set received the

equivalent of European basic cable free for life. You may have had

a public education campaign, but I don’t think it was too tough to

convince the consumers that that was a good deal. Buying a settop box or digital set increased your terrestrial broadcast viewing

options from 7 or 8 channels to nearly 30. This digital channel

bonus stems from the decision of the Germans, like the British,

and the rest of the Europeans to use the digital transition to create

more channels of standard definition programming and forego the

greater signal quality of high definition. Foregoing HDTV also reduced the cost of the digital set-top boxes and receivers.

And of course, the number of broadcast-only households is, as

Mr. Boucher pointed out, was not large, 160,000 total, only about

7 percent of the Berlin households, as compared with nearly 20

million, we believe, not 12, over 15 percent of U.S. households.

There was also a smaller percentage of households with second or

third sets, not hooked up to cable or satellite. We believe that number is closer to 40 to 45 million sets.

So the Berlin success was achieved, in part, because their goals

were more modest and the area and population smaller. Most importantly, the Germans have not, as we have, endeavored to use

the digital transition to ensure that digital broadcast delivery can

deliver the highest possible quality of service. Since the inception

of the DTV transition, Congress has repeatedly stated that preserving and strengthening America’s system of free, local, over-theair broadcasting for both urban and rural America is an important

policy goal. While, like the Germans, we believe that increasing

consumer choice should be part of the equation, we also believe

that broadcasters must have the ability to provide HDTV with the

highest quality pictures available for the foreseeable future. I believe the European broadcasters and consumers will come to regret

the fact that they have squandered the opportunity to provide

HDTV.

The Berlin experience provides some valuable insights. I will also

note with some envy that the German government heavily subsidized the out of pocket costs of the commercial broadcasters

which I find to be the most attractive feature of the plan. But I do

not think the Berlin experience shows us to be basically on the

wrong track, nor that there are any magic bullets to speed the

transition. A flash cut here would clearly be vastly more complicated and expensive.

And while we may disagree with the Germans on their tactics,

we agree entirely, as Mr. Shimkus alluded, with their over arching

objective, the strengthen the terrestrial broadcasting system and to

create a viable broadband competitor for cable and satellite. That

too was the ultimate objective of Congress in initiating the digital

transition and should remain its lodestar in these deliberations.

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1 In many countries, penetration of cable or satellite multi-channel video providers has been

far less than in the United States and, even where MVPD penetration has been substantial (like

Berlin), the number of channels provided has been fewer than typical American systems provide. 2The Berlin authorities thought it particularly significant that moving to DTV resulted in consumers ‘‘receiving more services for which the license fee is paid.’’ DVB-TV: Das U ̈ berall

Fernsehen, Berlin Goes Digital (accessed at http://www.mabb.de/start.cfm?content=

aktuelles&id=632) at 15 (hereinafter Berlin Goes Digital). Berlin already had more operating

channels than other parts of Germany where three to five analog channels are typical. Berlin

was able to have these additional channels because of spectrum vacated by former East German

stations after reunification. While some other German cities are expected to begin digital transmission this year, much of Germany under current plans will never have digital over-the-air

television because sufficient channels are not available. 3 Id. at 5.

4The current exchange rate is approximately $1.24 to the euro. Set-top boxes have been on

sale in Berlin for as little as 69 euros, or about 85 dollars.

After years of effort and billions of dollars expended, Congress,

local broadcasters and your constituents, our viewers, are well on

the road to completing our shared journey to digital television and

to vigorous new competition in the media marketplace. We appreciate the committee’s continued leadership on this issue and pledge

to work with you to make the transition as expeditious and cost effective as possible, without losing sight of the ultimate goal.

Thank you.

[The prepared statement of Gregory Schmidt follows:]

PREPARED STATEMENT OF GREGORY M. SCHMIDT, VICE PRESIDENT-NEW DEVELOPMENT AND GENERAL COUNSEL OF LIN TELEVISION CORPORATION ON BEHALF OF

THE NATIONAL ASSOCIATION ON BROADCASTERS

Good morning Mr. Chairman. I am Gregory Schmidt, Vice President of New Development and General Counsel of LIN Television Corporation, and I appear today

on behalf of the National Association of Broadcasters to discuss the transition to

digital television in Berlin and the relevance of that experience to the DTV transition in the United States.

Berlin—the first place in the world where digital television broadcasting has completely supplanted analog—offers some instructive comparisons to the DTV transition in the United States. There are striking differences between the situation in

Berlin and ours which amply demonstrate why accelerating the digital transition

will require significantly more consumer-friendly actions by the government.

Let’s look at some of the ways German digital television differs from the DTV

transition on which we are embarked. The single biggest difference is that Berlin—

like other European DTV plans—does not include any provision for High Definition

Television. DTV in the United States began in response to HDTV, a new Japanese

technology that promised much greater picture and sound quality. Although the

U.S. digital television system will also permit multicasting and the distribution of

new data services, it has always included HDTV capability, and the amount of

HDTV programming available here is great and continues to expand. In the United

States, HD has been the only incentive for consumers to purchase digital receivers,

particularly since most cable systems have refused to pass through any other DTV

services. The full benefits of HDTV are generally only realized on large-screen TVs.

By contrast, European DTV was intended less to offer greater quality of TV display than to offer more programming choices. European analog television for the

most part has offered far fewer television signals to consumers than are available

in the United States and a far higher percentage of noncommercial services (for

which viewers pay a receiver tax).1

This profound difference has several consequences. First, European consumers

who move to DTV reception receive an immediate benefit of more channels at no

additional cost. In Berlin, buying a digital TV or a set-top box increased viewer

choice from eight channels to roughly 30 channels.2 Second, since there is no need

to decode or display HDTV signals, the memory and processing requirements of

DTV receivers and set-top boxes is much less in Europe than in the United States.

Thus, it is relatively cheaper to manufacture digital receivers for European DTV.

DTV receivers were available in Berlin, for example, for around 200 euros, far less

than HDTV-capable receivers cost here,3 and set-top boxes there were also less expensive.4

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5The license fee paid by all set owners is 16 euros per month, so the cost of a set-top box

represented about four months of license fees. 6 Berlin Goes Digital at 2. In Germany, satellite service is free to the consumer after the purchase of the receiver; cable service typically costs only 12-15 euros, much less than the cost of

American cable service. 7 Id. at 3.

8 In this regard, it is worth noting that there are no plans to bring terrestrial digital service

to much of rural Germany. It is not clear whether those areas will lose over-the-air service altogether or be left with analog service only. The American DTV transition is intended to ensure

that high-quality digital television be available across the country.

Moreover, because digital transmissions in Germany are not high definition, a

consumer with an analog receiver who acquires a digital set-top box will receive the

same programs at almost the same quality as a consumer with a new digital receiver. Similarly, if a cable system in Berlin converts a broadcast digital signal to

analog for display on analog receivers connected to the cable system, the cable subscriber receives essentially the same thing as he or she would if the cable system

were delivering the digital signal in its native format to a digital receiver. That is

not the case in the United States. If a U.S. cable system downconverts a broadcast

DTV signal, as some have suggested, cable subscribers will not receive what they

would get if they had a digital receiver and the cable system carried the broadcast

digital signal. They would not receive high definition pictures or better sound and

they would not receive multicast signals or data transmissions. There would be little

reason for those consumers to purchase digital receivers and, of course, if they already had DTV sets, they would not get much of the benefit of their purchase.

As a consequence of these differences, the digital conversion in Berlin presented

consumers with a very different value proposition—for a fairly modest one-time expenditure, the consumers could get the equivalent of free basic cable for life. Moreover, nearly the full benefits of the conversion could be realized on TV sets, small

and large, analog and digital alike. So it was not difficult to persuade consumers

to buy the digital sets and boxes and there was little danger of consumer resentment over the premature obsolescence of their existing sets.5 In the long run, we

believe that European consumers and broadcasters will come to regret foreclosing

the benefits that HDTV will provide, particularly as other digital media increase

their ability to deliver the highest quality sound and pictures.

Another distinction between the Berlin and American transitions are the obligations placed on cable. Cable in Berlin was required to carry all broadcast services

and to protect analog-only households after the switch-over to digital. Although the

FCC has had a digital must carry rulemaking proceeding pending since 1998, there

are still no rules requiring American cable or satellite systems to carry local digital

television signals, no rules ensuring that new broadcast digital services will be

available to cable or satellite households, and no obligations on cable systems to ensure that their analog-only subscribers will have access to local television signals

after analog broadcasting ends.

Indeed, one of the reasons that analog broadcasting was able to be switched off

in Berlin was the prevalence of cable and satellite delivery systems. Only about

seven percent of Berlin households received television over the air, a lower percentage than in the rest of Germany.6 An even smaller number of homes in Berlin

(about 90,000) relied on terrestrial transmission for second and third sets.7 In the

United States, it is estimated that there are 38-40 million sets in homes that are

not connected to any cable or satellite system and an additional 40-45 million

unwired sets in cable or satellite households. In total, about 30 percent of all televisions (75-85 million receivers) rely solely on over-the-air transmission and will

need to be replaced or have converters attached in order to operate after analog

broadcasting ends.

Because so large a percentage of Berlin homes relied on cable or satellite to receive local television, and those systems were required to ensure that broadcast digital programming reached all of their subscribers, there was very little risk that

ending analog broadcasting would result in a significant loss of audience or revenue

for commercial broadcasting. In fact, the availability of more channels of free television over the air appears to be reducing the reliance on cable and satellite and

thus reducing those providers’ ability to exercise gatekeeper control.

One of Congress’ objectives when it authorized the transition to digital beginning

in 1996 was to strengthen the over-the-air broadcasting system. A premature end

to analog broadcasting before consumers are ready may have the opposite effect of

reducing the audience of local stations and thus reducing their ability to provide attractive programming and local public service. If consumers are driven to cable and

satellite programming, that would increase those monopoly providers’ gatekeeper

power and frustrate Congress’ goal of improving local broadcasting.8

19

9 Berlin Goes Digital at 12.

10 Id. at 15. 11 Id. at 3; see id. at 16. 12See Office of Communications, Driving digital switchover: a report to the Secretary of State

(April 5, 2004)(accessed at http://www.ofcom.org.uk/research/dso—report/?a=87101). 13 Berlin Goes Digital at 20.

The Berlin plan also sought to avoid imposing on broadcasters the costs of extended operation of dual systems. The transition was thus designed to be short-lived

and, unlike the U.S. plan where stations have had to undertake the costs of dual

operations, the government in Berlin subsidized broadcasters which were required

to provide both analog and digital signals.

These differences are significant and call into question suggestions that Berlin

provides a ready model for the United States. In particular, the very much larger

number of sets that rely on over-the-air transmissions, as well as the very large

number of analog sets in cable and satellite homes for which no DTV transitional

carriage rules have been established, make it impossible to conclude that a Berlinstyle transition would not harm the public interest in a strong local broadcasting

system.

On the other hand, there are certainly lessons that we can take from the Berlin

experience. The German authorities recognized that moving millions of consumers

from analog to digital, while resulting in significant benefits for consumers, would

create burdens that should not fall on broadcasters. Instead, they concluded that

‘‘[s]olving the issue of social acceptability of the switchover is a public duty to be

fulfilled by the state.’’ 9 The response from consumers in Berlin also counters suggestions that it is not important to maintain the level of over-the-air services. ‘‘Numerous comments by viewers... refute the claim that viewers traditionally receiving television through the air would be content with fewer services—the opposite is the

case.’’ 10

Another important lesson is that free TV is crucial to any transition from analog

to digital. The experience not only in Germany, but also in the United Kingdom and

in Spain with pay digital television—where those services languished—shows that

the ‘‘switchover must be undertaken with free-to-air television.’’ 11 Indeed, in England, the subscription terrestrial DTV service collapsed; digital penetration began

to increase significantly only with the development of the Freeview system that

greatly expanded consumer choice by providing multiple channels of free over-theair programming.12

One other part of the Berlin experience is instructive. The Berlin authorities concluded that one of the advantages that could be obtained from a transition to DTV

was the increased potential for portable applications. This is achieved through a system of distributed transmission where additional transmitters repeat the signal and

enable it to reach televisions without roof-top antennas. The same capability has

been developed for the U.S. digital broadcast system, and broadcasters have asked

the FCC to authorize its use. Quick action by the FCC on this issue would also help

advance the transition here.

What does this all mean for the United States? It tells us that relying on cable

or satellite services to drive the transition to digital—as some have argued—will ultimately fail. Free local broadcasting has always been the core of television service.

It will be, it must be a primary driver of the digital transition. With it, we will have

a vibrant new television service. Without it, we will have simply more variations

on the same pay services, as well as diminishing news, emergency services and

other public interest activities for which our communities rely on local broadcasters.

It also tells us that the circumstances that allowed the Berlin authorities to end

analog broadcasting quickly without significant public outcry do not exist here. The

number of television receivers and households that rely on over-the-air analog service is far greater here than in Berlin. Replacing those sets or providing set-top boxes

for them will require a far larger public commitment than the German authorities

faced. Set-top boxes or cable or satellite converted digital signals in Berlin were also

equivalents for over-the-air digital television; that is not true here where high definition, multicasting and data services characterize DTV and will not be available

to consumers viewing a downconverted signal. Further, while the obligation of cable

systems in Germany to carry the complete digital offerings of local broadcasters

should be the rule here; so far the FCC has declined to adopt such a rule.

It is worth noting that the German authorities have warned that extending the

Berlin model to even the rest of Germany ‘‘would not appear to present a realistic

option at present.’’ 13 Similarly, NCTA in a presentation to the FCC on the Berlin

20

14 NCTA, The Transition to Digital Television in Berlin, MM Docket No. 98-120 (filed March

30, 2004)(emphasis supplied).

transition concluded that ‘‘it’s highly uncertain whether those unique circumstances

exist elsewhere in Germany. They do not exist in the United States.’’ 14

Broadcasters share the desire to bring the DTV transition to a close. Unlike Germany, American commercial broadcasters have been required to shoulder an enormous financial burden to build and operate digital facilities. No broadcaster wants

to continue paying for both analog and digital operations for any longer than necessary. Instead, we look forward to an all-digital future.

The FCC has taken significant steps to advance the transition, including the digital tuner mandate, the ‘‘Powell plan’’ and the agreement on cable compatibility

standards. It is to be commended for its constructive approach. These steps are

bearing fruit, not only in the availability of more and more exciting programming,

but also in increased sales of digital receivers and displays. These steps and a few

more—notably the long-delayed adoption of digital must carry rules for the transition and afterwards—can bring the transition to an end in this decade without causing significant disruption to consumers or reducing service.

Mr. UPTON. Thank you.

Mr. Willner.

STATEMENT OF MICHAEL S. WILLNER

Mr. WILLNER. Thank you, Mr. Chairman. Needless to say I did

find parts of Mr. Schmidt’s statement a little bit controversial.

I’m Michael Willner, President and CEO of Insight Communications, the ninth largest cable television operator in the United

States with about 1.3 million subscribers. I happen to be very

proud of the cable industry’s leadership in transitioning digital television in the United States. Cable recognized the need to convert

to digital when Congress determined that our Nation must modernize its broadcast system in order to efficiently utilize our valuable public spectrum. The cable industry prepared itself for this

event by developing a platform that today delivers digital television

to more households than any other digital distribution system.

Because of our $85 billion investment which every time I say the

words I have to add fully funded without any government help,

cable is delivering not only high definition programming created by

numerous cable networks, but also high definition services offered

by many, many broadcasters. As of March 31 of this year, the digital signals of nearly 400 broadcast stations were being carried on

cable.

What concerns me today is the continued assertion by broadcasters that the transition will only occur if additional regulatory

burdens are placed on cable and satellite. Specifically, broadcasters

claim that they require a digital multicast must carry on all cable

systems in order to return the analog spectrum that they previously promised to give back in the year 2006. Some broadcasters

claim that unless they are given this right, they’ll be unwilling to

develop compelling new programming for the digital spectrum and

therefore nobody will go out and buy a digital television.

Now that argument is really ironic. Mandated multicast must

carry would actually reduce the incentive of broadcasters to create

compelling new content, precisely the opposite of their claim. Why?

Because guaranteed carriage would remove the marketplace focus

of broadcasters to go after consumers and interest those consumers

and what they are creating in terms of content.

21

Must carries lowers the bar and protects less desirable programmers. Consumers are best served by simply letting the marketplace

work as it did for 400 broadcast stations in their conversion to digital.

Digital must carry has no impact on easing the digital transition

for your constituents. Rather, the focus of Congress, the FCC and

industry should be on tackling the fundamental issue of that digital transition, and that is, what happens to all of those analog TV

sets the morning after we turn off the analog frequencies?

Analog televisions hooked up to digital cable will continue to

work on that date. Cable operators have already seen to that. But

millions of TVs in households with no cable or satellite distribution

systems and millions more in our customers’ households that are

not hooked up to cable in the bedrooms and the playrooms will not

work the next morning unless we do something about it.

This is not a household problem. It’s not a cable problem. It’s not

a satellite problem. It’s a device problem. I believe that it’s not the

intention of this government to force tens of millions of consumers

to purchase digital televisions before they’re ready to buy one.

However, you can create a marketplace that will result in the phasing out of analog TVS over time, even after the analog broadcast

system is turned off. The consumer will then decide when they are

ready to buy that new TV while their old ones continue to function.

If I might, this is the device we’re all talking about in Europe.

This is the size of it. It is a digital to analog converter box and it

is very inexpensive. And it converts digital signals to analog. The

success in Berlin occurred principally because of one thing, the

availability of this box. And it was successful even though the device was far costlier there than what might be available in the

United States simply because of the economies of scale that the

U.S. market offers.

I urge you to stay the course and remain focused on fostering the

digital transition as quickly as possible. Set and stick to a date certain. This is not about broadcasters needing expanded digital must

carry rights or imposing additional regulatory burdens on their

competitors. That action will have no impact on this conversion. It’s

about enabling analog TVs to continue to work after the transition.

From cable’s perspective, as evidenced by our existing investment

and commitment, we stand ready, willing and able to support this

transition. Focus on the real solutions so that American consumers

can choose, if and when, to buy a new digital TV set in order to

receive all of the new services being developed in a healthy, consumer-focused and competitive marketplace.

[The prepared statement of Michael S. Willner follows:]

PREPARED STATEMENT OF MICHAEL WILLNER, PRESIDENT AND CHIEF EXECUTIVE

OFFICER, INSIGHT COMMUNICATIONS

I. INTRODUCTION

Mr. Chairman, Congressman Markey, members of the subcommittee, my name is

Michael Willner. I am President and CEO of Insight Communications, the nation’s

ninth largest cable operator. I am also a Director of the National Cable & Telecommunications Association (NCTA) and serve on its Executive Committee. Thank

you for inviting me to testify about the cable industry’s efforts to advance digital

television in the United States and what lessons we might learn from the broadcasters’ transition to DTV in Berlin.

22

II. INSIGHT COMMUNICATIONS: COMPANY OVERVIEW

Insight Communications provides bundled, state-of-the-art services to 1.3 million

cable customers living in mid-sized communities in Illinois, Indiana, Kentucky, and

Ohio. The company pursues an aggressive business plan to deliver leading-edge

technology to its customers and has successfully upgraded its infrastructure to support numerous advanced services including high definition television (HDTV), digital video recorders (DVR), video-on-demand (VOD) and subscription video-on-demand (SVOD), two tiers of high-speed Internet access service, voice telephony, and

standard analog video. At the end of the first quarter of 2004, Insight Communications served 1,297,900 basic customers; including 418,400 digital customers; 258,000

high-speed Internet customers, and 60,100 switched telephony customers. The capital investment required to make these enhancements was approximately $500 million.

Insight Communications was an early proponent of HDTV programming and first

launched high definition service in 2002. Today, it provides significant HDTV programming, including PBS in all markets where it is available over-the-air. Insight

carries at least one major broadcast network in HD format in all but one market

(where the company is currently in negotiations). Currently 26,184 customers have

HDTV-enabled set-top boxes in their homes, and 94 percent of Insight’s customers

have access to HD services (98 percent of Insight’s digital customers).

III. THE CABLE INDUSTRY IS LEADING THE TRANSITION TO DIGITAL TELEVISION IN THE

UNITED STATES

Insight exemplifies what the cable industry as a whole is doing to promote digital television. With an investment of $85 billion since 1996, the cable

industry has upgraded its facilities to launch a whole host of digital services, including HDTV. As part of its deployment of advanced video, voice, and data services,

cable companies are now offering high definition television on systems passing 84

million homes. At least one cable operator in 99 of the top 100 markets now offers

HDTV, and HD over cable is available in 155 of the 210 U.S. television markets.

Cable operators are now offering packages that include a full mix of

broadcast, basic, and premium networks featuring HD content. Overall,

cable systems are currently carrying nearly 400 broadcast stations offering HDTV

or other compelling digital content—a more than four-fold increase just since January 2003, when the HD programming of 92 local broadcast stations was being carried.

Cable programmers are also leading the way in creating compelling high

definition content that will drive the sale of digital television sets. Seventeen different cable networks are producing HD programming, including Bravo

HD+, Cinemax HDTV, Comcast SportsNet INHD, Discovery HD Theater, Encore

HD, ESPN HD, HBO HDTV, HDNet, HDNet Movies, INHD, INHD2, MSG Networks in HD, NBA TV, Showtime HD, Starz! HD, The Movie Channel HD, and TNT

HD currently provide high definition programming. Unlike many broadcast stations—which offer HD programming for only a few hours a day—most cable networks that offer HD do so on a 24-hour or nearly full-time basis.

Cable compatibility issues are being resolved through industry agreements. The consumer electronics industry and the cable industry have reached a

landmark agreement which allows ‘‘one-way’’ digital television sets to be connected

directly to cable systems without the need for a set top box. The FCC adopted implementing rules in September 2003 and multiparty, inter-industry negotiations to resolve issues related to ‘‘two-way’’ digital television sets are fully underway.

IV. THE TELEVISION MARKET IN BERLIN IS DIFFERENT THAN THE U.S.

Today, the General Accountability Office (GAO) is releasing a report requested by

this subcommittee on the transition to DTV in Berlin. NCTA was similarly interested in whether the Berlin experience could provide a model for the United States

and sent its own research team to Germany earlier this year. To aid this subcommittee in its review of the Berlin transition, I have appended a copy of the researchers’ report, The Transition to Digital Broadcasting in Berlin, to my testimony.

Before drawing lessons from the Berlin experience, we must first understand the

differences between television markets in the United States and Germany and why

the Berlin experience does not provide a rationale for imposing multiple must carry

obligations on cable operators and satellite providers in the United States.

Key differences between the German and U.S. television markets include the following:

23

1The transition to DTV occurred in Germany because commercial broadcasters indicated that

the expense of over-the-air broadcasts to only seven percent of TV households had become too

much to bear. They threatened to stop broadcasting altogether and rely on DBS and cable to

reach their audience instead. In addition, it was also becoming politically difficult to force 93

percent of households to pay the TV tax used to subsidize free, over-the-air broadcasting to only

7 percent of Germany’s homes. The German Government, however, was not prepared to cut off

service to the 160,000 Berlin homes that relied on over-the-air television. 2 Consumers pay cable operators a monthly subscription fee of 14 Euros (1 Euro = US$1.25),

but they receive only one analog tier of 30 channels (mostly national and local broadcast networks) over aging facilities that were built in the 1980s. The main attraction of cable is signal

quality, even though it requires payment of a monthly subscription fee on top of the 16 Euros

per month assessed on all TV households to support public broadcasting. 3DBS in Europe has 690 channels and distributes program services ‘‘in the clear’’ (unscrambled) on satellite transponders leased by the individual broadcasters and program networks.

DBS does not serve as a packager or distributor of bundled services the way Dish/EchoStar and

DirecTV do in the U.S.: once consumers have purchased a dish and receiver, they can receive

all 690 program services on satellite for free, with no monthly subscription charge. If it weren’t

for the fact that Berlin is highly urbanized and many residents do not have a clear line of sight

to a satellite, most Berliners would probably receive their television via DBS. 4The only premium video service in Germany—Premier—leases capacity from both cable and

satellite operators to distribute its encrypted video service directly to consumers. Customers get

converter boxes directly from Premier and pay a monthly subscription fee of 30 Euros to the

premium service itself—not the cable or satellite operator.

• In Germany, HDTV was not the driver or goal of the digital transition.

The state of television in Germany is far less advanced than in the U.S. Rather,

the German Government simply wanted to promote the survival of seven broadcasters who reached only seven percent of the population over-the-air (the other

93 percent of homes in Berlin receive broadcast signals via cable and satellite).1

By transitioning to digital television, broadcasters could multiplex four channels

in the space they formerly used to broadcast one, thus quadrupling the number

of broadcast channels available in Berlin to 28. Since the local cable system has

only 30 channels, this made reliance on over-the-air television a viable consumer alternative to cable service.2 Both the broadcast and cable industries in

Germany lag their U.S. counterparts in offering HDTV. • The economic models for cable, broadcasting, and satellite in Berlin do

not compare with the United States. Broadcasters in Germany do not own

their own facilities for transmitting programming over-the-air. Rather, they pay

an independent broadcast network operator (T-Systems, a branch of Deutsche

Telekom) for transmission service. They also lease capacity on cable and satellite systems 3 to distribute their programming and pay the cable and satellite operators for carriage. As such, in Germany, broadcasters have to pay

cable operators to carry their 28 digital channels—much like leased access

channels are used by independent programmers in the United States to reach

cable audiences. In contrast, U.S. broadcasters do not pay cable operators for

‘‘must carry’’ of their signals—nor would they likely want to. (In fact, the economic relationship in the U.S. is reversed, with cable operators compensating

broadcasters through copyright and retransmission consent mechanisms.)

• All program networks—cable, satellite, and broadcasting—are advertiser

supported in Germany (with the exception of one subscription service, Premier 4). Cable and satellite program networks do not charge distributors licensing fees, and cable serves primarily as a common carrier which is paid by private and public broadcasters and other programmers like Premier to carry their

signals.

• Much of the cable system’s channel line-up is determined by government

regulators, who require carriage of local broadcast stations (each of Germany’s

15 media authorities establishes its own must carry requirements). Cable prices

to residential customers are regulated, as are the rates which cable operators

charge broadcasters for mandatory carriage of their signals (under a common

carrier ‘‘just and reasonable’’ standard).

As noted, multicasting was a factor in Berlin because it allowed broadcasters to

quadruple the number of channels they offered over-the air (to 28) and compete

head-on with a 30-channel cable system. With the one-time purchase of an affordable set-top converter, consumers in Berlin can watch basically the same programming for free on broadcast television that they pay 14 Euros a month to watch on

cable. In the U.S., by contrast, cable companies provide 200-300 channels of programming, including HD and free carriage of must carry stations, while most broadcasters have yet to develop a viable business plan for multicasting. In Germany, it

was possible for broadcasters to acquire the program content needed to fill 21 new

channels. (These channels more closely resemble basic cable channels in the United

24

States.) It was also possible to quadruple the number of broadcast channels without

fatally diluting the advertising revenues required to sustain private broadcasters

due to the relative paucity of advertiser-supported cable channels.

Significantly, nothing in the Berlin experience supports the claim made by U.S.

broadcasters that the government needs to impose additional must carry requirements on all cable systems in order to expedite return of the analog frequencies that

broadcasters promised to give back by 2006. Some U.S. broadcasters claim that unless they are given multiple must carry rights, they will be unwilling to develop new

digital broadcast programming and therefore people will not purchase digital TVs.

The irony of this argument is that multiple must carry would actually reduce the

broadcasters’ motivation to create compelling new content—precisely the opposite of

their claim. The reason is simple: guaranteed carriage would remove any incentive

for broadcasters to create content such as HDTV that consumers demonstrably

want. Must carry lowers the bar and protects little-viewed programming by taking

up valuable spectrum on cable systems which could otherwise be used by programmers who offer compelling digital content.

V. POLICY LESSONS TO BE LEARNED FROM THE BERLIN EXPERIENCE

Despite the stark differences between the economics of cable, satellite, and broadcast television in Berlin and the United States, several lessons can be drawn from

Berlin’s successful 2003 transition to digital broadcasting:

• The U.S. Government should set a hard date for the broadcasters’ transition to

digital television—as the government did in Berlin. If Congress mandates the

return of the analog spectrum by a date certain, consumer electronics companies will develop and manufacture tens of millions of inexpensive set-top converters and the necessary antennae to receive digital broadcast signals—just as

they did in Germany.

• Simple digital set-top boxes could be manufactured in quantity and sold to consumers probably for about $50 in the U.S. (We have already seen such scale

economics in cable modems, which now sell for about $50.) As in Berlin, the

Government could provide a subsidy directly to the consumers who need it—

perhaps from the revenue that will be raised by auctioning the analog spectrum

reclaimed from the broadcasters.

• The public in Germany was willing to pay about 100 Euros for a set-top box that

converts digital broadcasts to analog so that they can be viewed on analog TV

sets. In the United States, the public’s willingness to buy inexpensive converter

boxes is critical since there are 250 to 300 million analog TV sets still in service

and 15 percent of TV households rely on over-the-air broadcast transmissions.

If the approximately 16 million TV households with no cable or satellite service

have the national average of 2.5 to 3 televisions per household, the digital transition in the United States will require the placement of 40-50 million inexpensive digital converter boxes in these homes. In addition, set-top boxes must be

readily available at retail for cable and satellite subscribers who do not wish

to lease or purchase converter boxes from their service providers for additional

TV sets in their homes.

• The U.S. Government is unlikely to adopt policies that require tens of millions

of consumers to purchase digital TV sets before they really want to. Congress

can facilitate a marketplace, however, that will result in the phasing out of analog televisions over time—years after the analog broadcast system is turned off.

The success of the digital marketplace will depend on the availability—and low

cost—of simple set-top boxes that convert digital broadcast signals to analog, allowing for the continued use of millions of ‘‘legacy’’ TV sets in the United States.

Consumers will decide when they are ready to buy new digital TVs while their

old sets continue to deliver the analog pictures they were previously receiving.

• To aid in the transition—especially before most consumers acquire digital-to-analog broadcast converter boxes—cable operators should be allowed to convert digital broadcast signals to analog at the cable headend, providing continuity of

local broadcast service to all their customers. (As is the situation today, many

cable operators would also elect to carry the broadcasters’ HDTV signals.) As

a matter of policy, if a cable operator is best able to serve its customers by converting digital broadcast signals to analog at the headend (until 85 percent or

more of its customers have digital TVs or low-cost digital-to-analog boxes), it

ought to be given the right to do so by either Congress or the FCC. Consumers

could then choose when to buy a new digital TV and receive all of the newly

developed services being delivered in a healthy, competitive marketplace.

25

VI. CONCLUSION

As NCTA’s research team concluded in The Transition to Digital Broadcasting in

Berlin, ‘‘The Berlin experience demonstrates that given the right conditions, a hard

cutover to digital terrestrial television can be successful.’’ I would add that the success in Berlin occurred principally because of one thing—the widespread availability

of relatively inexpensive digital-to-analog converters. Quadrupling the number of

over-the-air broadcast channels to 28 (in a 30-channel cable environment) was also

a significant factor.

It is imperative for American policy makers to base our DTV policies and timetable on the economic circumstances of the cable, satellite, and broadcasting industries that exist in the United States. For example, it would be a mistake to assume

that ‘‘must carry’’ policies from Germany—where states determine which broadcast

channels are carried by cable, and where the government requires broadcasters to

compensate cable operators for carriage of their signals under a common carrier regime—would work in the United States. In the U.S., a successful transition to digital television will require: (1) adopting a date certain for returning the analog spectrum and broadcasting in digital; (2) solving the ‘‘15 percent problem’’ about how

households that rely on over-the-air transmissions for television will be able to purchase equipment which allows their analog TV sets to receive the new digital signals; (3) giving cable operators the flexibility they need to convert broadcast signals

from digital to analog; and (4) requiring broadcasters to compete in the market with

other programmers rather than giving them expanded digital must carry rights.

Thank you again for the opportunity to appear before this subcommittee. I would

be pleased to answer any questions that you might have.

INSIGHT COMMUNICATIONS, INC.

HD/DVR Deployment by market as of June 2004

All systems use Motorola DCT6208 set-top box for HD/DVR service

Market HD Broadcast Carriage HD Cable Programming DVR Deployment

Anderson, Noblesville, IN .. ABC-WRTV

NBC-WTHR

CBS-WISH

PBS-WIPB

HBO, Showtime, Bravo HD+, HD Pak** Currently available

Bloomington, Greensburg,

Greeenwood, Franklin,

IN.

ABC-WRTV

CBS-WISH

NBC-WTHR

PBS-WTIU

HBO, Showtime, Bravo HD+, HD Pak** Currently available

Bowling Green, KY ............ ABC-WBKO

CBS-WTVF

PBS-WKGB

PBS-WKYU

HBO, Showtime, Bravo HD+, HD Pak** Currently available

Champaign, IL .................. HBO, Showtime, Bravo HD+, HD Pak** Currently available

Columbus, OH ................... ABC-WSYX

CBS-WBNS

NBC-WCMH

HBO, Showtime, Bravo HD+, HD Pak** Currently available

Covington, KY .................... NBC-WLWT

CBS-WKRC

ABC-WCPO

PBS KET 1-4

PBS-WCET 2-5

HBO, Showtime, Bravo HD+, HD Pak** Currently available

Dixon, IL ............................ ABC-WQAD

NBC-KWQC

CBS-WHBF

HBO, Showtime, HD Pak** Currently available

Evansville, IN .................... NBC-WFIE

ABC-WEHT

PBS-WNIN

HBO, Showtime, Bravo HD+, HD Pak** Currently available

Kokomo, IN ........................ ABC-WRTV

NBC-WTHR

CBS-WISH

HBO, Showtime, Bravo HD+, HD Pak** Currently available

Ladd-Sterling, IL ............... ABC-WQAD

NBC-KWQC

CBS-WHBF

HBO, Showtime, HD Pak** Currently available

26

INSIGHT COMMUNICATIONS, INC.—Continued

HD/DVR Deployment by market as of June 2004

All systems use Motorola DCT6208 set-top box for HD/DVR service

Market HD Broadcast Carriage HD Cable Programming DVR Deployment

Lafayette, IN ...................... ABC-WRTV

NBC-WTHR

CBS-WISH

PBS-WIPB

HBO, Showtime, Bravo HD+, HD Pak** Currently available

Lexington, KY .................... CBS-WKYT

PBS-WKLE

HBO, Showtime, Bravo HD+, HD Pak** Currently available

Louisville, KY ..................... ABC-WHAS

CBS-WLKY

NBC-WAVE

PBS-KY Ed TV

(4 Channel Numbers carrying whichever is

Broadcasting in HD)

HBO, Showtime, Bravo HD+, HD Pak** Currently available

Mendota-Peru, IL ............... ABC-WQAD

NBC-WMAQ

CBS-WHBF

HBO, Showtime, HD Pak** Currently available

Peoria, Bloomington, IL ..... ABC-WHOI

PBS-WTVP

HBO, Showtime, Bravo, HD Pak** Currently available

Richmond, IN .................... ABC-WRTV

CBS-WISH

PBS-WIPB

NBC-WTHR

HBO, Showtime, Bravo HD+, HD Pak** Currently available

Rockford, Freeport,

Belvidere, IL.

ABC-WTVO

NBC-WREX

CBS-WIFR

HBO, Showtime, HD Pak** Currently available

Springfield-Decatur, IL ...... HBO, Showtime, Bravo HD+, HD Pak** Currently available

*Insight Digital service required for access to all HD programming

**HD Pak includes the following networks: ESPN HD, Discovery HD Theater, HDNet and HDNet Movies.

Mr. UPTON. Thank you.

Mr. Lawson.

STATEMENT OF JOHN M. LAWSON

Mr. LAWSON. Thank you, Mr. Chairman. Public television’s mission has grown a lot since 1967 and we’re fortunate to have a 21st

century delivery system, DTV, to meet it. Since the transition

began, our system has raised more than $1 billion to make the conversion and as of today, 75 percent of U.S. public stations are

transmitting a digital signal in markets that include more than 88

percent of households.

Our challenge now is to move from simply delivering a digital

signal to creating and delivering actual digital services. Most stations are broadcasting in HD and multicasting. Many are also data

casting directly to PCs, for instance, KERA in Dallas is data casting standards based content directly to school computer networks

and pioneering DTV for homeland security.

However, while consumer acceptance of DTV has improved, it

has yet to reach a tipping point. Meanwhile, PTV stations are

spending more each year, running and replacing analog transmission equipment and Congress appropriates to CPB for digital

grants. I know the committee is examining a hard date for analog

switchoff, but imposing a hard date without first resolving the fate

of carriage rights and over-the-air analog consumers is a recipe for

disaster.

27

The success in Berlin and with the U.K.’s Freeview service led

us to explore some new thinking about the transition. In February,

we surveyed our stations, you read polls, we read member surveys.

We found that 86 percent did not expect to be able to switch off

analog by the year 2009. However, under three conditions, guaranteed cable and satellite carriage, low cost converter boxes and yes,

a limited trust fund to produce content, the responses were almost

exactly reversed. Eighty-one percent of our stations said they could

give up their analog spectrum by 2007. Since public stations hold

21 percent of all U.S. TV spectrum, this presents a clear roadmap

to Congress for freeing up a lot of spectrum early.

Our plan is based on the notion that all spectrum, like all politics, is inherently local. It’s not necessary or even desirable for all

spectrum to be returned at once. In Berlin, 15 separate regional

authorities set the timetable for the transition. A market by market approach might work well here as well. Wireless service providers or others who want access to spectrum might find it advantageous to test new applications and business models before rolling

them out nationwide. And who knows, it might even help cover the

cost of converter boxes, if it helped them to gain access to spectrum

early.

However, our recent real world experience in this area is not encouraging. When public station KCSM in the Bay Area was forced

to go digital only, it launched a thorough campaign to tell viewers

where to purchase converter boxes. But when KCSM’s analog

transmitter finally went dark this spring, many over-the-air consumers, especially elderly ones, were stranded. Converter boxes

were very hard to find and prices for the few that were available

ranged from nearly $300 to $600. One retailer actually called the

station asking that it not send any more customers to buy boxes

that they did not stock. Clearly, the nationwide shutoff that a hard

date implies would entail an enormous information campaign and

the mobilization of converter box production on a war time scale.

The country would benefit from trying digital only broadcast in a

few test markets first, allowing the supply chain and consumers to

adjust.

GAO’s research also points out another key difference between

Germany and the U.S., how the two societies finance public television. This is very important because public television has been a

driver of the transition in Berlin and the U.K. The average household in Germany pays a fee the equivalent of about $236 annually

for their public broadcasting system, while the American Federal

subsidy for public television and radio amounts to about $4.19 per

household, about the price of a Happy Meal at McDonald’s.

While the tax on households would never fly in the U.S., the surrender of analog broadcast spectrum does present an opportunity

to both accelerate the transition and to finance new educational

content. The idea of a trust fund has been around since the 1960’s,

but our concept is different. It’s limited in scope. It’s highly targeted toward education and we believe will help unlock tremendous

economic benefits for the Nation.

Mr. Chairman, generating auction revenue has been the main objective of regaining the analog spectrum in the U.S., unlike in Germany. However, a uniform hard date for the whole U.S. would creVerDate 11-MAY-2000 12:31 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6602 95459.TXT HCOM1 PsN: HCOM1
28

ate a spectrum glut that will depress auction revenue for the public. And the larger issue goes beyond auction revenue. Our plan to

return some spectrum early promises much greater economic benefits than auction revenue. If the wireless industry is correct, their

use of vacated spectrum will lead to equipment orders, jobs and tax

revenue to the government. We can make that happen sooner rather than later.

We believe this is a win-win-win proposal that will advance the

transition, begin to unleash the economic potential and public safety benefits now bottled up with the analog spectrum and finally,

deliver a new generation of digital educational services to our communities.

While time is running short on this Congress, we stand ready to

work with you and the other members of the committee to accelerate the digital transition.

Thank you.

[The prepared statement of John M. Lawson follows:]

PREPARED STATEMENT OF JOHN M. LAWSON, ASSOCIATION OF PUBLIC TELEVISION

STATIONS

Thank you Mr. Chairman. I am John Lawson, president and CEO of the Association of Public Television Stations, the national representative of our nation’s local

public television stations. Local public television stations are an important part of

today’s media landscape, reaching 99 percent of the population with distinctly local

programming and services. Each of our 176 licensees is locally programmed, locally

managed, and—most important—truly locally controlled.

Given the many choices in media available today, public television must offer

something decidedly different and valuable if it is to survive. Given that federal

funding provides about 18 percent of our system’s total revenues, it is our duty to

provide services to communities that fill particular needs.

These twin objectives of localism and public service are at the heart of everything

our stations do. It is evident in our Ready To Learn children’s programming, which

constitutes a true early childhood learning experience with measurable results. It

can be found in the public affairs programming that we offer, including candidate

debates and other commercial-free political coverage.

And it is inherent in our role in offering truly universal service that covers rural

communities and underserved populations that may benefit most from our services.

The relevance to today’s subject is that no other stakeholder has a greater responsibility to ensure that no viewer is left behind in the digital transition.

INNOVATION WITH NEW DIGITAL SERVICES

Mr. Chairman, if one accepts that public television’s mission has grown since

1967, we are fortunate to today have a 21st century delivery system to meet it. Digital television (DTV) has geometrically expanded our capacity to meet our mission.

Since the DTV transition began, our system has raised more than $1 billion to make

the conversion. As of today, 271 of the country’s 357 PTV stations are transmitting

a digital signal in markets that include more than 88 percent of households, and

we are optimistic that most of the remainder will be on the air by the end of this

year.

It is no exaggeration to say that our local stations view digital as their greatest

opportunity ever to serve the public; our true challenge now is to move from simply

delivering a digital signal to creating and delivering actual digital services. We are

bullish on DTV, and—to the point of this hearing—we are eager to entertain new

ideas for accelerating the DTV transition.

Most stations are broadcasting high-definition television, especially in primetime.

During the daytime, many are broadcasting new, multiple standard-definition channels, which are expanding citizens’ access to quality children’s and educational programming and public affairs coverage. For instance, New Hampshire Public Television is launching a new channel dedicated to local and statewide public affairs and

other New Hampshire content. SCETV has launched the South Carolina Channel

with local content. And Thirteen/WNET in New York and WGBH in Boston are

launching two new channels of content, titled ‘‘World’’ and ‘‘Create.’’

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Many of our member stations are using some of their digital bandwidth for

datacasting, another service made possible by DTV. Datacasting uses a station’s digital signal for sending high-end video, audio, text, and graphics, directly to personal

computers—wirelessly. Several stations, including KERA in Dallas, are datacasting

standards-based content directly to school computer networks to boost academic

achievement. This is one way that stations are fulfilling their voluntary commitment of one-quarter of their digital bandwidth for education.

Notably, many of our stations also are providing DTV datacasting to improve

emergency communications and enhance our homeland security. The June 7 issue

of Broadcasting and Cable magazine (see Appendix B) reports on a soon-to-be-finalized agreement between the Federal Emergency Management Agency at the Department of Homeland Security, our association, WETA/Washington, Maryland Public

Television and the Public Broadcasting Service (PBS). The project will pilot DTV as

a backbone of emergency communications for the National Capital Region and could

be rolled out nationally after that. Meanwhile, Nashville Public Television is pioneering the use of datacasting for local homeland security applications in partnership with local and state agencies.

Appendix C of my testimony lists just some of the examples of how local public

television stations are pushing the envelope in the use of digital broadcasting in real

ways to help real people.

DIGITAL TELEVISION AT THE CROSSROADS

However, despite recent progress in the DTV transition, the nation remains a long

way from achieving the full benefits of digital. While consumer awareness and acceptance of DTV has improved, it has not reached a sufficient ‘‘tipping point’’ at

which the transition might shift into high gear. The analog broadcast spectrum,

needed by public safety and coveted by new wireless service providers, remains outof-reach for these other uses.

Meanwhile, broadcasters, both commercial and noncommercial, continue to incur

the costs of operating redundant transmitters. In public television, we spend more

each year running and replacing analog transmission equipment than Congress appropriates to the Corporation for Public Broadcasting for digital grants. The irony

is not lost on our stations.

Public stations hold licenses to 21 percent of the nation’s broadcast spectrum. Our

stations know that they hold this spectrum in trust, and that the government will

reclaim it at some point.

But when? A 2002 study by the National Association Broadcasters found that, absent new government action, the statutory conditions for the end of the transition

might not be met until 2021. Since then, efforts such as Chairman Powell’s voluntary plan and the DTV roundtable discussions hosted by the leadership of this

committee have had a definite positive impact on the transition. However, with no

change in policy, the end of the transition remains a distant goal.

Recently, policymakers have begun to consider what policy reforms might be appropriate. Most of the discussion has centered on imposing a so-called ‘‘hard date’’

by which analog broadcasting would cease and spectrum be returned to the government. The variables are first, how soon that date might be; second, whether a single

hard date would apply universally to every market in the country; and third, how

to handle the rather significant details of cable and satellite carriage rights and

over-the-air analog consumers.

Setting a hard date is a tricky proposition: If the date is too soon, policymakers

risk damaging the economy and stranding consumers. Also, regardless of the date

itself, imposing a hard date without first resolving the fate of carriage rights and

over-the-air analog consumers is a recipe for disaster.

PUBLIC TELEVISION’S ROLE IN THE TRANSITION

The success in Berlin, and in the U.K. with the Freeview digital service, led us

to begin exploring whether our stations could contribute some new thinking about

wedding some modest policy reforms to market forces.

In February, we asked our stations when they believed conditions would be in

place that would allow them to switch off analog broadcasting and achieve what we

call DOB—Digital-Only Broadcasting. The survey found that, assuming the status

quo in government policy, 86 percent of stations didn’t expect conditions to be in

place for DOB by 2009, the hard date proposed by the FCC’s Media Bureau plan.

This is the bleak DTV transition scenario with which we are all too familiar. It

led us to ask: What would it take to change that scenario?

So we asked the question again, this time proposing three reforms to take place:

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• first—ensuring full post-transition cable and satellite carriage of digital broadcast

signals, including multicasting;

• second—ensuring the availability of low-cost, digital-to-analog set-top converter

boxes for serving households that rely upon free, over-the-air television; and,

• third—creation by Congress of a new funding stream, such as a digital content

trust fund, for the production and distribution of a new generation of digital

educational content to drive market acceptance of DTV.

The results were astonishing: 81 percent of stations indicated that with implementation of these important reforms, the conditions would exist for voluntary surrender

of analog by the end of 2007, a year earlier than the FCC’s Media Bureau plan

would require. (See Appendix A)

Stations in Roanoke, Virginia; Houston, Texas; and Durham, Hew Hampshire;

have indicated they might be ready for Digital-Only Broadcasting by an early date

if the above conditions are met. Barry Baker of WDCQ in Michigan, which serves

thirteen counties in the ‘‘thumb’’ of Michigan, says his station could be ready to return its spectrum by the end of this year. However, we need to protect consumers

in states like Montana, Oregon and North Carolina where some believe that DOB

may take much longer.

In sum, we concluded that 1) it may be unnecessary or even undesirable for the

entire country to be subject to a single hard date, and 2) there may be great benefits

to encouraging early return of analog spectrum in the markets that are ready to

go sooner.

PUBLIC TELEVISION’S DTV BLUEPRINT

Mr. Chairman, we think we are on to something here, and we would like to offer

a blueprint today that would accomplish the triple goals of returning a significant

amount of spectrum to the government in the next four years, providing a marketbased boost for the transition and—most important—delivering new digital services,

in the truest sense of the word, to consumers. Let me note that the plan we are

presenting is still a work-in-progress, and much is dependent upon Congressional

and FCC action. But we appreciate the opportunity to share our thinking with the

Committee today.

First, we ask that the Commission adopt rules providing for full post-transition

digital carriage rights, including multicasting, for local broadcast signals on cable

and satellite, and that individual stations be accorded those rights when they surrender analog. We would rather negotiate these agreements with the cable and satellite industries, but it is critical that the Commission and/or Congress be prepared

to weigh in if necessary. We have shared our views with the Committee regarding

carriage provisions in the reauthorization of the Satellite Home Viewer Improvement Act.

Second, we propose that Congress create a trust fund, based upon auction revenues that would support the creation of digital education content by public stations

and our partner institutions. GAO’s valuable research points out on page one of its

report a key difference between Germany and the U.S.: how the two societies finance public television. In Germany, public broadcasters are financed through a

monthly fee of nearly $20 per household, which nets about $7.4 billion per year.

Here is a comparison to consider: The average household in Germany contributes

about $236 annually to the German public television system while the American

federal subsidy for public television amounts to about $4.19 per household. About

the price of a cheeseburger and fries.

While a tax on households would never fly in the U.S., the surrender of analog

broadcast spectrum presents an historic opportunity to both accelerate the transition and to finance new educational services. The idea of a public broadcasting trust

fund has been around since the 1960s, but we believe our concept is different. It

is limited in scope, is highly targeted toward education and, we believe, will help

unlock tremendous economic benefits for the country.

Under our plan, public stations would be permitted to surrender their analog

spectrum—on a market-by-market basis—almost immediately, if the policy changes

we have outlined are instituted. Our plan is based on the notion that all spectrum,

like all politics, is inherently local. It is not necessary or even desirable for all spectrum—public and commercial—to be returned at once. In Berlin, 15 separate regional authorities set the timetable for transition. A regional or market-by-market

approach might work here, as well.

Wireless service providers or others who want access to UHF and VHF spectrum

might find it advantageous to market test new applications in specific markets before rolling them out nationwide. Others have referred to this as ‘‘conditioning’’ the

market.

31

Here is a hypothetical example: If ten public stations were willing to surrender

analog by the end of 2005 or even sooner, some of the new wireless applications we

have heard so much about might be tested in those markets, to be rolled out more

broadly as spectrum became available. We would expect that wireless broadband

companies would seek to work with stations in those markets to speed the process:

For instance, might a wireless company be willing to help underwrite set-top boxes

in a particular market if it knew it would gain access to the spectrum sooner?

By contrast, putting all analog broadcast spectrum on the market at the same

time might create a spectrum glut, ensuring an uncertain return for the Treasury

and taxpayers. And if spectrum is not to be auctioned all at once, there is little point

to forcing the country to go through a massive common analog switchoff that a universal hard date would entail.

NO VIEWER LEFT BEHIND

This last point addresses the need for protecting universal access for consumers

who rely upon over-the-air television, either exclusively or for second and third sets

in the home. Taking care of these citizens is a prerequisite for completing the digital

transition.

There may be, therefore, a need to subsidize digital-to-analog set-top converter

boxes for some Americans, perhaps on a means-tested basis. However, we believe

most consumers can be motivated to buy set-top boxes or new digital sets. The key

is rolling out and marketing new, over-the-air digital services to consumers. The

success of the Freeview service in Great Britain is very encouraging in this regard.

Perhaps in America, there is an opportunity to re-brand and re-launch broadcast

television as ‘‘wireless TV’’ for new generations who have known only cable.

Actually, as three public television licensees already have ceased analog broadcasting, we have some real world experience on which to draw. For example, when

KCSM/San Mateo, California was forced to go digital-only about a year ago, it instituted a thorough notification campaign, which included information on where overthe-air analog viewers might go to purchase converter boxes. When KCSM’s analog

transmitter finally went dark this spring, many consumers, especially elderly ones,

still were not prepared to deal with the change. Those who were prepared found a

shortage of converter boxes in stores, with prices ranging from $299 to $600 and

had to go to other stores to purchase rooftop antennas. One national retailer actually called the station asking that it not send any more customers to buy the scarce

boxes.

Clearly, the nationwide shutoff that a hard date implies would entail an enormous

information campaign and the mobilization of converter box production of wartime

proportions. We believe the country would benefit from trying digital-only broadcast

in a few test markets first, allowing the supply chain and consumers to adjust. Certainly, there is less risk—and potentially greater gain—in this approach.

TRUST FUND FOR A NEW GENERATION OF DIGITAL EDUCATION CONTENT

Under our scenario, self-selected stations that choose to surrender analog early

would be eligible for grants from a new federal digital educational services trust

fund. This fund would not replace the current appropriation to the Corporation for

Public Broadcasting; it would instead provide a new, targeted source of funding for

Public Television digital educational and informational content, paid for by future

auction revenues.

Because stations would be unlikely to participate in this plan if they were forced

to wait years for spectrum auctions, we propose that this fund be created by an initial appropriation. The Treasury then would be reimbursed later by the proceeds of

the spectrum auctions but, in the meantime, local stations could begin immediately

to deliver new digital educational content.

Mr. Chairman, I realize that much of the focus on the return of analog television

spectrum has centered on auction revenue for the government. However, we believe

there are much greater economic benefits at stake if the analog spectrum is freed

up sooner rather than later. If the wireless industry is correct, their use of vacated

spectrum will lead to a great deal of new economic activity. This means equipment

orders, jobs, and tax revenue to the government.

The establishment of a digital educational services trust fund itself will have important economic benefits for the nation. The fund would support the creation of a

new generation of education and training content and services, and the link between

education and economic growth is well known. A trust fund would allow for the localization of educational content and services; universal access to education; meeting

the training needs for tomorrow’s workforce; building richer digital libraries; and fiVerDate 11-MAY-2000 12:31 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 95459.TXT HCOM1 PsN: HCOM1
32

nally, fulfilling public television’s original mission to provide quality educational

services to the American public.

A MARKET-BASED SOLUTION

We believe the voluntary, market-based solution we propose will free up large

blocks of spectrum much earlier than would otherwise be the case with minimal

consumer disruption. Furthermore, our plan would rely upon market forces and the

involvement of future spectrum beneficiaries in ensuring universal service and the

provision of set-top converter boxes. The new educational services that would flow

from the creation of a dedicated fund would represent true digital public service

that otherwise will not happen.

Mr. Chairman, we believe this is a win-win-win proposal that will advance the

transition, begin to unleash the economic potential of the now-bottled up analog

broadcast spectrum and, finally, deliver a new generation of digital educational

services to our communities.

While time is running short in the 108th Congress, we stand ready to work with

you to seek the most efficient ways to accelerate the digital transition. Thank you

for the opportunity to be here today, and I look forward to responding to your questions.

[Additional material submitted is retained in subcommittee files.]

Mr. UPTON. Thank you.

Mr. Hartenstein, welcome.

STATEMENT OF EDDY W. HARTENSTEIN

Mr. HARTENSTEIN. Thank you, Chairman Upton and members of

the subcommittee. My name is Eddy Hartenstein. I’m the Vice

Chairman of DirecTV and thank you for inviting me to testify briefly regarding the DTV transition and in particular, the Berlin

model.

My message today is quite simple. As the Berlin model suggests,

satellite operators can play an important role in achieving a hard

date for the return of analog spectrum. DirecTV stands ready, as

my colleague, Mr. Willner has said in the cable side, to play such

a role in that transition, but cannot do so if required to carry

broadcasters’ multicast programming or datacast services and to

forego the use, in our case of compression technology. The Berlin

model is attractive in several ways. By relying on cable and satellite operators to deliver broadcast signals, it seems to have enabled a nearly instantaneous transition from analog to digital

broadcasting. If a similar approach could be reached to accelerate

the digital transition here, it could create enormous benefits for the

American public. It would make spectrum available for public safety and commercial purposes, generating, by some estimates, tens of

billions of dollars in auction revenue. It would give all parties in

the digital transition greater certainty, and it would end the controversy and possibly future litigation over dual must-carry.

Can a Berlin variant accomplish this in the United States? It’s

certainly worth exploring. In any event, the most important thing

is that this committee is leaving no stone unturned in finding ways

to accelerate the digital transition.

Indeed, as a company that made its name by offering the first

all digital service a decade ago, DirecTV has been at the forefront

of the digital transition for years and is now exploring ways to retransmit hundreds of high definition local channels in markets nationwide. DirecTV thus stands ready to play its part in advancing

the digital transition.

33

I’d like, however, to spend the balance of my time discussing one

crucial point. DirecTV cannot help advance the digital transition if

required to carry multicast and datacast services in the same way

broadcasters have suggested. If DirecTV must make available to

each broadcaster an enormous and fixed amount of capacity, it cannot offer a full slate of local broadcaster DTV service. As this committee is currently considering SHVIA reauthorization, you’re well

aware that satellite systems operate under very different capacity

constraints than due cable systems. A typical cable system will

transmit even in the largest markets at most about 20 broadcast

signals at one time. Satellite operators, by contrast, must retransmit all broadcast signals nationwide using a very limited

number of orbital locations in spectrum.

Thus, in order to provide local service in the first 105 markets

that it does today, here at DirecTV, we must retransmit the signals

of nearly 900 local stations simultaneously. DirecTV has met this

challenge by employing state-of-the-air technology. First, we’ve

launched spot beam satellites that allow the geographic reuse of

satellite spectrum. Second, DirecTV has created capacity by compressing signals, that is, removing unneeded bits in the video signals. Such technologies have enabled DirecTV to provide local-intolocal service in 105 markets today and hopefully in a few weeks,

take that up to 130, and are a crucial underpinning of our commitment to serve all 210 markets in the United States by no later at

the outside of 2008.

Some broadcasters, however, want to change this formulation,

arguing that satellite carriers should retransmit not just the primary video of DTV signals, but also associated multicast and

datacast material. Satellite carriers would essentially have to offer

a fixed capacity pipe to all broadcasters in a market before retransmitting the DTV signals for any such broadcaster. DirecTV

simply could not provide meaningful DTV service under such a

rule.

DirecTV is procuring over $1 billion worth of satellites beyond

what we already have up there that will enable us to retransmit

the high definition signals of all broadcasters in many markets, but

these plans depend upon the ability to compress signals and the

carriage of primary video signals only.

Both of these elements are crucial. In fact, compression will be

even more important in tomorrow’s high definition and high bandwidth world than it is today and because even compression has its

limits, the amount of underlying material to be carried must be

reasonable.

In conclusion, DirecTV’s ability to deliver local, standard and

high def signals to its consumers depends on its continued ability

to use compression and on reasonable limitations on the material

that it must carry.

Thank you for allowing me to present our view and perspective

on these issues. I welcome questions later.

[The prepared statement of Eddy W. Hartenstein follows:]

PREPARED STATEMENT OF EDDY HARTENSTEIN, VICE CHAIRMAN, THE DIRECTV

GROUP, INC.

Chairman Upton, Mr. Markey and members of the Subcommittee, my name is

Eddy Hartenstein and I am the Vice Chairman of The DIRECTV Group, Inc.

34

(‘‘DIRECTV’’). Thank you for inviting me to testify on behalf of DIRECTV regarding

the digital television (‘‘DTV’’) transition, and, in particular, the so-called Berlin

model. My message today is quite simple. First, DIRECTV believes the Berlin model

can provide useful lessons for the United States in advancing the digital transition,

in particular the role that satellite operators can play in achieving a hard date for

the return of analog spectrum. Second, while DIRECTV stands ready to play such

a role, I must caution members of the Committee that our ability to bring digital

services to U.S. consumers will collapse if satellite operators are required to carry

broadcasters’ multicast programming or datacast services.

While I am not an expert on the Berlin model, it certainly appears to have some

extremely attractive aspects. By relying on cable and satellite operators to deliver

over-the-air signals to viewers, it seems to have made possible a nearly instantaneous transition from analog to digital broadcasting. If a similar approach could accelerate the digital transition in the United States (for example, as suggested by

FCC Media Bureau Chief Ken Ferree), it would create enormous benefits for the

American public.

• It would, of course, make prime ‘‘beachfront’’ spectrum available for a wide variety

of public safety and commercial purposes—a worthy goal in and of itself. By

doing so, it would generate an enormous amount of auction revenue for the U.S.

Treasury—as much as $40 billion, according to some estimates.

• It would give everyone involved—consumers, broadcasters, consumer electronics

manufacturers, and programming distributors—greater certainty and a stable

target toward which to work. This would eliminate the ‘‘chicken and egg’’ dilemma that has plagued the digital transition to date. A date certain for the

transition would lead to greater capital investment by distributors to carry digital content, the creation of more high-definition programming, and better and

cheaper consumer equipment. The efforts of this Committee and FCC Chairman

Michael Powell have certainly led to significant progress in this regard, but I

think we all agree that a hard transition date would dramatically jump-start

the transition.

• And not least, it would end the controversy over whether distributors should be

required to carry simultaneously the analog and digital signals of broadcasters.

While the FCC has tentatively concluded that so-called ‘‘dual carriage’’ is unconstitutional, a final ruling on this subject has yet to be issued. Regardless of the

ultimate decision, it would lead to years of litigation, which in itself would slow

the digital transition for years to come.

Can the Berlin model or some variant thereof accomplish all this in the United

States? DIRECTV believes it is well worth exploring. Certainly, the Berlin experience provides one answer to perhaps the most important question associated with

the digital transition—how to avoid ‘‘stranding’’ the 12.5 million Americans who still

rely on over-the-air television. And, as some of my fellow panelists have observed,

in the United States it might be possible to use proceeds from the analog spectrum

auctions to fund subsidies of digital-analog converters, or even cable or DBS subscriptions. While there may be some elements of the Berlin plan that will make implementation difficult in this country, the most important thing is that the Committee is leaving no stone unturned in finding ways to accelerate the digital transition. We applaud this approach.

Indeed, as a company that made its name by offering the first all-digital service

a decade ago, DIRECTV has been at the forefront of the digital transition for years.

It is now actively exploring ways to create the infrastructure necessary to retransmit hundreds of high-definition local channels in markets nationwide. Therefore, if policy-makers conclude that such a plan makes sense in the United States,

DIRECTV stands ready to play its part in advancing the digital transition.

I’d like to spend the balance of my time discussing one point I do not believe has

received enough attention in this discussion: DIRECTV and other U.S. satellite operators simply cannot help advance the digital transition if required to carry

multicast and datacast services in the way some broadcasters have suggested. Unlike cable operators, DIRECTV retransmits broadcast signals today by first

digitizing the analog signal into a standard definition format and then employing

video compression techniques. This allows us to make the most efficient use of valuable spectrum resources without degrading signal quality received by our viewers.

Indeed, DIRECTV uses such compression to deliver viewers its current slate of high

definition programming as well. A key underpinning to our future plans for transmitting high definition programming is the continued ability to use such advanced

technology. If, as some broadcasters ask, DIRECTV must instead make available to

each broadcaster an enormous (and fixed) amount of capacity on its satellites,

DIRECTV will be unable to use these techniques. Without them, DIRECTV will simVerDate 11-MAY-2000 12:31 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6621 95459.TXT HCOM1 PsN: HCOM1
35

1 A single DBS transponder covers 24 MHz of spectrum.

ply be unable to offer a full slate of local broadcasters’ DTV service, and our ability

to advance the digital transition will effectively be negated.

Satellite Operators Have More Severe Capacity Constraints Than Do Cable Operators

As this Committee is currently considering reauthorization of the Satellite Home

Viewer Improvement Act (‘‘SHVIA’’), I probably do not need to remind you that,

when it comes to retransmitting local broadcast signals, satellite systems operate

under very different capacity constraints than do cable systems. A typical cable central office, or ‘‘headend,’’ collects over-the-air broadcast signals from the surrounding

community, and retransmits those signals to viewers. Thus, a cable system will retransmit, at most, perhaps twenty broadcast signals at a time.

Satellite operators, by contrast, must retransmit all broadcast signals in each of

the markets they serve from coast to coast using a very limited number of orbital

locations (the satellite equivalent of the cable headend). Thus, in order to provide

local-into-local service in the 105 markets it does today, DIRECTV’s distribution system needs to retransmit the signals of nearly 900 local stations simultaneously from

two orbital slots. This requires an enormous amount of capacity, and has been the

principle engineering challenge DIRECTV has faced since SHVIA’s enactment.

DIRECTV Relies on State of the Art Technology to Retransmit Local Stations

DIRECTV has met this challenge by employing state of the art technology. First,

DIRECTV has launched spot-beam satellites that create additional capacity by

reusing spectrum in different geographic areas. The more traditional CONUS-beam

satellites have a single, multi-frequency (or multi-transponder 1) footprint that covers the entire continental United States. While CONUS satellites are excellent for

retransmitting national programming, using them to retransmit local broadcast programming is a very wasteful use of spectrum. For example, if DIRECTV wanted to

retransmit a Boston station on a CONUS satellite, it would have to retransmit the

station to the entire United States, even though, by law, only Boston-area subscribers could watch it. Naturally, if one were to try to retransmit local broadcast

stations in every market throughout the country via CONUS satellites, capacity on

the satellites would quickly be exhausted leaving little, if any room for national

cable programming.

By contrast, spot-beam satellites are much better for the retransmission of local

broadcast signals because, rather than ‘‘seeing’’ the entire United States with a

large number of transponders, they ‘‘see’’ multiple, discrete areas, each with only

one or two transponders. Spot beam satellites thus allow the geographic ‘‘reuse’’ of

satellite frequencies—as transponders operating over the same frequencies can simultaneously transmit signals to Houston and Chicago. This reuse is akin to your

car radio—there might be FM stations operating at 99.5 in Washington, D.C., New

York, and Boston, and, as long as they are far enough apart, they do not interfere

with one another. Thus, the 99.5 frequency is ‘‘re-used’’ among these three cities.

By covering discrete and non-overlapping geographic areas, satellite spot-beams can

accomplish much the same thing.

To give you an idea of how important this technology is, DIRECTV has 46 DBS

frequencies, 10 of which have been dedicated for use in spot beams to deliver nearly

900 local broadcast stations. If these same frequencies were used in CONUS beams,

they could carry only on the order of 120 stations. Clearly, DIRECTV’s use of advanced spot beam technology has been a lynchpin of its local service capability.

The second technique used to increase capacity is compression, a technique for

mathematically manipulating digital content to remove redundant and unneeded

bits. In the early 1990s, compression rates were roughly 5:1 (meaning that you could

fit five cable channels or broadcast signals on a standard 24 MHz DBS transponder). Today, for standard definition television signals, compression rates are

typically between 11:1 to 12:1 (although we occasionally compress at a slightly higher rate in order to fit stations into a particular spot beam), and further improvements are likely on the horizon. Compression rates for HD signals are, of course,

much lower—but these, too, are expected to improve.

This is, of course, a very complicated subject. But the bottom line is that, if you

want to know how much capacity a satellite operator has to retransmit local broadcast signals in a particular market, you need to know not just how many transponders the satellite operator has, but also how many transponders are available

in the spot beam or beams covering that market, as well as how much the satellite

operator is able to compress the signal while still maintaining signal quality.

Take, for example, the Washington D.C. designated market area. DIRECTV has

assigned two transponders to the spot beam covering Washington, D.C. At 12:1 comVerDate 11-MAY-2000 12:31 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6621 95459.TXT HCOM1 PsN: HCOM1
36

2See, e.g., Letter from Henry L. Baumann, NAB, et al., to Chairman Michael Powell, FCC,

MB Docket No. 98-120 (Sept. 5, 2002) (suggesting that cable operators not be permitted to ‘‘alter

the bits within the ‘‘data packets’’ of the broadcast DTV stream).

pression, the retransmission of each of Washington’s 12 broadcast stations in standard definition format can be achieved using a single transponder in this beam, leaving additional capacity for carriage of local signals in other markets covered by this

beam. However, if DIRECTV were required to carry each station’s multicast signal

without using compression, it would have to allocate an entire transponder to each

station. Under this scenario, DIRECTV could carry only two Washington stations,

and thus, under the current ‘‘carry one carry all’’ rules, DIRECTV could not retransmit any signals to Washington (much less have capacity remaining to support

local service in other markets within the beam). Accordingly, the spot beam infrastructure that DIRECTV has developed and deployed at a cost of hundreds of millions of dollars would be rendered essentially useless. Moreover, even if it were possible to take all of the frequencies DIRECTV currently uses for local signal carriage

nationwide and dedicate them to providing local stations in Washington at a 1:1

compression ratio, there still would not be sufficient capacity to serve even this single market.

Multicast and Datacast Proposals Would Prevent DIRECTV From Advancing the

Digital Transition

DIRECTV is able to retransmit local broadcast signals in the first place only because the ‘‘carry one, carry all’’ rules specify only that DIRECTV retransmit the

‘‘primary video [and] accompanying audio’’ signals of local broadcast stations. They

do not mandate the amount of bandwidth that DIRECTV must use to retransmit

the signals, or that DIRECTV must retransmit signals that do not relate to the primary video feed. Indeed, the law specifically permits DIRECTV to use ‘‘reasonable

compression techniques’’ in such retransmissions. DIRECTV can thus meet its statutory obligations while reducing the bandwidth of the signals, all the while maintaining the digital clarity that is a hallmark of our service.

Some broadcasters, however, want to change this formulation for the retransmission of DTV signals. They say that satellite carriers should be required to retransmit not just the ‘‘primary video’’ of digital signals but also associated multicast

and even datacast material. This may sound benign, but what it really means is

that satellite carriers would be required to retransmit the entire bitstream of a

broadcaster’s digital transmission—including redundant and other bits unnecessary

for a quality digital video signal and even bits that have nothing to do with video

service at all.2 Were such a rule applied under today’s carry one, carry all regime,

this would mean that satellite operators would have to offer such a ‘‘pipe’’ to all

broadcasters in a market before retransmitting the digital signals of any such broadcaster. As my earlier discussion of the Washington, DC market illustrates, if that

were the rule, I can assure you DIRECTV would be carrying local stations in a

handful of markets versus the 105 we are in today.

DIRECTV believes its future lies in bringing its customers more high-definition

signals, particularly local stations in high definition. Moreover, those signals will

have to be of sufficient quality to compete with the high-definition offerings of cable

operators, or DIRECTV will likely lose subscribers to cable. To this end, DIRECTV

is in the process of procuring a billion dollars worth of spot-beam satellites that will

enable it to retransmit the high-definition signals of all broadcasters in many markets within a few years. These plans depend critically upon the ability to use cutting-edge technology, especially the use of advanced compression techniques, and

the carriage of a broadcaster’s primary video signal only.

Both of these elements are crucial. First, compression has long been the key to

DIRECTV’s ability to provide the widest possible array of compelling programming

to consumers given a limited amount of bandwidth. That technology will be just as

fundamental in tomorrow’s high definition world as it is today. Second, because even

compression has its limits, the amount of underlying material to be carried must

be reasonable. If DIRECTV must carry each broadcaster’s multicast programming,

it will simply have to cut back on the number of markets it can serve. Moreover,

if DIRECTV must carry each broadcaster’s datacast signals as well, the problem is

exacerbated even further—DIRECTV will be unable to achieve the benefits of compression because data transmissions are already compressed. Thus, it is imperative

that satellite carriers be allowed to transmit only the compressed primary video signal—as they do today under SHVIA—if they are to continue providing local-intolocal service in a substantial number of the nation’s markets.

All of this obviously has enormous implications for DIRECTV’s ability to help accelerate the digital transition, and, indeed, to retransmit local signals in high definiVerDate 11-MAY-2000 12:31 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6621 95459.TXT HCOM1 PsN: HCOM1
37

tion after the transition. We stand ready to assist in the digital transition. But the

key to any decision in this area is DIRECTV’s continued ability to use state of the

art technology for the most efficient use of spectrum for the delivery of broadcasters’

primary video signals. This in turn will drive the digital transition forward, and we

look forward to continuing to be at the forefront of this effort.

Mr. Chairman and Members of the Subcommittee, I would like to thank you for

allowing me to give DIRECTV’s perspective on these issues. I am happy to take your

questions.

Mr. UPTON. Thank you.

Mr. McGrath.

STATEMENT OF CARL J. McGRATH

Mr. MCGRATH. Good morning, Chairman Upton, Ranking Member Markey and members of the subcommittee. My name is Carl

McGrath. I am the CTO of Motorola’s Broadband Business Sector.

My business is a leader in developing and deployment digital

broadband entertainment communications and information systems

for the home and for the office.

I want to thank you, Mr. Chairman, for your leadership on communication matters and for scheduling this hearing to address the

issue of how to resolve the DTV transition in a timely manner and

preserving and improving the TV viewing experience of the American public.

Mr. Chairman, since the beginning of television and throughout

its transitions, Motorola has been at the forefront of technology development in the field. In 1947, we built one of the first affordable

television sets. In 1963, Motorola developed the first truly rectangular picture tube for color TV. In 1972, we developed the first remote controlled set top box and in 1992, Motorola helped launch

the digital revolution by proposing a transition from analog to digital technology to drive the market to HDTV and facilitate the recovery of spectrum.

Along the way and with a complete set of products for broadcasters, cable network operators and consumers, Motorola has continued to pioneer solutions that drive the delivery of digital television.

You are developing a solid record on the path forward to concluding the transition. On June 2, you heard about the FCC’s DTV

plan. The committee leadership sent a strong message that the digital day should be January 1, 2007. Chairman Barton’s proposal

changed the debate and we would like to express appreciation for

his leadership and the direction he is setting for the transition.

This gives rise to the subject of today’s hearing.

Pursuing a model like that used in Berlin will provide certainty

for U.S. consumers, law enforcement and industry by setting a firm

date of no later than December 31, 2006, you will enable all sectors

of industry and public safety to plan for the deployment of technologies in the 700 megahertz band. This will spur all of the relevant stakeholders to quickly conclude this transition.

Chairman Upton, as you and Ranking Members Dingell and

Markey noted at the last hearing, another of the key benefits of

concluding the DTV transition as soon as possible is improved public safety communications interoperability. Wireless communications provide our first responders with the right information at the

38

right time in the right place whether that information is video,

voice or data. Use of this spectrum can literally save lives.

We are mindful of the other considerations that are involved in

clearing these channels and we believe the adverse effects can be

mitigated. As you explore ways to resolve the transition, we are encouraged by the examination of the Berlin experience where crisp,

analog cutoff date was achieved by deploying digital to analog converter boxes to some analog TV owners who did not subscribe to

cable or satellite service. This intervention ensured a seamless

changeover for all TV customers and protected every consumer’s

continued availability to enjoy broadcast TV content.

It is encouraging to note that the GAO is working with this body

to assess the applicability of the solution to the U.S. While there

are high end digital analog converters on the market today, what

is required for wire to consumer market is a low cost device that

will allow our TV viewers to continue to use their existing televisions. There’s currently no demand for such a mass market product because of the uncertainty created by the 85 percent penetration loophole in the Telecom Act. If Congress removes this uncertainty, there will be clear market for low cost converter boxes and

manufacturers will have the incentives to produce them in quantities that drive down cost. Such boxes will benefit consumers, providing low cost alternative to view free over-the-air programming.

To support the conclusion of DTV transition, my team is presently completing its cost analysis for an over-the-air digital to analog converter that would facilitate a Berlin-type solution in the U.S.

by 2007. In fact, we anticipate placing on record at the SEC an estimated cost of $67 per unit if the hard transition date was set in

early 2007.

Today, approximately 80 percent of the television viewers nationwide receiver their content via cable and satellite services. Set top

solutions like this can provide the remaining Americans with full

TV access. This technology solution would facilitate an affordable

implementation of a Berlin-type solution in the U.S. Government

subsidies for converter equipment and effective consumer education

campaign informing the public about the transition to digital television will ease the transition.

In closing, Mr. Chairman and members of the subcommittee,

making spectrum available for new innovative technologies for first

responders and consumers nationwide by the start of 2007 will not

happen without your commitment and your help. We respectfully

urge Congress to take action and close out the DTV transition we

began together. We are proud of our technology heritage and Motorola pledges its support to you to help make this happen smoothly. We feel strongly that with digital to analog solutions like ours,

this can be achieved with a trifeca, a win for the consumer, a win

for industry and a win for the first responders. Thank you.

[The prepared statement of Carl J. McGrath follows:]

PREPARED STATEMENT OF CARL MCGRATH, CORPORATE VICE PRESIDENT & CHIEF

TECHNOLOGY OFFICER, BROADBAND COMMUNICATIONS SECTOR, MOTOROLA

Good morning, Chairman Upton, Ranking Member Markey and Members of the

Subcommittee.

39

MOTOROLA’S TECHNOLOGY HERITAGE

My name is Carl McGrath, and I am the Chief Technology Officer of Motorola’s

broadband business sector. I have worked with the cable, broadcast, and satellite

industry for nearly 25 years, and my business is a leader in developing and deploying digital broadband entertainment, communication and information systems for

the home and for the office.

I want to express my appreciation to you, Mr. Chairman, for scheduling this hearing to address such an important issue as how to resolve the digital television transition in a timely manner while preserving and improving the TV viewing experience of the American public.

Mr. Chairman, since the beginning of television and throughout its various transitions, Motorola has been at the forefront of technology development in the field. In

1947, we built one of the first affordable TV sets, which was offered to consumers

for under $200. In 1957, the company built the technology for the first pay-per-view

cable event. In 1963, as TV upgraded from black and white to color, Motorola developed the first truly rectangular picture tube for color television in a joint venture

with the National Video Corporation. The tube quickly became the standard for the

industry. In 1972, we developed the first remote-controlled set-top box, and in 1992,

Motorola helped launch the digital revolution by proposing to the government a concept that no one else had seriously considered—transitioning from analog to digital

technology to drive the market to High-Definition TV (HDTV) and facilitate the recovery of spectrum.

Along the way, Motorola has continued to pioneer solutions that drive the delivery

of digital television. With a complete set of products for broadcasters, cable network

operators, and consumers, the company looks forward to bringing technology to the

table that will help the Committee meet its objective of expeditiously concluding the

DTV transition.

In 2003, Motorola began bringing innovative HDTV solutions to a growing number of consumers—HD enthusiasts who desire these capabilities in their homes. As

part of the company’s connected home vision, Motorola enables viewers to enjoy the

functionality of digital cable and HD, with products such as fully-integrated set-tops

and media center gateways that support both standard and high-definition television signals.

Motorola’s HDTV consumer equipment includes set-tops, which support both

standard- and high-definition television signals and allows viewers to enjoy the

functionality of digital cable and HD in a single, cost-effective solution—enhancing

their TV experience with seamless surfing between analog TV channels, digital

standard-definition channels, off-air (local broadcast) HD programming carried by

cable operators. In addition to HDTV, some of our boxes are equipped with a cable

modem to support future IP and video-based interactivity, including streaming

media, IP and video telephony, file transfer capability, and session-oriented gaming.

We also offer media center gateways which allow consumers to send an array of

advanced digital entertainment and communications services—including HDTV and

Personal Video Recorder—to any room of the home when used with Motorola

Broadband Media Center Extension (BMCx) devices. By attaching a Motorola BMCx

to TVs, stereo systems, PCs, and other devices, consumers can network numerous

electronic products, and enjoy the sharing of data and video throughout their homes.

As you can see, moving all content to the digital environment will bring immeasurable benefits to consumers.

TECHNOLOGY CAN ENABLE A DATE CERTAIN FOR DIGITAL TRANSITION AND PRESERVE

CONSUMER CHOICE

With approximately 70 percent of television viewers nationwide receiving their

content via cable, the efficient carriage of digital HD content over cable systems is

crucial to the successful, economical rollout of HDTV services.

Accordingly, Motorola continues to help lead the DTV transition through the development of a line of products that enable the simple and efficient carriage of digital HD content over cable systems—making it easier and even more efficient for

broadcasters to offer HD programming to viewers.

Building on a decade of experience in HD encoding technology, Motorola also offers encoders that now incorporate techniques to provide users with exceptional picture quality at bit rates far below those originally anticipated. Using these new

encoders, broadcasters are able to combine additional standard-definition services

with their HD broadcasts, and cable programmers can transmit multiple HD

streams on existing transponders.

As you can see, we have been working to develop complex solutions to deliver on

the promise of the new technology that industry and Congress envisioned would

40

take shape in the digital TV environment. It is an honor to be here with you today

to discuss how digital-to-analog converter technology can enable new services for

consumers and first responders when used as a tool to complete the transition. The

right decisions by the Congress can provide an aggressive and achievable timetable

by which the public can benefit from improved public safety communications, new

commercial services and new broadcast entertainment services.

You are developing a solid record on the path forward to concluding the transition. On June 2nd you heard about the FCC’s DTV plan, and the Committee leadership sent a strong message that the digital day was beginning to dawn. Chairman

Barton’s proposal changed the debate, and we would like to express our appreciation

for his leadership and the direction he is setting for the transition. This gives rise

to the subject of today’s hearing.

Pursuing a model like that used in Berlin will inject needed certainty into the US

market for consumers, law enforcement, and industry. By setting a firm date of no

later than December 31, 2006, you will enable all sectors of the industry and public

safety to plan for the deployment of beneficial technologies in the 700 MHz band.

This will spur all of the relevant stakeholders to quickly conclude this transition in

the best interests of the public.

We generally believe that government intervention in the marketplace is to be

avoided. However, in this case it is necessary to correct an unintended market conflict that flows from the Telecom Act. Setting a firm transition date is critical to

resolve the current chicken and egg conundrum of the DTV transition. As you know,

doing so will unlock new entertainment and information services for consumers and

will provide additional opportunities for American industry.

Chairman Upton, as you and Ranking Members Dingell and Markey noted at the

last hearing, another of the key benefits to concluding the DTV transition as soon

as possible is improved public safety communications interoperability. Wireless communications provide our first responders with the right information, at the right

time and in the right place, whether that information is voice, data, or video.

Public safety must have access to the 700 MHz spectrum by year-end 2006 to deploy interoperable voice and advanced data technology as early as possible. This

spectrum can literally save lives. Together, we can improve the quality of mission

critical information to our front line responders. While 24 MHz of spectrum has

been allocated to public safety in the band, even more may be required to support

homeland security coordination among Federal, State & local agencies and critical

infrastructure entities.

Unfortunately, most metropolitan area public safety operations cannot use this

spectrum today, nor can they predict with any certainty when they might have access to these frequencies. The 85% threshold raises uncertainty. In reality, there is

no ‘‘hard date’’ for ending the DTV transition, leaving public safety and the deployment of vital technology in limbo.

We are mindful of the other considerations that are involved in clearing these

channels, and we believe the adverse effects can be mitigated. As you explore ways

to resolve the transition, we are encouraged by your examination of the Berlin experience where a crisp analog cut-off date was achieved by deploying digital to analog

converter boxes to some analog TV owners who did not subscribe to cable or satellite

service. This intervention ensured a seamless change-over for all TV consumers and

protected every consumer’s continued ability to enjoy broadcast TV content. It is encouraging to note that the GAO is expertly working with this body to assess the

applicability of this solution in the US.

While there are digital-to-analog converters on the market today, they are generally targeted at the high-end, ‘‘early adopters’’ who want to experience the benefits

of new technology as soon as possible. For example, Motorola has a high-end digital

tuner box on the market today that displays digital content on TV sets that otherwise could not receive it, including conventional analog television. However, what

is required for the wider consumer market is a low cost device that will allow TV

viewers to continue to use their existing televisions. There is currently no demand

for such a mass market product because of the uncertainty created by the 85% penetration loophole in the Telecom Act. If Congress removes this uncertainty, there will

be a clear market for low cost converter boxes and manufacturers will have incentives to produce them in quantities that drive down costs. Such boxes will benefit

consumers, not only by providing a low cost alternative for continuing to view free

over-the-air programming, but also by allowing the public to access the multiple

streams of content that broadcasters can place on a digital channel.

To support the conclusion of the DTV transition, my team is presently completing

its cost analysis for an over-the-air digital-to-analog converter that would facilitate

a Berlin Model-type solution in the US by 2007. Based on our analysis, the cost of

such a device should be well under $100. In fact, we anticipate placing on the record

41

at the FCC an estimated cost to retailers of $67 per unit, if the hard transition date

was set in early 2007. This technology solution would facilitate an affordable implementation of a Berlin Model-type solution in the US. Government subsidies for converter equipment and an effective consumer education campaign informing the public about the transition to digital television will ease the transition.

Manufacturers generally need 12-18 months to design and build a new device

such as this. This cycle time points to the need to enact DTV transition legislation,

if such a solution were part of the plan, by mid-year next year to meet the 2007

goal without disruption. In addition to providing those consumers who rely on overthe-air TV delivery with a cost effective way to continue to do so, Motorola believes

the availability of a cost-effective converter box is another tool to help recover spectrum for new services.

PUBLIC SAFETY NEEDS 700 MHZ SPECTRUM FOR CRITICAL TECHNOLOGIES

Motorola’s partnership with the public safety community over the years has

taught us that first responders need systems designed specifically for mission critical operations to get the job done. As with most of the Northeast and Midwest, the

State of Michigan was confronted with a large-scale emergency during the August

2003 blackout. Despite the failures experienced by various commercial carrier networks in Michigan and surrounding states due to these power outages, Michigan’s

nearly 12,000 public safety radios experienced no interruptions in communications.

Police officers, firefighters and EMS providers worked as a team in real time to

serve the public. Michigan had control over its communications because it had created a statewide mission critical network designed specifically for catastrophic situations and events, including the disruption of normal power sources. While many

public safety entities also use public carrier networks for less critical communications, there is no substitute for mission critical systems when the safety of first responders and the public they serve is at risk.

Effective mission critical mobile and portable communications systems are absolutely essential to public safety operations. Police officers, firefighters, emergency

medical personnel and their departments use mobile and portable communications

to exchange information that can help protect public safety officials and the citizens

they serve. Traditionally, this information was mostly exchanged by voice. Increasingly, as public safety entities strive to increase efficiency and effectiveness in today’s world, they also need the capability to reliably transmit and receive high performance data, still images and video . Spectrum is the road upon which such communications travel, and increased communications requirements lead to the need for

more spectrum.

Based on a thorough justification of need, Congress and the Federal Communications Commission dedicated 24 MHz of spectrum in the 700 MHz band to State and

local public safety in 1997. The FCC established specific nationwide interoperability

channels within this spectrum allocation, as well as both narrowband and

broadband channels to support a variety of identified public safety communications

requirements.

However, seven years later, incumbent television stations operating on channels

62, 63, 64, 65, 67, 68 and 69 prevent public safety access to this essential resource

in most major urban areas where the demand for more spectrum is the greatest.

The recent focus on increased interoperability and Homeland Security make availability of this public safety spectrum nationwide even more critical.

These channels are critical to public safety for two reasons:

(1) Together, the new 700 MHz and current 800 MHz bands provide the best opportunity to integrate interoperable communications. The 700 MHz band’s proximity to the 800 MHz band allows public safety agencies to expand their current

800 MHz narrowband voice and data systems for interoperability and regional

coordination on an ‘‘intra’’ as well as ‘‘inter’’ agency basis. Equipment operating

in these combined frequency bands on the FCC-endorsed Project 25 interoperability standard is commercially available today. The FCC has granted each

state a license to operate such narrowband communications in the 700 MHz

band. Localities throughout the country are actively engaged in spectrum planning at 700 MHz, a prerequisite for obtaining their own FCC licenses. For example, after a yearlong review by the FCC, the Southern California regional

plan was recently approved, but TV incumbency prevents actual use of the spectrum in much of that area.

(2) 700 MHz is the only dedicated spectrum allocation where public safety can implement advanced mobile wide area systems that bring high-speed access to

databases, the intranet, imaging and video to first responders out in the field.

42

This technology offers a whole new level of mobile communications capabilities,

which is far beyond today’s voice and low speed data applications. For example:

a. An officer or agent could transmit video of a potential bomb, or biological weapon

and get real time counsel from an expert in another location.

b. Local or state police could instantly send or receive a photograph of a missing

or abducted child.

c. Crime scene investigators can transmit live video of footprints, fingerprints and

evidence to speed analysis and apprehension of perpetrators.

d. Firefighters can access building blueprints, hydrant locations hazardous material

data and other critical information.

e. Paramedics can transmit live video of the patient to doctors at the hospital that

would help save lives.

Motorola previously conducted wideband trials together with public safety entities

in Pinellas County, Florida and the City of Chicago, and we are currently participating in the District of Columbia’s broadband trial. As to the Chicago trial, we

greatly appreciate Chairman Upton leading a delegation of Committee Members, including Congressmen Bass, Rush, and Terry to participate in a demonstration last

year with the Chicago Police Department. Trials like this one operate under experimental 700 MHz licenses from the FCC. The capabilities demonstrated are the

emerging powerful multi-media applications that will bring public safety communications into the Twenty-First Century.

We commend and encourage efforts by this Committee and the FCC to ensure

that this 700 MHz spectrum is cleared nationwide for public safety and other uses.

The reality is that only 75 stations, equally less than 5% of this country’s of the

more than 1500 US television stations are blocking improved public safety communications for 84% of the population in the largest cities, those over 200,000.

Motorola’s analysis of independent television industry data shows that, on average,

only 14% of the TV households who have the option to view these stations actually

do so at all, and that of those viewing, 82% watch by cable. This means that, on

average, only 3% of the TV households within these stations’ coverage areas actually

tune to these stations over-the-air sometime during an average week.

The Committee is also aware of an FCC plan that would complete the analog to

digital TV transition by January 1, 2009. We applaud the FCC for taking the leadership and initiative to move the debate toward a successful conclusion. While 2009

may be an appropriate date by which all 1500 or more TV stations would complete

the transition, the public safety community has stated that its needs justify clearing

the stations blocking its channels by year-end 2006. At that time, public safety will

have waited almost ten years to access this spectrum. Digital-to-analog converter

box solutions could also be brought to bear in this environment to preserve access

to broadcast TV content for all Americans.

We urge the Committee not to be deterred from sticking to the December 31, 2006

goal because it has been hard to achieve to date. Rather, once it has been reaffirmed

without exceptions, the affected parties, including the relevant government agencies,

the public safety community, the broadcasters and other industry parties, including

our company, should be called upon to devote our energies to making it happen.

As you know, the 24 MHz of spectrum in the 700 MHz band is allocated for State

and local public safety use. That spectrum, if cleared, would only partially satisfy

the spectrum need documented by the public safety community. No comparable

spectrum allocation exists for meeting the Homeland Security requirements of Federal agencies or critical infrastructure entities. Such interoperability among State

and local first responders, Federal agencies and critical infrastructure entities will

best be achieved through the availability of comparable spectrum resources. Therefore, we recommend that Congress consider meeting these additional needs by reallocating the remaining 30 MHz of commercial spectrum in the 747-762 MHz and

777-792 MHz portions of the band which are presently targeted for auction. This

spectrum should be reallocated as a Homeland Security band to support State, local,

Federal and critical infrastructure (such a utilities and nuclear facilities) communications needs. In the previous hearing, this Committee also heard testimony from

Mr. Robert LeGrande, Deputy Chief Technology Officer for the District of Columbia

Government. Mr. LeGrande pointed out that a portion of this additional 700 MHz

spectrum is critical for broadband public safety services.

Should the government wish to pursue this important reallocation of spectrum,

anticipated auction revenue from this 700 MHz band spectrum would no longer be

available. However, we believe substitute spectrum that could provide potentially

stronger auction receipts can be identified to replace this anticipated revenue and

could be used to support a Berlin Model-type subsidy solution domestically.

Motorola greatly appreciates this Committee’s continued policy thrust to find

ways to reinvest spectrum auction revenues in ways to advance technology deployVerDate 11-MAY-2000 12:31 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6621 95459.TXT HCOM1 PsN: HCOM1
43

ment and economic development, whether it is the Commercial Spectrum Enhancement Act that this body passed last year and is under active consideration in the

Senate, or the Chairman’s discussion of using auction revenue to help support the

return of the analog TV frequencies for other valuable services—including public

safety interoperability.

In closing, Mr. Chairman and Members of the Subcommittee, making spectrum

available for new innovative technologies to support first responders and consumers

nationwide by the end of 2006 will not happen without your commitment and your

help.

We respectfully urge the Congress to take action to conclude the DTV transition

we began together. We are proud of our technology heritage in this space, and Motorola pledges its support to our customers and to this Committee to help make this

happen as smoothly as possible. We feel strongly that an expeditious date certain,

together with digital-to-analog solutions like ours and those of the industry at large,

will provide a trifecta—a win for first responders, a win for American consumers,

and a win for industry.

Thank you.

Mr. DEAL [presiding]. Thank you.

Mr. Snider.

STATEMENT OF JAMES H. SNIDER

Mr. SNIDER. Thank you, Mr. Chairman, for the opportunity to

testify about the freeing up 108 megahertz of the most valuable

natural resource of the information age, the public airways.

I believe there’s a consensus about two points on this committee

and that is first, that it is desirable to free up as quickly as possible those 108 megahertz and that second, we want to do so in

such a way that those relying on analog TV sets are not

disenfranchised.

To pursue this goal there are two types of means, the means that

we’ve employed for the last 15 years in the United States is what

I call the producer subsidy model. The alternative represented by

Berlin is the consumer subsidy model and I’m going to devote my

comments to contrasting those two approaches.

The consumer subsidy model directly addresses the problem that

is the bottleneck for the DTV transition which is the consumers

that have analog TV sets. The producer subsidy model attempts to

deal with that problem indirectly and is a far less efficient, in my

view, method to incentivize the transition. As an example, if I want

to get my daughter to clean up her room and do chores, I can give

her a direct incentive or I could perhaps bribe all her friends not

to distract her. I could bribe her not to watch TV and use the family car and I could hope that her sister who is manically clean will

at some point just clean up because she doesn’t like the mess.

Clearly, the more efficient method is to give my daughter the direct

incentive.

Berlin is a case in point and in 18 months they did the transition

and they did it on a per capita cost at a tiny fraction of the U.S.

transition. There are producer subsidies in the Berlin, don’t get me

wrong, but the cost per capita is a tiny fraction of the producer

subsidies we’re employing in the United States. So just a sample

of some of the producer subsidies that we have given over the last

15 years to speed the transition, the biggest one has been spectrum

flexibility. Originally broadcasters had a right to provide one standard definition TV channel as a result of this transition. They have

the right to provide numerous standard definition TV channels or

multiple high definition channels and data services.

44

They got a free spectrum loan, indefinite time to return to spectrum which gives them incredible negotiating leverage to get additional producer subsidies which is one of the reasons we’re here

today, a very valuable benefit. They won the rights to provide pay

TV service. They only have to provide one free analog TV channel.

With current compression technology, they get 19.4 megabits a second. You can get a standard definition TV channel now in 1.5

megabits a second. More than 90 percent of their spectrum now can

be used for pay TV service. That’s an extraordinary change. The

DTV tutor mandate requiring every American and every TV to provide a broadcast TV tuner even though more than 85 percent rely

on other means, cable and satellite being the most notable, to receive their TV.

Larger geographic areas, the larger the geographic area, the

more eyeballs revenue and ultimately subscription revenue the

broadcasters have used the transition to secure large geographic

areas. Digital TV allows you to use more of the guardbands and

they are doing so.

Better spectrum. They’ve moved from UHF spectrum, high UHF

to lower spectrum which is far more valuable spectrum as a result

of this transition. And that’s just a subset of the producer subsidies. And there are many on the table going forward to so-call

speed the transition.

Has this been a success? No. I would say it’s been an abject failure, all these producer subsidies. A, look at the United States at

the relative penetration of DTV via broadcast versus cable, satellite, broadband, DVD, all those DTV transitions have progressed

very rapidly and far more successfully without a subsidy. We have

less than 2 percent penetration of broadcast DTV in the United

States. More than 40 percent, 8 percent penetration with all these

other DTV formats and with no producer subsidies. I think that

speaks volumes.

Internationally, England is actually the great case. They have

1200 percent more broadcast DTV penetration in England without

any producer subsidies or minimal producer subsidies, plus they

have greater DTV penetration in cable and satellite, again, without

DTV transitions. So the DTV transition has not at all been speeded

up with all these subsidies. England is a great case for that argument.

Now, I don’t want to say that the producer subsidy model is the

sole reason for the failure of the DTV transition. One of the big

problems is we chose an inferior DTV standard in the United

States as opposed to Europe. In Europe, they emphasize choice and

mobility in their DTV standard. In the United States, we emphasize pretty pictures. The proof is that four countries have, the last

I checked, have adopted the ATSC or the USDTV standard. Thirtysix countries have adopted the European DTV standard.

Now in phase two, they will have more like European choice and

mobility emphasis with the U.S. standard and conversely, in Europe, in phase two, they will have more high definition.

So now let’s go to the consumer subsidy model which is the heart

of my comment here. The key element is how do you finance the

DTV sets. My preferred approach would be to revoke the tuner

mandate because you’re requiring 85 percent of the people who

45

don’t even want to watch broadcast TV to buy a tuner set which

is a very inefficient mode to speed this up. But the proposal that

I would like to focus on is auction receipts because that is the most

politically feasible approach. So revenue,the going rate for spectrum today is about $500 million per megahertz. That’s down about 60 percent for the peak in

2001 with the Next Wave auction. Verification or backing for that

number is recently, for example, Verizon offered a minimum opening bid of $5 billion on the 10 megahertz, 1.9 gigahertz band. And

the FCC in the last few weeks has endorsed that number by coming up with the Nextel swap that they estimated at $4.8 billion for

that 10 megahertz and there’s quite a bit of other backing now for

that number as a reasonable rate for unencumbered beachfront

spectrum. So if you have 108 megahertz and you multiply it by $500 million in megahertz, you get $54 billion. Now we’re not assuming that all

of that is going to be auctioned. We want to take some of it off for

public safety. A little of it has already been auctioned, but we’re

talking about many billions of dollars.

On the cost side, in a recent cable TV show they were showing cable converter set top boxes for as low as $35. Using $50 which

APTS and the FCC and various forums have used, if you bought

a converter box for all 110 million American households that’s a little over $5 billion. If you just provide converter boxes to low-income

people dependent on over-the-air TV, you’re talking about maybe

$8 million, a total cost of $400 million, which is still much greater

than what they did in Berlin because they focused only narrowly

on low income. This is a low and middle income converter box subsidy that I’m proposing.

The bottom line is the economic analysis is overwhelmingly favorable in terms of return on investment for a consumer converter

box subsidy. It’s a very robust analysis. Even if the selling price is

a third of the current market rate, and even if you auctioned less

than a third of the spectrum, you still end up with a tremendous

return on investment.

Now we argue that we also, we have enough money that we can

fund the APTS Broadcast Trust Fund and also the dual proposal

with those fees.

So what is the—I’d like to focus on——

Mr. DEAL. Mr. Snider, I’m going to have to ask you to wrap it

up. You’re about 31⁄2 minutes over.

Mr. SNIDER. Okay. One critical difference between the U.S. and

the Berlin one is in Berlin they were able to give digital flexibility

as part of the transition. We’ve already given away that carrot, so

we have to come up with a new carrot and the one on the table

is must carry is the most—that’s a real significant difference. Also,

they were willing to just focus on low-income consumers for the

converter box subsidy in Berlin. The focus in the United States has

been we need to protect everybody or a larger segment of the population than just the low income people.

For more details, I have a detailed issue brief that we’ve submitted as an appendix to our testimony and I would encourage you

to look at that for the details of our proposal. Thank you for this

opportunity.

46

1With current video compression standards such as Windows Media Player 9 and MPEG4,

a standard definition TV signal can be compressed into 1.5mbps. The broadcast DTV stream

is 19.4 mbps, suggesting that 13 standard definition TV signals could be carried over that data

stream. RealNetworks, Inc., distributor of the popular RealPlayer, claims to have video compression software that can compress an HDTV signal into 5 mbps, suggesting the 19.4 mbps data

stream could carry three HDTV signals, with data to spare.

[The prepared statement of James H. Snider follows:]

PREPARED STATEMENT OF J.H. SNIDER, SENIOR RESEARCH FELLOW, SPECTRUM

POLICY PROGRAM, NEW AMERICA FOUNDATION

Good morning. My name is Jim Snider, and I’m a senior research fellow at the

New America Foundation, a nonpartisan public policy institute here in Washington.

Thank you, Mr. Chairman and members of the Subcommittee, for this opportunity

to testify today. My comments will focus on the difference between the Berlin and

U.S. models for speeding the broadcasters’ DTV transition while also ensuring that

no American loses access to ‘‘free’’ over-the-air programming. Please see Appendix

A, a New America Foundation issue brief co-authored by myself and Michael

Calabrese, for a more detailed discussion of this proposal.

There is a general consensus that rapidly completing the broadcasters’ digital TV

transition—thereby freeing up 108 MHz of ‘‘beachfront’’ spectrum corresponding to

TV channels 52-to-69—is in the public interest. There is also a general consensus

that this transition cannot come at the expense of large numbers of Americans losing access to ‘‘free’’ over-the-air TV. The debate centers on the best means to achieve

these two ends: continuing the present producer subsidy model or shifting to the

consumer subsidy model illustrated by Berlin.

We believe that the Berlin experience teaches us that the direct consumer subsidy

model is a faster and more efficient way to speed the broadcasters’ DTV transition

than the indirect producer subsidy model employed in the United States. In Berlin,

the broadcasters’ DTV transition took a total of 18 months and was completed at

a cost per capita to taxpayers and consumers only a tiny fraction of the lagging

transition in the United States.

The underlying reason the consumer subsidy model has proven to be so much

more efficient is that it directly addresses the problem that is slowing the broadcasters’ DTV transition: the slow rate of consumer purchase of devices that can receive broadcast DTV signals over-the-air. The producer subsidy model, in contrast,

only indirectly deals with that problem. The difference is a bit like encouraging my

teenage daughter to finish her chores not by offering her a simple and direct bonus

for doing so but by paying all her friends not to distract her, bribing her not to

watch TV or use my car, and granting her numerous extensions in the hope that

her younger sister, who is compulsively clean, will do the job for her. The complex,

indirect approach may indeed get the chores done but not without huge waste.

THE PRODUCER SUBSIDY MODEL

During the past 15 years, local TV broadcasters have lobbied for and won a myriad of government subsidies to speed America’s transition to digital TV services. The

most valuable of these subsidies include:

‘‘Spectrum Flexibility’’—Converting an FCC license with the right to provide

one standard definition TV programming stream into a license to transmit ten or

more standard definition TV programming streams or other data services, including

HDTV.1

‘‘Free Spectrum Loan’’—An indefinite, interest-free loan to existing broadcast

TV licensees of a second 6 MHz channel with no fixed termination date.

‘‘Pay TV over Public Airwaves’’—Rights to use as much as 90% of the 6 MHz

DTV channel for pay TV or other pay data services, the revenue from which is supposed to subsidize ad-supported (‘‘free’’) broadcast DTV services (subject to a 5 percent ancillary service fee to the government).

‘‘DTV Tuner Mandate’’—Last year the FCC adopted a terrestrial, broadcast

over-the-air tuner mandate—which began phasing in on July 1 of this year (for high

end TVs) and applies to all new sets by July 2007—requiring manufacturers to

produce TVs with a built-in tuner, even though the vast majority of TVs will receive

their TV programming via cable, satellite, Internet, or DVD.

‘‘Broadcast Flag’’—A requirement that the sphere of free TV be potentially restricted by requiring consumer electronics devices to recognize a ‘‘broadcast flag,’’

which prevents retransmission of an FCC licensed broadcast signal without the permission of the broadcaster.

47

2 In the average TV market, more than 80% of spectrum is set aside as guard band spectrum,

the type of ‘‘white space’’ referred to here. Digital technology allows for a reduction in guard

band spectrum. Some of that spectrum has been allocated for migrating channels 52-69 to 2-

51; some of the balance has been allocated to increase the coverage areas for incumbent TV stations, especially UHF stations. 3The $/MHz metric applies to the value of one megahertz of spectrum with national coverage.

A more conventional measure of spectrum value for the investment community is $/MHz-pop,

the value of one megahertz per person. Translated into this metric, the $500/MHz figure suggests a valuation of approximately $1.50 to $2.00/MHz-pop. Most auctions are either not designed to maximize revenue (e.g., the lower 700 MHz auction) or do not offer beachfront, lower

frequency spectrum (e.g., the proposed 24 GHz auction).

‘‘More eyeballs’’—Expanded geographic and household coverage for existing TV

licenses rather than allowing ‘‘white space’’ to be auctioned or otherwise used by a

potential competitor.2

‘‘Sales Tax Exemption’’—A sales tax exemption in more than a dozen states on

all equipment purchased for broadcast studios. (The exemption is only for DTV

equipment but there is little analog equipment now being purchased).

The abject failure of the producer subsidy model is illustrated both domestically

and internationally. In the U.S, non-broadcasters have led the DTV transition both

in terms of penetration and innovation. Figure 1 shows the relative U.S. penetration

of broadcast DTV and other forms of DTV, including satellite DTV, cable DTV,

broadband DTV, and DVD DTV. Despite all its subsidies and early start, broadcast

DTV represents only a tiny fraction of the total DTV market.

Internationally, consider the case of England, shown in Table 1. British broadcasters were given minimal subsidies, yet the rate of broadcast DTV uptake is more

than 1,200% (12 times) higher than in the U.S. Moreover, the DTV transitions over

satellite and cable have progressed at virtually the same rate in the U.S. and England. Total DTV penetration, including cable, satellite, and broadcast DTV, is 20%

higher in England.

Table 1: Digital TV Transition Rates in England vs. U.S.

Digital Terrestrial (%

of all Households)

Digital Cable (% of all

Households)

Digital Satellite (% of

all Households)

Total Digital (% of all

Households)

U.K. ................................................. 12% 9% 29% 50%

U.S. ................................................. 1.1% 20.8% 19% 41%

Admittedly, the failure of the producer subsidy model in the U.S. may be influenced by a number of factors having nothing to with the intrinsic problems of producer subsidies. In particular, the U.S. adopted a broadcast DTV standard that is

inferior in crucial respects to the one adopted in both England and Berlin. In Europe, a decision was made that consumers most wanted choice and mobility from

an enhanced broadcast TV service, not high resolution pictures, so the DTV transition was focused on providing enhanced choice and mobility, with HDTV left for a

future upgrade. The wisdom of that approach is illustrated by the fact that only four

countries have adopted the U.S. broadcast DTV standard while 36 have adopted the

standard used in England and Berlin. It is also illustrated by the fact that the

broadcasters themselves are actively seeking to modify their standard so that it can

better compete with the type of technology used in England and Berlin.

Another factor may be that the level of marketplace competition is higher in England and Berlin. Neither market provides commercial broadcasters with the same

degree of must-carry rights, yet broadcasters must compete with more than a hundred channels offered via satellite. The result of the U.S. must-carry rights—the

government guaranteeing broadcasters free distribution into the viewer’s living

room—is that U.S. broadcasters may have less incentive to innovate.

THE CONSUMER SUBSIDY MODEL

We propose that the consumer subsidy model be paid for via one of three methods:

Auction receipts, leasing receipts, or repeal of the broadcaster only tuner mandate.

From an economic standpoint, repeal of the tuner mandate would probably maximize consumer welfare. But from a political standpoint, an auction is most feasible,

so my comments here will focus on that proposal.

Let’s start with potential auction receipts. The going rate for unencumbered

beachfront spectrum in the United States is approximately $500 million/MHz,3 down

48

4The 2001 Nextwave auction brought in bids totaling more than $16 billion, or $1.2 billion/

MHz. The high bidders tended to be very savvy telecommunications companies such as Verizon

and Sprint. Recent bids by these same companies have been substantially lower. For example,

Verizon recently offered $5 billion as the opening bid for 10 MHz of spectrum at 1.9 GHz, providing a valuation of $500 million/MHz. This month the FCC confirmed that valuation with its

Nextel compromise proposal valued at $4.8 billion for the same 10 MHz of spectrum. 5The accompanying policy analysis in Appendix A uses a slightly different set of numbers

based on the information available when it was written.

about 60% from its peak in 2000 and 2001.4 That suggests that if all 108 MHz of

returned spectrum were auctioned—an outcome we neither expect nor desire—the

auction receipts would be $54 billion. Note that 24 MHz of the returned spectrum

has been promised for public safety and another sliver has already been auctioned,

albeit without the goal of maximizing auction receipts. If only a third of the returned spectrum were auctioned to maximize receipts, and it, in turn, generated less

than a third of the expected market price, the receipts would still be over $5 billion.

Now let’s look at the cost of the consumer subsidy.5 Digital to analog converters,

which allow analog TV sets to receiver broadcast digital signals over-the-air, were

demonstrated last month at a cable show for as low as $35 a converter box. But

for the sake of argument, let us use $50/converter box, a figure used by the FCC

and the Association of Public Television Stations. If all 108 million TV households

were mailed one of these cigarette box sized converters, the cost would be approximately $5.4 billion or 10% of the market value of the returned spectrum. If a converter box subsidy were only provided to low-income households exclusively dependent on over-the-air TV—the only type of household that received such a subsidy in

Berlin—the number of households requiring a converter box subsidy would be under

8 million, with a total cost of $400 million.

We thus conclude that if strictly financial concerns dominate the analysis, the

consumer subsidy model offers an outstanding return on investment. Moreover, this

economic analysis is so robust that it comes to the same conclusion even when the

most unfavorable assumptions are used: 110 million households, rather than 8 million, need the converter box subsidy; the auction price is only a third of the current

market price of $500 million/MHz; and only a third of the 108 MHz returned spectrum is auctioned to maximize receipts.

Indeed, the economic analysis of the consumer subsidy model is so favorable that

we feel no hesitancy in endorsing both the APTS and DOIT proposals to earmark

a portion of spectrum auction revenue for investment in the future of public television and digital education. These proposals address the distinctive market failures

of the digital age, so it is appropriate that receipts from auctioning the most valuable natural resource of the information age, the public airwaves, be earmarked to

address that market failure.

We also believe that 42 MHz of the 108 MHz of returned spectrum should be set

aside for unlicensed service. This figure was derived by deducting the 24 MHz allocated for public safety and then splitting the difference between licensed and unlicensed service. In recent years, unlicensed service has been at the heart of spectrum

innovation and investment. Already, American families own far more unlicensed

than licensed devices. But only about 1% of spectrum below 1 GHz—the beachfront

spectrum—is currently allocated to unlicensed service on a dedicated basis. To bring

the next generation of broadband Internet services most economically to America,

we believe more lower frequency spectrum needs to be allocated as unlicensed. For

the details on this argument, please see Appendix B, a New America Foundation

issue brief written by MIT economist William Lehr.

POLITICAL DIFFERENCES BETWEEN THE BERLIN AND U.S. SITUATIONS

I’d like to highlight two critical political differences between the U.S. and Berlin

DTV transitions.

First, in regard to producer subsidies, U.S. broadcasters have already been given

spectrum flexibility, whereas in Berlin this subsidy could be provided to the broadcasters to win their political support. The consequence is that in the U.S. a new producer subsidy will probably have to be provided to get the broadcasters to return

their indefinitely loaned spectrum. The producer subsidy most often cited is digital

multicasting must-carry.

Second, in regard to consumer subsidies, Berlin demonstrated less concern about

middle- and upper-class consumers who lost use of their analog TV sets as a result

of broadcasters’ shift to digital TV. The Berlin converter box subsidy was directed

solely to low income individuals. In the U.S., broadcasters and policymakers have

expressed greater concern about any individual, regardless of income, losing analog

TV functionality as a result of the DTV transition.

49

These two political considerations suggest that both producer and consumer subsidies are likely to be substantially larger for the U.S. than in Berlin. It’s not my

expertise to advise members of Congress on the political consequences of turning off

analog broadcast TV. But there are a few considerations I hope members of Congress will keep in mind.

The public has ample experience with technological obsolescence. For example, a

comparable number of Americans own TVs and computers. Despite the fact that

computers are more expensive than TVs and become obsolete more frequently, the

public has come to understand this obsolescence as the price of progress. In Berlin,

there was minimal public outcry as a result of the government-mandated shutdown

of analog service. Perhaps we should reconsider the price of viewing a five-year-old

computer as a doorstop but a 20-year-old TV as a public good.

Lastly, the timing of any additional producer subsidies is critical. Any future producer subsidies should be timed to coincide with or follow the return of the loaned

108 MHz of spectrum. Otherwise, as the history of the first fifteen years of the

broadcast DTV transition illustrates, the public compensation for the returned spectrum may be renegotiated, reduced, and perhaps even eliminated by the time payment is supposed to be made.

CONCLUSION

This subcommittee can best serve the public interest by adopting a modified

version of the Berlin DTV transition plan that includes the following highlights from

the New America Foundation’s detailed transition plan contained in Appendix A.

Fixed Turn-off Date: Announce a January 1, 2008 deadline (at the latest) for analog turn-off and spectrum clearance.

Consumer Converter Subsidy: Using a fraction of auction revenues, authorize a refundable tax credit available to consumers during a 12-month period to offset the

cost of converting from analog to DTV reception.

Consumer Choice: Give consumers the flexibility to apply the credit to a digitalto-analog converter box, a new DTV set, or for initial satellite dish or cable set-up

costs.

Revoke the DTV ‘‘Tuner Tax’’: Reverse the FCC’s 2003 DTV tuner mandate, which

seeks to reach the statutory 85% DTV threshold by requiring manufacturers to integrate over-the-air digital reception in every set over 13 inches by 2007—increasing

the cost to consumers by over $1 billion annually—despite the fact that 85% of consumers who receive TV by cable or satellite may not need or want a broadcast overthe-air tuner.

Spectrum Reallocation for both Unlicensed and Licensed Wireless: In addition to

the 24 MHz allocated for public safety, divide the remaining 84 MHz equally for use

by licensed and unlicensed wireless broadband providers.

Update the DTV Public Interest Obligations: In return for the many new subsidies broadcasters have received in recent years—often with the express intent to

preserve and enhance the public’s access to local civic and electoral information—

the obligations of broadcasters should be extended to all ‘‘free’’ over-the-air programming streams and quantified to include the lesser each week of 3 hours or 3 percent

of programming time (half of this in prime time) of local civic and electoral programming.

Earmark Spectrum Revenue to Capitalize a PBS trust and DOIT: A portion of the

spectrum auction revenue should be earmarked for investment in the future of public television and digital education.

Thank you again for this opportunity to testify. I will be most happy to respond

to any questions or to assist staff as the Committee develops its own solution to the

difficult problem of 1) reclaiming spectrum for 21st century information services,

without 2) harming those still possessing the information technology of the last century.

[Additional material submitted is retained in subcommittee files.}

Mr. DEAL. Thank you. I want to thank all the panel members.

It’s certainly been an interesting panel and a variety of opinions

have been expressed. Certainly, some of these we have heard before. Some, we have not.

Let me just across the board with the panel, ask you one general

question and without getting into the details of the dates and the

structure of a subsidy which we’ve heard some details in your comments, without getting into those details, do you, each of you, do

50

you believe that Congress should expedite the DTV transition by

setting a hard deadline.

I guess a yes or no, if you possibly could to that response.

We’ll start over here, Mr. Goldstein.

Mr. GOLDSTEIN. Congressman, from our perspective, it’s really a

policy issue for the Congress. What we can tell you is what we

found in Germany which is that it clearly did help in the Berlin

scenario and quite frankly in the other areas, the other islands in

Germany, the simulcast period and the date certain, the amount of

time between the beginning and the ends of the periods are likely

to be shorter, even than it was in Berlin.

Mr. DEAL. Mr. Cooper.

Mr. COOPER. I guess the answer is yes, but and there’s lots of

buts. We’ve outlined in our testimony. The point of the transition

is not to get there, but to make sure you end up in the right place.

And one of the buts I didn’t get a chance to mention was a la carte

choice. We think that ought to be wrapped in here.

Mr. DEAL. Strange you should mention it.

Mr. COOPER. It just popped into my head when you moved to the

chair. So that this can be in the public and citizen and consumer

interest. But it has not been well managed. It was just a pure giveaway 10 years ago. It hasn’t worked and now we have a chance to

really establish the policy goals we want, so do it as fast as you

can, but make sure you end up in the right place.

Mr. DEAL. Mr. Schmidt?

Mr. SCHMIDT. I don’t believe that NAB or MSTV has taken a position on a hard date yet, but I think the same issues, similar to

what Mr. Cooper, Dr. Cooper was talking about. At some point,

you’re going to have to draw a line. Where you draw that line really matters and what you do before then really matters. And if you

can do things that will mitigate the expense and the dislocation

and confusion for the viewers, obviously, our concerns are mitigated as well, but it really matters what happens before you get

to that date. And just setting a hard now without taking those

extra steps is going to be catastrophic.

Mr. DEAL. Mr. Willner?

Mr. WILLNER. I for one am really prepared to move forward with

the digital transition. I think the Nation could be moving forward

with digital transition as early as the date that’s already set. So

I’d be prepared to say yes. As a New Yorker and a witness to September 11 and I know some of the uses being contemplated for

those frequencies, I would encourage this committee and Congress

to move along as quickly as they can.

Mr. DEAL. Mr. Lawson?

Mr. LAWSON. I would agree with Mr. Schmidt. A hard date, by

itself, without the other conditions in place will be a catastrophe.

Second, I think it would be unwise to impose a uniform national

hard date. I think we have to look at conditions in different markets. And third, Public Television’s offer is that against any reasonable hard date, under right conditions, we will voluntarily free up

spectrum early.

Mr. DEAL. Mr. Hartenstein?

Mr. HARTENSTEIN. I think an unequivocal yes is the right answer

for all the reasons of getting the spectrum back, but it has to be

51

reduced to something very simple that first of all consumers can

understand what yes means and when that date is it means, what’s

it going to mean to them.

This is an amazing economy. This is an amazing industry. But

a yes with the correct provisos that say what will happen, who has

to carry what is, I would urge this committee and the Congress to

put a complete answer together so that everyone understands what

it means. The manufacturers, the distributors, the broadcasters, all

need to make preparations for that.

So I think the elements are all on the table here and we stand,

I think all of us stand ready to have the debate that’s associated

with it and let’s move on. We are behind, as you look at other countries, in doing this and we ought to take a leadership role.

Mr. DEAL. Mr. McGrath?

Mr. MCGRATH. I would say absolutely yes. There are many challenges. The technology is ready to help resolve those challenges. A

quick focus on a date will get the dialog focused and those challenges can be solved very quickly.

Mr. DEAL. Mr. Snider.

Mr. SNIDER. Yes, absolutely, with one caveat. The 2009 FCC plan

date is too late. Berlin took a total of 18 months from the time the

parties came to agreement to when it was done and the simulcast

period was 9 months for the next set of transitions. It’s now even

been reduced to 6 months. We don’t need to wait so long to get to

that hard date.

Mr. DEAL. I think there’s general agreement that we certainly

need to move with some deliberate speed in that direction. Obviously, I think if I asked you all what would be the actual transition

date in the absence of a hard date without all the contingencies

that are currently attached to the date we’ve established, we probably would be all over the spectrum in terms of your estimation of

when that date would be, but I would—let me just ask it this way

then. Do any of you think that we will reach the target date now

that it’s set of 2006 without some additional action by Congress to

facilitate that? Does anybody think we’ll do that? I don’t see anybody saying so.

Well, all of you have touched on a variety of things that we could

do to expedite it and I would like to ask just very briefly, Mr.

McGrath, I believe you said that the unit that you were talking

about would be a $67 price per unit.

Mr. Snider, is that in the range of what you estimated the cost

of the device to be?

Mr. SNIDER. Yes. I’d just like to bring this committee’s attention

to a report that NAB and MSTV did in 2001 on the DTV tuner

cost. They estimated over 5 years that the cost of those tuners

would decline from $200 to roughly $10 because of learning curve

and manufacturing. If you apply, these are computer devices, any

type of analogous learning and production curve, even if they are

$70 today and as I mentioned the company came out with the $35

converter at the recent cable show, we’re talking about clearly a decline in cost, whatever it might be at this time.

Mr. DEAL. Mr. Willner, what would be price range of the device

you’re talking about there?

52

Mr. WILLNER. Our view is that—this particular device was over $100. There are different models in Germany, but our view is that

in the mass market with CD manufacturers competing for the marketplace in a retail model that the price could be as low as what

Mr. Snider said originally which was between $35 and $50.

Mr. MCGRATH. And I guess I would just add that any benchmark

cost or price in the marketplace, I No. 1 absolutely believe that the

competitive marketplace will meet or beat $67. And I intend to be

a player in that market, but this is achievable. I just remind you

that a 50 kilowatt analog voice modem still costs you over $50 at

Wal-Mart.

Mr. DEAL. But if that 110 million households is the target, obviously, the magnitude of the target tends to bring the cost of the box

down.

Mr. MCGRATH. I would absolutely agree. Our targets are on the

much lower end of that, maybe a lower $8 to $10 million type of

number and if this gets into the multi tens of millions certainly

costs will come down faster. Learning curve here is the key. Get

it started and get down the price learning curve.

Mr. SCHMIDT. Mr. Chairman, if I might add one note, however,

one party that’s not at this table is the receiver manufacturers.

Mr. DEAL. Yes.

Mr. SCHMIDT. And you can see the difficulties presented by putting a hard date on—I don’t know what their time table is on putting these things in the sets, but if you put a hard date on any of

the dates that these gentlemen are talking about, it seems to me

it’s going to be incumbent upon the retailers to put a sticker on

each of those sets that says this DV will not work after January

1, 2007, unless you have an extra $50, $100 box or subscribe to

cable or satellite. I’m not sure what that means for their sales, but

I suspect it will not help them.

Mr. DEAL. Well, we have had manufacturer representatives in

previous hearings and I think your point is well taken. And one of

the concerns I think I have and I’m sure others is that every time

we let somebody buy a television set or not let them, but every

time they buy a television set voluntarily in this country that is not

equipped to make the transition, your point is correct, is that they

made an investment for which they will have to make an additional investment if they’re going to move into the transition stage.

Mr. SCHMIDT. And I think we’re going to see another 20 million

analog sets sold this year.

Mr. DEAL. That is a lot. I’ve used way beyond my time and I’m

borrowing the chair, so I don’t want to abuse my time. We’ll get

back to some of you.

Mr. Boucher, I’ll go to you.

Mr. BOUCHER. Thank you, Mr. Chairman, and I want to thank

each of the witnesses for sharing their very interesting views with

us today on what I think is a timely subject, but one that is fraught

with a certain amount of uncertainty and I think our witnesses

have underscored the degree of uncertainty that attends the question of whether or not the Berlin experience would translate well

into the United States.

Mr. Schmidt, let me ask a couple of questions of you. Your testimony reveals some very interesting figures which I think perhaps

53

bear underscoring. Let me start by just asking a basic question and

that is do you agree that the owners of analog sets should be held

completely harmless if we set a hard date for the termination of

analog over-the-air transmission?

Mr. SCHMIDT. Yes.

Mr. BOUCHER. And by holding them completely harmless, that

means that they should not have to incur any cost in keeping their

analog television set functioning in a totally digital era, is that correct?

Mr. SCHMIDT. I think we share that interest.

Mr. BOUCHER. And so you would say then that the means test

that was employed in Berlin where the only people who got a government subsidy for the purchase of a converter box to convert digital to analog signals for their sets were the ones eligible for welfare. You would agree that we should not use that kind of model

in the United States.

Mr. SCHMIDT. I agree.

Mr. BOUCHER. And so whatever subsidy we provide should be

provided uniformly to whoever owns an analog set, is that correct?

Mr. SCHMIDT. That’s correct. I think also competition policy

would support that as well, because you don’t want that extra

stickiness from people switching providers by the fact that they not

only have to go through the difficulties of switching, but now getting another box if they want to switch back to over-the-air.

Mr. BOUCHER. Another matter that you mentioned in your testimony was the approximate number of television sets that are not

connected either to cable or satellite and therefore depend upon

over-the-air transmission and I think you pegged that number at

something on the order of 45 million.

How reliable do you think that estimate is?

Mr. SCHMIDT. Well, we’ve done some studies. I don’t think anybody has a firm grip on it, but it’s—we know it’s a very big number, much bigger than the number that are exclusively the household of 15 percent number. That number is pretty good because

these guys keep track of their subscribers, but the other number

is less clear, but I think if anything, I suspect it’s conservative.

Mr. BOUCHER. And included in that larger number would be the

homes where one or more television sets would be connected to either cable or satellite, but where there are other television sets in

the house that are not connected to cable or satellite and therefore

depend upon over-the-air delivery, is that correct?

Mr. SCHMIDT. That’s correct. I believe there are also other devices such as video recorders that also have over-the-air tuners

that would be disabled, that are not even included in that count.

Mr. BOUCHER. So the number of sets that we would have to take

into account, if there were some kind of government subsidy to purchase converter boxes and we’ve agreed at least the two of us have

that every consumer who has an analog set should be eligible

equally for this subsidy would be on the order of 45 million sets.

Now does every one of those sets require a separate converter

box?

Mr. SCHMIDT. At this point they would. And even though this box

is small, a lot of those sets are not very large and this box might

be kind of unwieldy to have on a TV that you say took to a football

54

game or carried around otherwise. I mean there’s going to be some

breakage here, no matter what, but I think you’re generally talking

about sets that are not the high end set in the household and to

have a $50, even a $50 proposition on a $75 TV is not a very consumer-friendly proposition.

Mr. BOUCHER. Well, I just did some rough math here. The ap- proximate price of the converter box today is $150. That’s about

what it was in Berlin. I understand that’s about what the typical

device sells for in the United States. If you multiply that number

times the 45 millon sets to which one of these would have to be

attached, you get a figure of approximately $7 billion. Now discounting the price of the box to $100 a box, you would get $4.5 billion which would be the cost of providing this subsidy which is considerable.

And I have heard that the low end of the estimate, in terms of

what revenues the government would receive as we auction a portion of the analog spectrum would be approximately $4 billion. Now

I heard with interest Mr. Snider’s comments that he anticipates a

far higher sum. But I think he’s anticipating that we will auction

a principal portion of the 108 megahertz of the analog spectrum

that would be returned. Some substantial portion of that will be devoted to public safety. Some substantial portion I hope and I know

others hope will be devoted to unlicensed uses and so we may wind

up auctioning only approximately half of that spectrum and the estimate I’ve seen at the low end is $4 billion. By that number, we

might not even realize enough from the total receipts from the government from the analog spectrum auction to finance the $4.5 billion cost of subsidizing converter boxes.

Now my numbers may be low and I’ll readily concede that, but

others’ estimates may be high and we’re frankly dealing with something that we really can’t estimate with any proficiency. What we

have learned over the years is that every time we try to estimate

the receipts from a public auction of spectrum, we’re always wrong,

sometimes on the high side, sometimes on the low side, but we’re

normally fairly dramatically wrong. And so before we head off into

a legislative effort here, based upon assumptions that are hopeful,

but perhaps inaccurate, I think we need to have a realistic view of

what these costs potentially could be and the fact that we may not

have enough receipts from the spectrum auction to satisfy the subsidy to 45 million television sets.

I want to say thank you once again to each of these witnesses

and thank you, Mr. Chairman, for your indulgence.

Mr. UPTON. Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman. As you know, you and

I have been at different meetings and stuff, and so let me—something just popped into my head. Again, the great debate, a lot of

friends at the table, answer me this question. Can you provide,

okay, my opening statement mentioned in interest to the German

model about over-the-air broadcast and maybe a little more spectrum so they can what I’ll say is send more programs. And many

times during this subcommittee, I’ve asked the question, I guess I’ll

start with that. Is free over-the-air TV still in the national interest

and should be public policy of the United States of America? And

I can exempt the GAO guy since he’s the Accountability Office.

55

But why don’t we go from the far left? Is free over-the-air TV

still—to have that still in the public interest, yes or no?

Mr. COOPER. Yes, but——

Mr. SHIMKUS. That’s fine.

Mr. COOPER. Can I do that again?

Mr. SHIMKUS. I really have limited time and if we can go yes or

no, then I can move on. That’s what I got last time. Next?

Mr. COOPER. One sentence on the but.

Mr. SHIMKUS. Okay.

Mr. COOPER. The but is in my testimony I described one of the

essential characteristics of why we wanted free over-the-air TV as

a manner of speech.

Mr. SHIMKUS. That’s one sentence.

Mr. COOPER. That’s what we have to get back to and I believe

unlicensed can fill a substantial part of that objective.

Mr. SHIMKUS. Mr. Schmidt?

Mr. SCHMIDT. Yes, no buts.

Mr. SHIMKUS. Mr. Willner?

Mr. WILLNER. Yes, I do believe there is a place.

Mr. SHIMKUS. Yes, thank you. Mr. Lawson.

Mr. LAWSON. Yes, no buts.

Mr. SHIMKUS. Thank you. Mr. Hartenstein?

Mr. HARTENSTEIN. Yes.

Mr. SHIMKUS. Mr. McGrath.

Mr. MCGRATH. Yes. I do have to add two caveats. First——

Mr. SHIMKUS. Is that two sentences?

Mr. MCGRATH. Yes. It should not be just restricted to broadcasters. Satellite should be able to provide free service like they do

in Europe. The satellite is a free service.

Mr. SHIMKUS. That is a different thing when——

Mr. MCGRATH. But the key point is as a de facto policy we’ve

abandoned free TV as a model. Again, only one channel, less than

10 percent of the spectrum now needs to be allocated to free TV

and the broadcast side of that is a major move away to free TV.

Mr. SHIMKUS. Let me follow up on that comment. Would allowing

the broadcasters the ability to keep—I’m not saying the whole spectrum that they’re required to turn back, but some so they have a

couple of different options will that help us return to the debate of

free over-the-air and the ability of the public at large to have access to that or is really free over-the-air gone by the wayside of the

buggy whips and the candles and everything else?

Mr. SNIDER. I think there is very little commitment within the

broadcast community for free over-the-air TV. They very much

want a dual stream and if you look at the actual regulations they

already allow it.

Mr. SHIMKUS. The dual stream subscription revenue, multiple

sources.

Mr. SNIDER. Right. They can do that already with your DTV

spectrum, the vast majority. Only a trivial portion are they required to provide free TV on now, so it’s already happened.

Mr. SHIMKUS. So the argument that you provide a limitless spectrum for the broadcasters to compete that has to be with a requirement of the broadcasters to demand dual must carriage of all these

additional channels that they then give the opportunity of? I mean

56

that’s the complaint from the cable and the satellite folks is they

don’t want to be forced to carry the additional channels of the local

broadcasters. Is that correct?

Mr. COOPER. Mr. Shimkus, the broadcasters have told you their

model of free over-the-air TV won’t work. They’re demanding access

to the wire, that is—and they’ve said, we can’t make this work. So

they’ve given you the answer to the question. The world is changed

and they say they must have carriage on closed systems, on wired

systems in order to survive.

Mr. SHIMKUS. But we still accept the debate going back to the

first question, are we as a Nation still concerned with free over-theair? If free over-the-air doesn’t work, based upon what you’re saying is the premise of the broadcasters, the question is can through

public policy can we reclaim that through more opportunity for free

over-the-air. Can you ever reclaim that or is a gone by era?

Mr. SCHMIDT. Actually, let me clarify our position for Dr. Cooper.

We did not say it did not work. We said you can’t pick one of these

dates without that carriage, that we can’t move the transition

along on the time and pace that he’s talking about. There is no

question that being a single revenue stream business in a multiple

revenue stream world is an enormous liability. And might I add it’s

a liability that is imposed on us by law and is the reason we needed the second channel to convert because we had a legal mandate

to be available in every set and unlike everybody else who is converting to digital, whether it’s cellular or satellite or anybody else,

we don’t have control over the consumer equipment. Everybody else

does. And that is an obligation imposed on us by the government.

So we’re not, in Mr. Snider’s words, the producer subsidy is somewhat undercut by this huge liability.

Now we can deal with that liability and there’s some exciting

new proposals to do the kinds of things I think you’re talking about

even without additional spectrum. There’s an outfit called U.S. Digital and a proposal by Mr. Smuylan of Emmis Communications to

create wireless cable, essentially, out of the broadcast digital spectrum. They’re launched in three markets and I think there’s some

promise there for something that might provide the basis for a

longer term viability.

As Mr. Snider said, the components have to be some element of

a second revenue stream in order to assure that we have that open,

unencrypted universally available part of the signal. It is not, as

Mr. Snider said, however, a trivial part of the signal. Virtually all

of us are providing full, high definition in prime time every night

and that is a huge part of our bandwidth.

Mr. SHIMKUS. Thank you again and my time is well exceeded.

Thank you, Chairman, and this just continues to highlight the

great debate between friends. Thank you, Mr. Chairman.

Mr. UPTON. Thank you, Mr. Shimkus.

Mr. Goldstein, how do they deal with multicasting in Berlin? And

who paid for it and walk us through that?

Mr. GOLDSTEIN. Multicasting in Berlin was decided by the media

authority, principally. They determined that the various broadcasters could do it. In some of the other——

Mr. UPTON. And the broadcasters pay the cable companies, is

that right?

57

Mr. GOLDSTEIN. That’s correct. Yes sir. In some of the other

areas of the country where they’re deciding this now, it’s still unclear as to whether or not there’s going to be allowed sort of a full

must-carry or not. It’s unclear. Some have indicated to us that that

is not the case and I think it’s still evolving at this point.

Mr. UPTON. And you indicated in your testimony that you

thought, again, Berlin did this, the rest of Germany didn’t, right?

But you said that there might be even a quicker transition

throughout the rest of Germany without perhaps setting a hard

date? Where are we in terms of that?

Mr. GOLDSTEIN. I think most of the islands, most of the other

parts of the country that are transitioning and many of them are

transitioning this year, do have a hard date, but the amount of

time in which that transition is occurring appears to be less than

it was in Berlin.

Mr. UPTON. What is that hard date that they set for the rest?

Is it by States?

Mr. GOLDSTEIN. It varies. In each State—some States have two

areas that are transitioning. Others have just one. It just depends

on the geography and those dates vary.

Mr. UPTON. One of the things that I see as a true benefit of transition to digital, not only do we obviously recapture that analog

spectrum, but the advantage of digital would be the use of high def

is what really sells it to the consumers. A consumer can go into

any—and see that picture, and that’s what you want.

And it’s my understanding that in Berlin, Berlin model, they

don’t—the digital capability that’s being provided, does not allow

for high def. Is that right?

Mr. GOLDSTEIN. That’s correct. At this point, what they’ve provided is standard definition which allows for a lot more stations.

It’s allowing for terrestrial television to be much more competitive

with cable because they’ve been able to greatly increase the number of channels. In fact, they can provide almost as many channels

now as cable and while still allowing—of course, it’s free and will

also——

Mr. UPTON. But at some point they’re going to say we want to

get with the rest of the planet. We want to get with the Yanks.

They’re going to see——

Mr. GOLDSTEIN. I didn’t hear them say that.

Mr. UPTON. They’re going to want high def. They’re going to

want to watch those ballgames and news and Olympics and all

those different things and what type of transition will they then

have to go through 5, 10, 15 years from now, all of a sudden, hey,

how come we’re getting in essence a real degradation of what we’re

able to get?

What kind of transition will they then have to go through for

those folks that now have that little converter box to get high def

so they can get with the rest of us?

Mr. SNIDER. Mr. Chairman, if I could address that question?

Mr. UPTON. Yes. Go ahead.

Mr. SNIDER. I think England is a great example. They do not

have high definition TV in England, but they have 1200 percent,

12 times the penetration of D Broadcast DTV of the United States.

What they offer is choice, more channels and they offer mobility

58

which, for example, allows them to provide radio services which our

TV standard does not allow under 19-4.4. Those are killer applications. So they have the option to upgrade later to HDTV, but for

phase one, they don’t. In the United States, we went with the pretty pictures approach. There’s less consumer demand as evidenced

by U.K., but for phase two, the enhanced VSB, the next generation

which will create other obsolescence problems, we will be able

to——

Mr. UPTON. My question is how—what will the cost be and how

will they come about timewise and technology-wise to move from

where they are now to be able to get the high def at some point

later.

Mr. SNIDER. Are you talking about the European standard, how

they might——

Mr. UPTON. Yes.

Mr. SNIDER. They have an HDTV option to the DVB standard,

but they just haven’t implemented it because they don’t think the

market most wants that for their phase one. They have to have

more spectrum or different boxes.

Mr. UPTON. Actually, are the boxes wired—as I’ve gone out to the

cable, to the CEA Show, they have great technology already built

into that cable box that they know it’s ready to just be flipped n,

right?

Mr. SNIDER. Yes.

Mr. UPTON. The box, Mr. Willner, that you showed us, is that

going to be able to bring them high def at some point?

Mr. WILLNER. No, this box doesn’t bring in any high def. This is

about making televisions work after you turn off the analog frequency so that consumers don’t have to purchase high definition

televisions until they are ready to. And the question really is—it

all gets mumbled up all the time. This is about getting the frequencies back to the United States government so they can auction

them off again and they can use them for public safety and how

do you make all the consumers in America continue to watch television the day after you do that? When they choose to go out and

buy a high definition television set or a television set that’s capable

of using interactive digital services that are available either overthe-air or over the cable system is their choice. And that should be

their choice. And I think if we can stop expanding the focus on all

these other issues and talk about how do you make everything

work so you can get your frequencies back and do what you need

to do with them. It’s about an inexpensive set top or behind-theset box that will make those TVs work.

Mr. UPTON. All right. Mr. Terry.

Mr. TERRY. I want to follow up on some questions by Mr. Boucher regarding the cost of the boxes. I think the fundamental question if we’re going to do a Berlin-esque plan and who to get the consumer electronics to for over-the-air, I’m more inclined to focus on

those folks who can’t absorb the cost of buying that consumer

equipment to continue watching TV.

In fact, most of the people that I know that don’t have cable or

satellite are doing it more out of protest to not giving in to that

system than it is about economics and not having the dollars for

it. And frankly, as we adopt policies on who should be eligible, I

59

don’t want to pay for them to have a box, quite frankly. But I do

feel and am compassionate toward those folks that are economically deprived that will have to fork out dollars that may take food

off the table so that they can continue to get their free over-theair.

So I want to know from you, is there societal or are there policy

implications of just the government buying boxes for the economically deprived folks and not everyone, the 45 million that get free

over-the-air television and whoever wants to pipe up, come on up.

Mr. WILLNER. Look, I personally believe it’s up to the wisdom of

Congress to decide that. I don’t think it has any impact on our industries if that’s what the policy of Congress is and either Mr. Boucher’s viewpoint or your viewpoint will prevail and whatever you

decide, you decide.

Mr. TERRY. So you said there will be no impact on your industry.

Do you view that there are any greater societal impacts then?

Mr. WILLNER. Look, if you were subsidizing everybody and I had

three TVs personally in my house, I don’t know that I’d even think

about filing for the refund. I would forego it. But I can afford to

forego it. I do understand that some people can’t and as long as the

safety net is put in place and I’m speaking as an American citizen

now and not as a cable operator, because it isn’t a cable issue. I

would think it has no societal issues whatsoever, the decision that

you would make.

Mr. TERRY. Any others that have an opinion of whether there

is——

Mr. COOPER. I would invite you to seek out the citizens in your

District and tell them that you turned off their TV set and if they

want to turn it back on, they can spend another $50 or $100. I

think consumers have purchased those devices. They like to have

them in the garage to watch the game while they’re working on

their cars and that will go blank. That’s a cost that you imposed

upon them by picking a date certain and unplugging it. I think

that’s a consumer impact and the fact that you think that person

can afford the $50, I suspect that person would like—will suggest

that you really ought to fork in the $50. First answer.

Second answer——

Mr. TERRY. I’ve had those calls.

Mr. COOPER. So the answer is that it’s interesting to suggest that

we only want to do it for poor people, but everyone will be disadvantaged.

The second answer I’d like to offer is it’s fascinating to me on

how quickly these costs will decline when they want to get something done and yet, if we have another hearing on a different issue,

they’ll swear these costs are going to stick up there because they

don’t want it to happen. So you get a lot of really excited people

about oh, every chip costs a nickel, that’s because they like the policy and next week every chip costs $5 because well, they don’t want

to do it. So I think there’s a real cost here and I think it has an

impact.

Mr. TERRY. I’ll you also I’ll probably get more calls from people

who say I bought it out of my own pocket and I’m tired of my tax

dollars paying it for people who could afford it too. So it will cut

both ways.

60

Mr. SNIDER. Just to note as an enforcement problem, it was easy

in Berlin because all TV sets are licensed, so it was easy to identify

who had TV sets and they gave a subsidy to people already on the

welfare rolls and they already had a system, believe it or not, for

subsidizing TV sets for low income people. It’s harder in the U.S.

with our unlicensed system on the TV sets to administer the program. I would not underestimate the political problem that Mark

has estimated and the very real problem that if there’s any granny

in the United States who is going to lose her TV that’s a serious

problem. That’s why we’re endorsing expanding the eligibility pool

significantly.

you may question why we have to say the United States, a 5-

year-old computer is a door stop and a 25-year-old TV is a public

good. But whether that makes sense or not, that’s the political reality of the United States and we think we ought to break from

that premise.

Mr. TERRY. Anybody else like to comment?

Mr. GOLDSTEIN. Congressman, I would just add one quick point

which is that GAO is continuing work for this committee in which

we are looking at what the overall costs are going to be. We’re looking at a number of things about the transition, including what

equipment may be needed, what the costs might be in terms of if

subsidies were required and that kind of thing. We will be reporting to the committee early next year.

Mr. TERRY. I appreciate that.

Mr. LAWSON. Mr. Congressman, if you look at the experience of

the other European experience which I would urge the committee

to look at very closely is the Freeview service in the U.K. which

is through digital bringing back free over-the-air television and

that model, as in fact, in Berlin, most consumers were motivated

to go out and buy these boxes and under the right circumstances

I think we could make that happen here.

Mr. MCGRATH. I guess I would also add that we should not lose

sight of the offset that there is a dramatic improvement in the communications ability of public safety and first responder that flows

out of this and one way or the other every American would benefit

from this.

Mr. UPTON. Mr. Bass.

Mr. BASS. Thank you, Mr. Chairman. Another interesting hearing on a very complex subject.

Mr. Schmidt, you represent the broadcasters, right?

Mr. SCHMIDT. That’s correct, yes.

Mr. BASS. It’s my understanding that you’re worried about televisions going dark after the deadline. Why not let cable and satellite operators down convert for consumers who want to continue

using analog televisions, consumers with high definition TVs will

receive your signals over-the-air and cable and satellite operators

will gladly charge consumers for your and their own high definition

programming.

Do you have any comments on that?

Mr. SCHMIDT. Well, we have proposed a slight modification. We

would like the down conversions to be done at the consumer equipment rather than at the head end so that the consumers actually

have the choice. It’s not so easy to do a combination of over-theVerDate 11-MAY-2000 12:31 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00064 Fmt 6633 Sfmt 6602 95459.TXT HCOM1 PsN: HCOM1
61

air and satellite. It is doable, but I think that’s our tweak on the

down conversion approach.

It’s not clear to me as a matter of public policy why you would

want to reinforce the dependence on those providers, rather than

have a transition phase where at the end of the day you’re looking

at a fully independent provider, multicasting, broadband wireless

provider and ultimately I think that ought to be the goal but as

a transition matter, again, with some tweaks on it, the down conversion idea is obviously inherent in some of what we’ve been proposing.

I think it doesn’t get you out of all of these other problems. It

doesn’t deal with the 15 percent. You still have to find a motivation

and I don’t think it’s going to be quite—we’ve glossed over the difficulties of getting those things out there, but I can tell you that

my mother is never going to be able to figure out that box no matter how small and simple it looks. And one of us is going to have

to go over there and fix it for her and with my wife’s parents, somebody’s going to have to figure out how to do it in California and

it’s going to be—there are going to be a lot of dislocation and trouble getting these things done.

In Berlin, as I think it’s another reason why Mr. Lawson is clearly correct. The more you can get people to do this voluntarily,

through an incentive program, the less fall out you’ll get on consumer resentment from that kind of implementation problem which

is going to be formidable.

Mr. BASS. One other quick question, Mr. Schmidt, according to

GAO written testimony, Berlin broadcasters must compensate

cable operators for carriage, even when they have must carry

rights. Why aren’t you willing to compensate cable for carrying

your multicast programming?

Mr. SCHMIDT. I’m not fully familiar with the model there, but I

believe the cable carriers there are essentially common carriers

without their own services that they provide independently and

that that model is a different model than the cable we have here

and satellites similar and they provide their services, especially the

satellite providers, provide their services free over-the-air and I can

definitely see how you would end up paying there and I believe

that’s what happens with Freeview as well.

Mr. WILLNER. If I could respond to that. The model in Germany

about multicast was very different. They had 30 channels on a

cable system. They had seven channels over-the-air. This was

about more television programming being available and using the

easiest technology to deliver it. This is the usual blurring of the

issues here, bring in multicast, must carry, so that we can have another land grab here and take more frequency space away from

cable operators who then can’t offer those to other programmers

who don’t have the gift of public airwaves to be delivered to consumers. They have to come and negotiate their deals based on the

content that they are creating for us to deliver to our consumers.

So the entire concept of multicast must carry just expands the

bad idea of must carry to begin with which lowers the bar for programming to be created, because it’s a free pass into people’s

homes and that’s just not good marketplace practice.

Mr. BASS. I yield back, Mr. Chairman.

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Mr. UPTON. Mr. Engel.

Mr. ENGEL. Well, thank you. Thank you, Mr. Chairman. I know

the hour is late and we have a vote and I had a bunch of things

to run around to this morning and I’m going to read the testimony

of all the distinguished witnesses, but I just want to say from a parochial point of view, representing New York City, I just want to

state my opposition to a date hard in 2006 to turn off the analog

signal. Obviously, most of our TV transmission facilities are temporarily located adopt the Empire State Building which doesn’t have

the electrical capacity for all our needs and obviously on September

11, we lost our primary location and the new Freedom Tower is

waiting to be built and they’re talking about a completion date of

2008 or 2009. So until then, the people of New York and northern

New Jersey and southern Connecticut won’t be at a full digital capacity.

So I just would hope that there ultimately is an effort made to

set an early hard date. We’re going to need a waiver and I would

hope that we could work with it, but there’s quite a distinguished

panel and I’m going to do a lot of reading today and tonight to look

at their testimony and I thank them all for coming here.

Mr. UPTON. And we’ll quiz you on your reading tomorrow.

If I see you at the Republican Dinner tonight I’ll know that you

have not done your reading.

Mr. ENGEL. You can attend for me, Mr. Chairman.

Mr. UPTON. All right.

Mr. ENGEL. I’ll do the reading of the testimony.

Mr. UPTON. I saw you at another table.

Gentlemen, thank you. And we have four votes in the House

floor, so we’re going to adjourn the hearing. We appreciate very

much your expertise, your willingness to be before us today. I

would guess that a number of us will have additional questions

that we’ll be asking and maybe a different setting, but your work

today has been very valuable as we progress on this road.

Thank you very much.

[Whereupon, at 11:55 a.m., the hearing was concluded.]

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