U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

95–439PDF 2004

ADVANCING THE DTV TRANSITION: AN EXAMINATION OF THE FCC MEDIA BUREAU PROPOSAL

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

JUNE 2, 2004

Serial No. 108–86

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:

DalBello, Richard, President, Satellite Broadcasting and Communications

Association ..................................................................................................... 37

Ferree, W. Kenneth, Chief, Media Bureau, Federal Communications Commission ........................................................................................................... 13

Fritts, Edward O., President and Chief Executive Officer, National Association of Broadcasters ................................................................................. 22

Lenard, Thomas M., Senior Fellow and Vice President for Research,

The Progress and Freedom Foundation ...................................................... 54

Sachs, Robert, President and Chief Executive Officer, National Cable

and Television Association ........................................................................... 30

Shapiro, Gary J., President and Chief Executive Officer, Consumer Electronics Association ........................................................................................ 41

Tristani, Gloria, Managing Director, Office of Communication, The

United Church of Christ, Inc ....................................................................... 48

(III)

(1)

ADVANCING THE DTV TRANSITION: AN EXAMINATION OF THE FCC MEDIA BUREAU PROPOSAL

WEDNESDAY, JUNE 2, 2004

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ENERGY AND COMMERCE,

SUBCOMMITTEE ON TELECOMMUNICATIONS

AND THE INTERNET,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:10 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, Walden, Terry, Barton (ex officio), Markey, Wynn, McCarthy, Doyle, Gonzalez, Boucher, Towns,

Engel, and Dingell (ex officio).

Also present: Representative Burr.

Staff present: Will Nordwind, majority counsel and policy coordinator; Neil Fried, majority counsel; Jaylyn Jensen, majority professional staff; William Carty, legislative clerk; Howard Waltzman,

majority counsel; Andy Black, deputy chief, policy; Bud Albright,

staff director; and Gregg Rothschild, minority counsel.

Mr. UPTON. Good morning. Today’s hearing is entitled Advancing

the DTV Transition: An Examination of the FCC Media Bureau

Proposal.

To be sure, we have come a long way since March 15, 2001, the

date of the first digital TV hearing that I presided over as Chairman of this subcommittee. At that hearing we were trying to figure

out how we could get the DTV transition back on track, but much

of what we got was a lot of finger-pointing amongst the various industry stakeholders and frustration with the FCC’s lack of leadership. Back then the transition appeared hopelessly caught in the

vicious chicken and egg cycle, with no easy answers in sight.

Three years, five subcommittee hearings, and more than a handful of DTV roundtables later, today I am pleased to report that

much progress has been made. Whether it be with DTV tuners,

plug-and-play agreements, the broadcast flag, commercial and noncommercial broadcast build-out, cable point digital upgrades, more

broadcast network digital content, or a continued surge in the sale

of digital consumer electronics, all industry stakeholders are to be

commended for this progress, and in many cases interindustry cooperation.

2

Moreover, I believe much of this progress can be attributed to the

leadership of Chairman Powell and the FCC’s Media Bureau. Generally speaking, whether one agrees with the FCC on any of its decisions or not, no one can fault the FCC for inaction.

To be sure, much work lies ahead, and today we are focusing on

one critically important element of a transition, the deadline for

the end of the transition. As we all know, the statute provides that

broadcasters must return their analog spectrum on December 31,

2006, but extensions shall be granted to broadcasters if 15 percent

or more of consumers in its market cannot view digital broadcasts,

whether via cable, satellite, digital receivers or analog TVs with

converter boxes.

In other words, this is the so called 85 percent penetration test,

And depending upon how the 85 percent penetration test is calculated, some industry observers have stated that we won’t hit the

mark until the year 2020. To me that always has been and continues to be unacceptable.

Today we are examining a proposal by the FCC’s Media Bureau

which would count consumers toward the 85 percent, even if they

were receiving digital broadcasts on their analog TVs from their

cable or satellite provider. This proposal brings a lot to the table,

and I commend the Media Bureau for it.

As I understand it, under this proposal many markets would

reach the 85 percent penetration test near the December 31, 2006,

date, and most, if not all, would reach it by 2009. In addition, the

Media Bureau proposal contemplates granting multicast carriage

rights to broadcasters, and those rights would become effective in

2009.

Moreover, the Media Bureau’s proposal does not appear to exacerbate the existing challenge under the statute faced by the up to

15 percent of consumers who may not be able to get a digital signal

at the time that broadcasters are required to return their analog

spectrum.

In fact, some suggest that the Media Bureau’s proposal may help

mitigate the impact. Of course, those consumers, particularly those

of limited means, remain a concern to this Member, and I commend the Commission for its recent effort to seek comment on options for minimizing the disruption to consumers when that analog

spectrum is returned.

So to paraphrase Winston Churchill, today is not the end of this

debate, nor is it the beginning of the end, but it is perhaps the end

of the beginning in that the Media Bureau proposal is the first real

proposal that I have seen which provides some semblance of an orderly transition in a reasonably timely fashion.

Of course, it is just that, a proposal. And today’s hearing will

help guide our thoughts on its relative merits and perhaps demerits. I look forward to hearing from today’s witnesses and engaging

in thoughtful conversation.

I yield to the ranking member of the subcommittee Mr. Markey.

Mr. MARKEY. Thank you, Mr. Chairman, very much. And I would

like to commend you for having this very important hearing and

all of the key players in this discussion here with us today.

In critical ways this subcommittee was instrumental in beginning the transition to high-definition TV for the country, and cerVerDate 11-MAY-2000 12:06 Aug 30, 2004 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 95439.TXT HCOM1 PsN: HCOM1
3

tainly shifting the debate from analog HDTV format to a digital

one.

For me the odyssey that began with an analog HDTV broadcast

in this very room in 1987—and that was a big, big day in the history of the subcommittee when we had a live Canadian HDTV

broadcast come right into this room, and most of the Members were

then asking, when can I get one of those TV sets? To me it is a

little bit scary if this is the end of the beginning, and the beginning

started in 1987, I hope that we are slightly further along than that.

With the computer industry, the telephone industry, the cable industry, the wireless industry all going digital, it was important

growth and job creation to move the broadcast industry to digital

as well. Because it is a licensed industry, and one which had tens

of millions of consumers with analog TV sets, it was clear that we

needed a transition. Broadcasters were lent additional spectrum for

transitional purposes, and the law requires that when the transition is over, that they give back their analog spectrum.

Because broadcasters were special in that they had a responsibility to use their licenses in the public interest, it furthered the

public interest to move them into the digital age so that they could

continue their free over-the-air public interest mission in local communities around the country.

At the same time, we were having our flurry of HDTV hearings,

Congress was also passing the must carry retransmission consent

provisions of the 1992 Cable Act. These provisions also reflected

the fact that broadcasters had a special role in our national media

mix. And I know from firsthand experience that such broadcasters

certainly hold a special place in Boston’s media marketplace.

Simply put, the grants of additional spectrum for free, as well as

the government’s requirement that cable operators carry broadcast

signals, and, under must carry, require the carriage to be free of

charge represents extraordinary involvement in the marketplace on

behalf of broadcasters. We do this because they hold valuable licenses to the public’s airwaves and because they are duty-bound to

use those licenses in the public interest. Without such public interest obligations, in other words, there would be little justification for

must carry rights or free spectrum.

Since 1997, I have asked various broadcast witnesses at a series

of hearings about their public interest commitment for the digital

era. To their credit, each broadcast witness that I asked agreed

that because their service would be enhanced in the digital format,

their public interest commitment would similarly rise and be commensurate with the increased power and versatility of the digital

medium. Each witness, however, resisted any articulation or quantification of what that digital public interest commitment would be.

In addition, we are now 4 years into the FCC’s regulatory proceeding on the public interest commitment of digital broadcasters

with no end, apparently, in sight.

For those of us in the policymaking realm who are prepared to

endorse significant must carry policy options, including so-called

multicast must carry, the lack of industry and regulatory progress

on establishing public interest commitments is a concern. The FCC

Media Bureau proposal doesn’t speak to this type of public interest

4

obligation at all. It does have what seems to be a hail Mary pass

proposal to end the DTV transition and get to the end zone sooner.

Getting spectrum back sooner has obvious public interest and

economic benefits to offer both consumers and taxpayers alike. Importantly, even freeing up the upper portion of the broadcast spectrum for public safety would be a significant public interest

achievement that has also eluded regulators for some years. Integral to the Media Bureau plan, however, is the notion that cable

operators would take the digital signals of broadcasters and downconvert that signal to analog. In other words, cable consumers

would receive their local digital TV broadcasts in analog format to

bring the DTV transition to a more rapid conclusion.

Due to the likelihood of broadcasters multicasting and splitting

their signal into several digital feeds, and the lack of any requirement that broadcasters actually broadcast in HDTV, over time we

have tended in our policy discussions to drop the letter H. We typically now talk about DTV, not HDTV.

My concern with the Media Bureau proposal is that it seems to

portend the dropping of the letter D. That would certainly be an

O. Henry ending to the HDTV policy. We started 17 years ago with

analog HDTV, moved the Commission to a digital HDTV format.

Then Congress allows multicasting, and many broadcasters move

to the notion of simply DTV only to have the Media Bureau turn

around and bring us back to analog TV over cable systems. I understand that some think the marketplace will resuscitate the D

for digital TV over time on cable systems, but I am skeptical that

it would work across the Nation.

We must admit that at its core, the DTV transition represents

a government-driven policy, not a purely market-driven phenomenon, and it is therefore imperative that government create the

conditions and environment for policy successes.

Thank you, Mr. Chairman, very much.

[The prepared statement of Hon. Edward J. Markey follows:]

PREPARED STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF MASSACHUSETTS

Good Morning. I’d like to commend Chairman Upton for calling this hearing today

to further explore issues related to the transition to digital television (DTV). In critical ways, this Subcommittee was instrumental in beginning the transition to high

definition TV for the country, and certainly in shifting the debate from an analog

HDTV format to a digital one.

For me, the odyssey that began with an analog HDTV broadcast in this very room

in 1987 was about the public interest. With the computer industry, the telephone

industry, cable industry, wireless industry, all going ‘‘digital,’’ it was important for

economic growth and job creation to move the broadcast industry to digital too. Because it is a licensed industry and one which had tens of millions of consumers with

analog TV sets, it was clear we needed a transition. Broadcasters were lent additional spectrum for transitional purposes and the law requires that when the transition is over they give back their analog spectrum.

Because broadcasters were special in that they had a responsibility to use their

licenses in the public interest, it furthered the public interest to move them into the

digital age so that they could continue their free over-the-air, public interest mission

in local communities around the country. At the same time we were having our flurry of HDTV hearings, Congress was also passing the must-carry/retransmission consent provisions of the 1992 Cable Act. Those provisions also reflected the fact that

broadcasters had a special role in our national media mix, and I know from firsthand experience that such broadcasters certainly hold a special place in Boston’s

media marketplace.

5

Simply put, the grant of additional spectrum for free as well as the government’s

requirement that cable operators carry broadcast signals and, under must carry, require that carriage to be free of charge represents extraordinary involvement in the

marketplace on behalf of the broadcasters. We do this because they hold valuable

licenses to the public’s airways and because they are duty-bound to use those licenses in the public interest. Without such public interest obligations, in other

words, there would be little justification for must-carry rights or free spectrum.

Since 1997, I have asked various broadcast witnesses at a series of hearings about

their public interest commitment for the digital era. To their credit, each broadcast

witness that I asked agreed that because their service would be enhanced in the

digital format, their public interest commitment would similarly rise and be commensurate with the increased power and versatility of the digital medium. Each witness, however, resisted any articulation or quantification of what that digital public

interest commitment would be. In addition, we are now four years into the FCC’s

regulatory proceeding on the public interest commitment of digital broadcasters

with no end apparently in sight. For those of us in the policymaking realm who are

prepared to endorse significant must-carry policy options, including so-called

multicast must-carry, the lack of industry and regulatory progress on establishing

public interest commitments is a concern.

The FCC Media Bureau proposal doesn’t speak to this type of public interest obligation at all. It does have what seems to be a ‘‘Hail Mary-pass’’ proposal to end the

DTV transition and get to the end zone sooner. Getting spectrum back sooner has

obvious public interest and economic benefits to offer both consumers and taxpayers

alike. Importantly, even freeing up the upper portion of the broadcast spectrum for

public safety would be a significant public interest achievement that has also eluded

regulators for some years. Integral to the Media Bureau plan, however, is the notion

that cable operators would take the digital signals of broadcasters and ‘‘down-convert’’ that signal to analog. In other words, cable consumers would receive their local

digital TV broadcasters in analog format to bring the DTV transition to a more

rapid conclusion.

Due to the likelihood of broadcasters multi-casting and splitting their signal into

several digital feeds and the lack of any requirement that broadcasters actually

broadcast in HDTV, over time we have tended in our policy discussions to drop the

letter ‘‘H’’—we typically talk now about DTV not HDTV. My concern with the Media

Bureau proposal is that it seems to portend the dropping of the letter ‘‘D’’. That

would certainly be an ‘‘O. Henry-like’’ ending to our HDTV policy: we start 17 years

ago with analog HDTV, move the Commission to a digital HDTV format, then Congress allows multicasting and many broadcasters move to the notion of simply DTV,

only to have the Media Bureau turn around and bring us back to analog TV over

cable systems. I understand that some think the marketplace will resuscitate the

‘‘D’’ for digital TV over time on cable systems, but I’m skeptical that it would work

across the nation.

We must admit that at its core, the DTV transition represents a government-driven policy, not a purely market-driven phenomenon, and it is therefore imperative

that government create the conditions and environment for policy success.

Again, I want to congratulate the Subcommittee Chairman Mr. Upton for calling

this hearing and commend as well Ranking Member Mr. Dingell and Chairman Barton for their continued efforts in making our digital television policy work for the

country.

Mr. UPTON. Thank you.

Mr. Barton.

Chairman BARTON. Thank you, Mr. Chairman, for holding this

hearing on the FCC Media Bureau proposal to expedite the DTV

transition.

Expediting the transition is one of the top communications policy

objectives of this committee, and I am intrigued so far by what I

have heard about the proposal that is before us today. I am eager

to learn more, and I want to thank the witnesses for testifying

today. We have a good panel.

The proposal is rooted in Section 309 of the Communications Act,

which sets December 31, 2006, as the goal for return of the analog

spectrum. Section 309 would also allow for extensions, however.

For example, a broadcaster may seek an extension if 15 percent or

more of the consumers in that specific market cannot view digital

6

broadcasts, whether via cable, satellite, digital receivers or analog

televisions with converter boxes.

Consistent with the statute, the Media Bureau proposal would

count consumers toward the 85 percent that can view digital broadcasts, even if they were watching on an analog television set in ordinary definition over their cable or satellite service.

I think that that is appropriate. Section 309 is not about promoting high-definition television directly, but rather about reclaiming the analog spectrum as soon as possible while minimizing the

number of consumers who must take additional steps after the

transition to continue watching television.

Some criticize the proposal for not promoting high-definition television. That criticism is unjustified, in my opinion. When faced

with the end of analog broadcasts, more consumers will purchase

high-definition TV sets, and the more high-definition televisions

that are in the marketplace, the more broadcasters, cable and satellite, will offer high-definition content.

Also keep in mind that not even the broadcasters argue that this

transition is exclusively about high-definition. They continue to

argue for multicast must-carry under which consumers would receive multiple standard definition streams, rather than a single

high-definition one.

Some would argue that by expediting the transition, the proposal

will give consumers less time to replace their analog televisions.

But, again, consumers will be more likely to purchase digital television sets when faced with the end of analog broadcasts.

Moreover, the statute has always contemplated ending the transition with as many as 15 percent of households needing to take

steps to continue receiving television broadcasts. The Media Bureau proposal will likely impact fewer consumers than that, since

by the end of 2006, many more consumers will have digital televisions, cable service, satellite service, or digital-to-analog converter boxes.

I would also note that the broadcasters have been seeking mandatory carriage of both their analog and digital broadcasts simultaneously under the must carry rules. Under their proposal, the transition would come to an end at about the same time as under the

Media Bureau proposal in light of the fact that some markets already have almost 85 percent of their customers subscribing to

cable or satellite. That is not to say that I support dual carriage

or other digital must carry proposals.

The Media Bureau proposal would grant broadcasters multicast

must-carry rights. It is well known that I am skeptical of mustcarry in the analog world. I am even more skeptical of must-carry

in the digital world. Market forces are and will continue to promote

high-definition multicast television where and when appropriate.

I look forward to hearing more about these issues. I think this

is a very important hearing, and I appreciate the subcommittee

chairman holding it.

[The prepared statement of Hon. Joe Barton follows:]

PREPARED STATEMENT OF HON. JOE BARTON, CHAIRMAN, COMMITTEE ON ENERGY

AND COMMERCE

Thank you, Mr. Chairman, for holding this hearing on the FCC Media Bureau

proposal to expedite the DTV transition. Expediting the transition is one of my top

7

communications policy objectives, and I am intrigued so far by what I have heard

of the proposal. I am eager to learn more, and thank the witnesses for coming to

testify.

The proposal is rooted in Section 309 of the Communications Act, which sets December 31, 2006, as the goal for return of the analog spectrum. Section 309 also allows for extensions, however. For example, a broadcaster may seek an extension if

15 percent or more of consumers in its market cannot view digital broadcasts,

whether via cable, satellite, digital receivers, or analog televisions with converter

boxes. Consistent with the statute, the Media Bureau proposal would count consumers toward the 85-percent that can view digital broadcasts even if they were

watching on analog televisions in ordinary definition over their cable or satellite

service.

This is appropriate. Section 309 is not about promoting high-definition television

directly, but about reclaiming the analog spectrum as soon as possible while minimizing the number of consumers who must take additional steps after the transition

to continue watching television.

Some criticize the proposal for not promoting high-definition television. I believe

it does. When faced with the end of analog broadcasts, more consumers will purchase high-definition televisions. And the more high-definition televisions in the

marketplace, the more broadcasters, cable, and satellite will offer high-definition

content.

Also keep in mind that not even the broadcasters argue that this transition is exclusively about high-definition. They continue to argue for multicast must-carriage,

under which consumers would receive multiple standard definition streams rather

than a single high-definition one.

Some also argue that by expediting the transition the proposal will give consumers less time to replace their analog televisions. But again, consumers will be

more likely to purchase digital televisions when faced with the end of analog broadcasts. Moreover, the statute has always contemplated ending the transition with as

many as 15 percent of households needing to take steps to continue receiving television broadcasts. The Media Bureau proposal is expected to impact fewer consumers than that, since by the end of 2006 many more consumers will have digital

televisions, cable service, satellite service, or digital-to-analog converter boxes.

I also note that the broadcasters have been seeking mandatory carriage of both

their analog and digital broadcasts simultaneously under the must-carry rules.

Under that proposal, the transition would come to an end at about the same time

as under the Media Bureau proposal, in light of the fact that in some markets almost 85 percent of customers already subscribe to cable or satellite.

That is not to say that I support dual carriage or other digital must-carry proposals. The Media Bureau proposal would grant broadcasters multicast must-carry

rights. I am skeptical of must-carry in the analog world. I have yet to be convinced

why it should be expanded in the digital world. Market forces are and will continue

to promote high-definition and multicast television where and when appropriate.

I look forward to hearing more on all these issues during today’s testimony. I

yield back.

Mr. UPTON. Thank you, Mr. Barton.

Mr. UPTON. Mr. Dingell.

Mr. DINGELL. Mr. Chairman, good morning. I commend you for

holding this hearing.

As we all know, our country is in the midst of a very important

transition from analog to digital television broadcasting. Along

with most of my colleagues, I believe that the transition is progressing much more slowly than we had originally expected or

hoped.

I hope that this hearing is the first of several hearings to explore

the issues confronting the transition, and I would note that there

are some very intractable issues that need to be addressed by hearings here and actions by the FCC.

As a result of the broadcast television migration from analog to

the more efficient digital technology, the public will receive numerous benefits, including high-definition television and a greater selection of over-the-air broadcast programming.

8

Equally important, 108 megahertz of the spectrum will be recovered for use by other services, including public safety and advanced

video and data services. In particular, this spectrum will provide

a major boost toward the goal of broadband services for all Americans. However, and this point is particularly important, this spectrum will not become available for such new uses until the transition is deemed complete and the broadcasters return their analog

broadcast spectrum.

In the Balanced Budget Act of 1997, Congress prescribed that

analog broadcast facilities would be turned off on December 31,

2006 or when 85 percent of television households had the capability

to receive digital programming. For this reason, one of the critical

tasks confronting the FCC is implementing this provision of the

1997 statute.

And let me make it clear what is at stake as we continue to

delay reclaiming the analog broadcast spectrum. First, 24 megahertz of this spectrum has been set aside for public safety purposes, and making such spectrum available for such purposes is

clearly important to protecting our citizens and permitting public

safety entities to perform their mission safely and efficiently.

Second, the remaining spectrum is needed to satisfy the growing

demand in the marketplace for wireless products and services. Continuing delay only serves to inhibit the ability of innovative companies to address this marketplace demand and to dampen the ability

of such companies to attract capital and create jobs.

The FCC Media Bureau’s current plan to implement the statutory transition deadline would result in completing the transition

in early 2009, and therefore provide important needed certainty as

to the return date of analog broadcast spectrum. It would achieve

this goal primarily by counting toward the 85 percent number

those homes that subscribe to cable and receive a downconverted

digital signal.

Once that transition is complete, each broadcaster could elect

whether it wants its local cable system to pass through the station’s signal in digital, or to convert that signal to analog. And

cable systems would be required to carry both the broadcaster’s

high-definition signals and multicast signals.

This plan will merit thoughtful consideration by the Commission

when it is put before them. The committee and the FCC should pay

close attention to many other pressing issues where a lack of resolution continues to slow the transition. For example, the FCC in

certain instances has been unable to grant construction permits or

in other instances to permit stations to broadcast at maximum

power levels because of potential interference with Canadian and

Mexican transmitters. This is hurting local broadcasters in almost

all of the border States, as I have indicated, including your State

and my State of Michigan. And I would like to see the FCC work

to resolve such questions in a far more expeditious fashion.

In rural areas local broadcasters rely upon networks of repeaters

and translators to cover their vast market areas. The FCC has not

yet authorized their upgrade to digital, and this is having a significant hampering effect on the transition, particularly in rural markets.

9

Finally, the FCC must move forward and create a final DTV

table of channel assignments. Such action will require moving stations out of channels 52 to 69 and into the narrower core broadcast

band of channels 2 to 51.

I understand that the MSTV plan currently before the FCC has

near unanimous industry support, and I urge the FCC strongly to

make a decision on this question as soon as possible.

Mr. Chairman, I look forward to working with you and all of the

members of this committee as we examine the questions associated

with digital transmission, and, if need be, I will be happy to work

with you to consider legislation in this area. I thank you, Mr.

Chairman, and I yield back the balance of my time.

Mr. UPTON. Thank you.

Mr. Buyer.

Mr. BUYER. I reserve my time.

Mr. UPTON. Mr. Walden.

Mr. WALDEN. I reserve my time for questions, Mr. Chairman.

Mr. TERRY. Same.

Mr. SHIMKUS. I will pass.

Mr. BASS. Pass.

Mr. UPTON. Ms. McCarthy.

Ms. MCCARTHY. I reserve my time.

Mr. UPTON. Mr. Doyle.

Mr. DOYLE. Thank you, Mr. Chairman. We were on a roll there

for a second.

Mr. UPTON. We were. Sort of like that toll road in Pennsylvania.

Mr. DOYLE. Sorry to be the skunk at the garden party.

Mr. Chairman, thank you, and I want to thank Mr. Markey also

for scheduling this important hearing. And I also want to thank all

of our witnesses for agreeing to appear before us to discuss the

FCC Media Bureau’s proposal to advance transition to digital TV.

Today only between 8 and 9 percent of Americans are capable of

viewing digital television signals, and at the current pace of transition, it will take many more years before the 85 percent threshold

for reclaiming the analog spectrum is met.

As we all know the spectrum currently being used for the delivery of over-the-air analog television is extremely valuable to the interests of the American people. This spectrum will ultimately have

significant public and consumer benefits, and it is imperative that

we continuously look for ways to ensure its most immediate availability.

Availability of this spectrum will be of significant benefit to public safety. First responders in large to midsized metropolitan areas

need access to more spectrum to ensure the effectiveness of the important work they perform. I am told that reclaiming the analog

spectrum will double the amount of public safety spectrum, which

is of great importance.

The public will also benefit by the greater availability of cuttingedge wireless services. Consumers in unserved and underserved

areas do not have access to the technological advances in wireless

communications that larger metropolitan areas have experienced in

recent years. Reclaiming the analog spectrum will allow wireless

companies to offer mere next-generation wireless services to more

10

areas of the country, which will allow for greater competition in the

wireless industry and increased consumer satisfaction.

And, finally, the reclamation of this spectrum will bring tens of

billions of dollars into the U.S. Treasury, which in these times of

exceedingly tight budgets would be a very welcome addition to our

budget process.

So it is clear to me, and I am sure to everyone in this room, as

to why we need to think of creative ways to move this DTV transition along, which is why I am pleased that the Media Bureau has

put forth this proposal for consideration.

I want to thank our witnesses for appearing here today. I am

very interested to know what impact the witnesses believe the

Media Bureau’s plan will have not only on the interests they represent, but also what impact it will have on consumers.

I am sure that very few Americans fully understand both the

benefits and the drawbacks of the transition to digital television.

Consumers will certainly benefit from better picture quality and increased access to information services. But as we consider policies

toease the transition to digital TV, we must remember the average

consumer who doesn’t want to or can’t afford to spend considerable

sums of money on their television service. We must try to make

sure that transition to DTV will not place a significant financial

burden on that consumer.

Mr. Chairman, I thank you, and I yield back my time.

Mr. UPTON. Mr. Stearns.

Mr. STEARNS. Thank you, Mr. Chairman.

When we passed the Telecom Act of 1996, we wanted to reduce

regulation in order to secure lower prices and higher-quality service for American telecommunications consumers and encourage the

rapid development of new technologies. One of the specific goals in

the act was to transition from analog to digital television, of course,

in a very timely manner.

Today we are examining the FCC’s proposal to expedite the digital transition. While progress has been made in broadcast, cable,

satellite and consumer electronics, we still lack the certainty of a

specific transition date, despite Congress mandating the termination of analog signals by the year 2006.

With the existing statutory conditions, and the ability to file for

extensions beyond the analog termination date, we lose a certainty

that consumers and industry desire to make the full leap into the

digital viewing environment. I think the Media Bureau’s objectives

outlined in the FCC testimony are exactly the same as Congress’

intent in 1996, No. 1; a certain transition to reclaiming valuable

spectrum; and, three, minimize disruption to consumers; and, four,

maintain consumer access to digital offerings.

I would argue that one of the goals is not to just merely maintain

consumer access, but to encourage an explosive growth in digital

products and services. These offerings are there, but consumer demand is not where it should be. For instance, consumers continue

to purchase thousands of analog television sets, mainly because the

threshold of digital offerings does not appear to be sufficient for the

average consumer to cross over and spend that extra money.

In fact, less than 10 percent of U.S. households have digital televisions. I noticed in Mr. Sachs testimony, on behalf of the cable inVerDate 11-MAY-2000 12:06 Aug 30, 2004 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 95439.TXT HCOM1 PsN: HCOM1
11

dustry, that 30 percent of cable customers subscribe to digital services. But how many of these customers view these services on an

analog TV set? I don’t think the number is very high.

So I am hopeful that the agreement on plug-and-play, allowing

consumers to connect digital cable systems directly to a digital television without a converter box, will provide for continued growth

in digital purchases.

And, last, a number of other issues must be addressed as we

move forward on digital transition, such as multicasting under

must carry obligations, down-converting digital broadcast signals,

and addressing the 15 percent of consumers who will likely be left

in the dark once analog signals cease.

So, Mr. Chairman, I look forward to hearing from our panelists

today. I appreciate you having this hearing.

Mr. UPTON. Mr. Gonzalez.

Mr. GONZALEZ. Waive opening. Thank you.

Mr. UPTON. Mr. Wynn.

Mr. WYNN. I defer, Mr. Chairman.

Mr. UPTON. Well, that concludes our opening statements. Thank

you.

[Additional statements submitted for the record follow:]

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

FROM THE STATE OF WYOMING

I look forward to our hearing today on the Digital Television, or DTV, transition.

This is an exciting time for the evolution of the television broadcast. Just like the

change from black and white to color was a seminal moment in our history, DTV

promises to provide an even more stark change with an ultra-high quality and dynamic viewing experience. We are getting closer to a time where all broadcasters

will have the capability to transmit their signals in a digital format which will not

only improve viewing quality for Americans, but will also free up precious spectrum

for important national interests, like first responders and advanced wireless services.

There are still hurdles to be cleared, however, and it will prove to be more difficult than past television evolution, I’m sure. But I am glad we are addressing

these matters as a Committee, and hope that we can build momentum to make DTV

a ubiquitous service for all Americans.

Beside the assumptions that need to be ironed out regarding the DTV transition,

there are also issues that need to be addressed about what that digital experience

will look like in the future. Much like new technologies, such as digital video recorders, have changed our viewing habits, interactivity B apart from simply using your

remote to change channels B will be commonplace.

It may also be commonplace to have six different camera angles to choose from

during a sporting event, or other functionality during the news or another program.

But the future is still unclear and questions still need to be asked. Questions like,

how much of the broadcast day will be in High Definition Television (HDTV) or

multi-cast digital? How will the consumer know what programming will be available

to them? When and where will they find it? And, how will all of this merge with

the Internet?

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. ED TOWNS, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF NEW YORK

Let me begin by thanking you Mr. Chairman for holding this hearing. The digital

television transition is one of the most important issues in front of this committee

and the FCC, and I salute Mr. Ferree for his innovative proposal.

12

While words like ‘‘critical’’ or ‘‘important’’ are often loosely thrown around to describe issues and hearings, such descriptions are very appropriate for today. In fact,

given the enormous value that would be generated through the return of broadcasters’ analog spectrum, I do not think the importance can be over-emphasized.

This is not to say that I do not have some reservations about the FCC’s Media

proposal. However, as we evaluate how different stakeholders are affected by the

plan, we must also weigh the public benefits that will accrue by speeding up the

return of the spectrum such as innovative wireless consumer services. As a New

York member of Congress, the improved communications for public safety and

homeland security that would be facilitated by the spectrum is also a tremendous

concern.

One glaring omission from the plan is addressing those viewers who rely on a

free, over-the-air analog signal to receive television programming. In addition to the

entertainment value of television, it also serves to inform citizens of important news

and weather alerts.

Any plan that speeds up the transition must make sure that those who rely on

this free signal are not left behind. Without any intervention by Congress or the

FCC, there are millions of people, presumably low-income homes that cannot afford

cable or seniors who do not want additional programming, who could see their TVs

go dark on the deadline. I understand that the Chairman is planning to hold a hearing on this specific issue, and I commend him for that action. However, given the

importance of this issue, I think it must be raised as we discuss the overall proposal

as well.

I look forward to hearing from the witnesses on this issue as well as their overall

views on the FCC’s proposal. Thank you Mr. Chairman. I yield back the balance

of my time.

Mr. UPTON. We are delighted to have the distinguished panel

with us this morning. We are joined by Mr. Ken Ferree, the Chief

of the Media Bureau from the FCC; Mr. Edward Fritts, President

and CEO of the National Association of Broadcasters; Mr. Robert

Sachs, President and Chief Executive Officer of the National Cable

and Telecom Association; Mr. Richard DalBello, President of the

Satellite Broadcasting and Communications Association; Mr. Gary

Shapiro, President and CEO of the Consumer Electronics Association; Ms. Gloria Tristani, Managing Director of the Office of Communication from the United Church of Christ; and Mr. Thomas

Lenard, Senior Fellow and Vice President for Research for the

Progress and Freedom Foundation.

Ladies and gentlemen, welcome. I also very much appreciate

your submission of your testimony in advance so we can read it

last night. We would like to limit your opening statements to about

5 minutes.

Mr. Ferree, we will start with you. Welcome.

13

STATEMENTS OF W. KENNETH FERREE, CHIEF, MEDIA BUREAU, FEDERAL COMMUNICATIONS COMMISSION; EDWARD

O. FRITTS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL ASSOCIATION OF BROADCASTERS; ROBERT SACHS,

PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL

CABLE & TELEVISION ASSOCIATION; RICHARD DALBELLO,

PRESIDENT, SATELLITE BROADCASTING & COMMUNICATIONS ASSOCIATION; GARY J. SHAPIRO, PRESIDENT AND

CHIEF EXECUTIVE OFFICER, CONSUMER ELECTRONICS ASSOCIATION; GLORIA TRISTANI, MANAGING DIRECTOR, OFFICE OF COMMUNICATION, THE UNITED CHURCH OF

CHRIST, INC.; AND THOMAS M. LENARD, SENIOR FELLOW

AND VICE PRESIDENT FOR RESEARCH, THE PROGRESS &

FREEDOM FOUNDATION

Mr. FERREE. Thank you, Mr. Chairman, and good morning,

Ranking Member Markey and members of the subcommittee. My

name is Ken Ferree, and I am Chief of the Media Bureau at the

FCC, and I appreciate the opportunity to testify this morning on

the DTV transition.

To date our efforts have been focused on getting the transition

off the ground. Those efforts are proving successful. It is no longer

a question of whether the transition will occur, but when and how.

It is time, therefore, to focus on making the digital switch over as

smooth as possible for consumers.

The Bureau has been working on a plan to that end. In developing the plan, the Bureau had the following objectives: First,

bring the transition to a timely and predictable conclusion which

will benefit consumers and others with a stake in the digital transition.

Second, reclaim valuable spectrum. The spectrum that will be recovered will bring tremendous benefits to the public. Some of it will

be given directly to public safety authorities, vastly increasing the

amount available to first responders. The remainder will be auctioned for use by the advanced wireless services, which will not

only generate substantial auction revenues, but will also provide

continuing benefits in terms of the economy and job creation.

Third, minimize disruption to consumers. Whenever the transition ends, consumers should not lose access to their favorite programming. Our goal is to minimize the impact of the transition on

consumer viewing patterns and to ensure that converter equipment

is available at a reasonable cost for analog over-the-air viewers.

Fourth, maintain consumer access to HDTV. Today consumers

have access to a growing level of compelling digital content, particularly high-definition content. That access should be maintained

and encouraged.

Fifth, and finally, comply with constitutional and statutory requirements. Some broadcasters suggest, for instance, that cable operators should be required to carry both the analog and the digital

signal of every broadcast station. The Commission has tentatively

concluded that such mandatory dual carriage would be unconstitutional. Based on the record in this proceeding, I am convinced that

that conclusion was correct. Dual carriage imposes a greater burden than necessary to further any discernable government interest.

14

The Bureau has devised a plan that meets these objectives. The

details of the plan are set forth in my written testimony. Generally

the plan involves a switch in broadcasters’ must carry rights from

analog to digital in January 2009. Cable subscribers and satellite

subscribers in local-into-local markets will therefore count toward

the 85 percent trigger for the end of the transition. Combined with

the households that will have digital TV sets, we expect to reach

the 85 percent threshold virtually nationwide at that time.

Now, let me briefly explain one of the policy cuts the Bureau

made in developing the plan. When broadcasters must carry rights

switch to digital, the question becomes, how should they be carried

on cable systems? If a cable system is all digital so that all subscribers can watch a digital cable stream, the digital broadcast signal should also be passed through in digital. That is the easy case.

But what if the cable systems in 2009, like cable systems today,

have a mix of analog and digital subscribers? The options are either to require the cable system to deliver the signal digitally,

which would deprive analog viewers of the programming that they

are accustomed to, or require cable operators to down-convert the

signals so that all consumers may receive it.

The Bureau chose the latter course. Thus, the vast majority of

consumers, including all cable subscribers and most or all satellite

subscribers, will experience a seamless transition. They will be able

to continue to watch the same programming that they always have.

Now, there are two important points to be made about this requirement. First, broadcasters can, of course, continue to negotiate

voluntary carriage of their digital signal. Approximately 400 broadcasters have already done so, and more are gaining digital carriage

every day.

Second, this is only a transitional requirement. Once a broadcaster has returned its analog license, it may decide whether it

wants its digital signal down-converted or passed through in digital

by the cable operators. It is their choice.

Finally, to begin to address legitimate concerns about the effect

of the transition on consumers who rely on over-the-air analog television, the Bureau has issued a public notice to help us learn more

about these consumers and what can and should be done to make

the transition as smooth as possible for them.

Thank you for the opportunity to review our proposal. I look forward to continuing to work with the committee on the DTV transition and to bring it to a successful conclusion.

[The prepared statement of W. Kenneth Ferree follows:]

PREPARED STATEMENT OF W. KENNETH FERREE, CHIEF, MEDIA BUREAU, FEDERAL

COMMUNICATIONS COMMISSION

I. INTRODUCTION

Good morning Chairman Upton, Ranking Member Markey, and members of the

subcommittee. My name is Ken Ferree and I am Chief of the Media Bureau at the

Federal Communications Commission. I appreciate the opportunity to testify today

on bringing the digital television (‘‘DTV’’) transition to a timely and successful conclusion.

It wasn’t too long ago that using a phrase like ‘‘timely and successful’’ in connection with the DTV transition would have been considered a non sequitur. No longer.

The DTV transition is beginning to gain momentum; we are witnessing one of the

most dramatic marketplace shifts in recent memory.

15

1 By statute, all analog broadcast licenses terminate on December 31, 2006, unless the licensee

requests and the Commission grants an extension based upon the criteria in Section 309(j)(14)

of the Communications Act. 47 U.S.C. § 309(j)(14)(A) and (B). In the absence of significant

changes in circumstances, we do not think it likely that the standard set forth in Section

309(j)(14) will be met by that date and thus expect that the majority of stations will qualify

for an extension of the initial deadline.

There is plenty of credit to go around. Each of the affected industries—broadcasters, cable and satellite operators, content providers, consumer electronics manufacturers and retailers—deserve some credit for bringing us to this juncture. They

are the ones who developed the business plans, put the capital at risk, and are

bringing the benefits of digital television to American consumers.

Government deserves some of the credit as well. Over the past few years, both

Congress and the FCC, under Chairman Powell’s leadership, have created a renewed sense of urgency regarding the DTV transition, doing whatever was needed

to get the transition moving. Often informal tools were used, like the industry

roundtable discussions convened by this Committee that helped define and focus the

issues, or the ‘‘Powell Plan’’ that resulted in voluntary industry commitments to advance the transition. When necessary, more formal regulatory tools were used, such

as the DTV tuner mandate, rules for ‘‘plug and play’’ television sets, and the adoption of the ‘‘broadcast flag’’ system to protect digital broadcast content from widespread piracy over the Internet.

It goes without saying that our work is far from done. Indeed, we are in the midst

of an incredibly busy period at the FCC on issues relating to digital television, and

we hope to act on several major proceedings in the near future, including the procedures for final channel allotments and deadlines for broadcasters to operate at full

power.

So why turn our attention to the end of the transition when we still have work

in front of us? Because now is the time to start looking ahead and planning if we

want the transition to end smoothly for the American public. Up to now, most of

our efforts have been focused on getting the transition off the ground. But now that

the wheels are finally lifting off the runway and the transition is pointed skyward,

we can and should begin turning our attention to our destination, and how we will

land this transition as quickly and as safely as possible.

Put differently, it is no longer a question of whether the transition will occur, but

when—and how we can make the final digital switch-over as smooth as possible for

consumers.

This emerging reality led the Media Bureau to develop a framework that would

provide a soft landing for the DTV transition. The Bureau’s framework is outlined

below in some detail but, at this point, it is still a Bureau-level work-in-progress.

No formal recommendations have been made to the full Commission, although we

have discussed the framework with each of the Commissioners’ offices, just as we

have discussed it with Hill staff, industry, consumer groups, and others.

One of the most important and difficult issues remaining to be solved is how to

address those consumers who rely on over-the-air analog television when the transition is complete. Last week, the Media Bureau issued a Public Notice to help us

learn more about these consumers and to explore potential options for helping them

make the transition with as little disruption as possible.

II. THE MEDIA BUREAU’S OBJECTIVES

In developing our framework for completing the digital television transition, the

Media Bureau had the following objectives:

Bring the transition to a timely and predictable conclusion

A timely and predictable end date would benefit all those with a stake in the

transition to digital television, including the public, broadcasters, consumer electronics manufacturers and retailers, public safety officials, as well as advanced wireless service providers and their customers.1 Consumers would have fair warning of

when analog broadcast signals will be terminated and can begin preparing themselves. Broadcasters would know precisely how long they will be required to run

side-by-side analog and digital facilities and can make budget and maintenance decisions accordingly. Consumer electronics manufacturers and retailers would know

when they will no longer need to produce, market, and support analog equipment.

Public safety officials and advanced wireless providers waiting for broadcasters to

vacate the 700 MHz band would know with certainty when they will be able to

begin operations.

16

2 Channels 52-69 (a total of 108 MHz in the 700 MHz band) will be reclaimed from the broadcasting service for use by public safety (24 MHz) and advanced wireless services (84 MHz). In

the core broadcast spectrum (channels 2-51), the channels currently devoted to analog broadcasting would be available for potential auction or use by new entrants or other broadcasters. 3See First Report and Order, 16 FCC Rcd 2598 (2001), ¶¶ 3, 112. 4 Every three years, broadcasters elect whether they wish to invoke their statutory must-carry

rights or negotiate for retransmission consent. The next election date is October 1, 2005 for carriage beginning January 1, 2006, then October 1, 2008 for carriage beginning January 1, 2009,

and so on.

Reclaim valuable spectrum

The spectrum that will be recovered at the end of the transition will bring tremendous benefits to consumers and the U.S. economy.2 As an initial matter, 24

MHz of spectrum will be used to address the critical needs of first responders and

other public safety needs. The remaining 84 MHz in the 700 MHz band already has

been or will be auctioned for use by cutting-edge wireless services. This is

‘‘beachfront’’ spectrum, with propagation characteristics that make it ideal for providing wireless broadband access through foliage and building walls. Not only would

the immediate revenues from an auction of this spectrum potentially be enormous

(the value substantially increased by a date certain when the spectrum will become

available) but, more importantly, the advanced services that will be introduced in

this spectrum could provide continuing benefits many times greater in terms of the

economy, jobs, and international competitiveness. The opportunity costs of keeping

this spectrum ‘‘bottled up’’ by analog broadcasting grows higher and higher with

each passing day.

Minimize disruption to consumers

Whenever the transition ends, consumers who rely on over-the-air television and

do not yet have a DTV receiver will be faced with a choice: purchase a digital TV

set, purchase a digital-to-analog converter, or subscribe to a multichannel video provider such as a cable or satellite operator. Our goal is to minimize the number of

consumers forced to make that choice and to ensure that digital-to-analog converter

equipment is affordable for the average consumer.

Maintain consumer access to HDTV and other digital services

Today consumers have access to a growing level of compelling digital content—

particularly high-definition (‘‘HDTV’’) content—over the broadcast, cable and satellite television platforms. That access should be maintained and encouraged under

any proposal to advance the DTV transition.

Comply with Constitutional and statutory requirements

Whatever solution is decided upon must be sustainable in court. Some broadcasters have suggested, for instance, that cable television operators should be required to carry both the analog and the digital signals of every broadcast station

in the market (i.e., ‘‘dual carriage’’) until cable systems have converted to all digital

transmission. In 2001, the Commission tentatively concluded that such a requirement would be an unconstitutional abridgement of cable operators’ First Amendment rights.3 Based on the evidence submitted in the must-carry docket, the Bureau

is convinced that the Commission’s tentative conclusion was correct. In constitutional parlance, a dual carriage requirement clearly imposes a greater burden than

necessary to further any discernible government interest at stake. Indeed, I am concerned that the imposition of a dual carriage requirement would, in the inevitable

judicial review that would follow, place the whole must-carry regime at risk.

III. THE MEDIA BUREAU’S PROPOSAL

The current Media Bureau proposal has the following essential points:

1. On a fixed date no later than January 1, 2009, broadcasters’ must-carry rights

on cable and satellite would switch from their analog signals to their digital signals.4

2. Cable operators would be required to make the digital must-carry signals available to all subscribers by either: (a) down-converting a single digital broadcast

stream from digital to analog at the cable head-end so that all subscribers, including

analog-only subscribers, can continue to view the programming; or (b) passing

through the digital must-carry signals to subscribers’ homes, where the system has

converted to ‘‘all digital’’ transmission and all subscribers have the ability to receive

and display the digital signals (either on a digital set or down-converted by a settop box for display on an analog set).

3. Similarly, satellite operators in local-into-local markets would be required either: (a) to carry one standard-definition digital programming stream from each

17

5The current 382 local digital broadcast stations being carried on cable represents a more

than four-fold increase from January 2003, when 92 local digital broadcast stations were carried.

In addition to local broadcast HDTV, cable systems also carry national HDTV cable programming services such as Discovery-HD, ESPN-HD, HBO-HD and Showtime-HD. 6One of the criteria in Section 309(j)(14)(B) is the 85/15% test. At its most fundamental, this

test asks if at least 85% of TV households in the licensee’s market can continue to receive television service when the over-the-air analog signals are turned off. If 15% or more of the TV

households in the market would lose service, then a licensee’s analog license may be extended

beyond December 31, 2006. See 47 U.S.C. § 309(j)(14)(B)(iii). 7 All HDTV set-top boxes deployed by DirecTV and EchoStar contain an over-the-air DTV

tuner. 8The phase-in schedule of the DTV tuner mandate is as follows: (1) receivers with screens

36 inches and above—50% must include DTV tuners as of July 1, 2004; 100% must include DTV

tuners as of July 1, 2005; (2) receivers with screens 25-35 inches—50% must include DTV tuners

as of July 1, 2005; 100% must include DTV tuners as of July 1, 2006; (3) receivers with screens

13-24 inches—100% must include DTV tuners as of July 1, 2007; and (4) TV Interface Devices—

VCRs and DVD players/recorders, etc. that receive broadcast television signals—100% must include DTV tuners as of July 1, 2007. 9 ‘‘Plug and play’’ sets enable cable subscribers to receive digital programming without the

need for a separate set top box. Pursuant to the FCC rule, all ‘‘plug and play’’ sets must also

include a digital over-the-air tuner. 10The Bureau has not yet conducted a detailed market-by-market analysis, but will do so as

the process continues. 11 Approximately 15 percent of TV households do not subscribe to a pay television service and

rely on over-the-air broadcasting. 12 E.g., cable penetration is 91% in the Hartford/New Haven Designated Market Area (DMA),

91% in the Honolulu DMA, and 87% in the Palm Springs DMA. 13For instance, approximately 24.7 million analog-only sets were sold in 2003. That number

could decline dramatically with a 2009 end date for analog broadcasting, even before the DTV

tuner mandate becomes fully effective in 2007.

broadcaster in the market (down-converted from HDTV to standard-definition, if

necessary); or (b) to pass through the digital broadcast signals to subscribers’ homes,

where all subscribers have the ability to receive and display the programming.

4. In addition to any digital streams that are down-converted to analog, broadcasters electing must-carry may negotiate for cable pass-through of their HDTV,

multicasting, or other high-value digital programming. Broadcasters electing retransmission consent will continue to negotiate for cable carriage of their broadcast

signals in digital and/or analog. As of March 2004, cable systems carried 382 local

digital broadcast stations—239 of which are owned by commercial entities other

than one of the top four broadcast networks—all pursuant to marketplace retransmission consent agreements.5 Nothing in this proposal would negatively affect the

continued availability of this or additional HDTV programming to consumers.

5. The statutory 85 percent threshold 6 for ending the transition could be met nationwide on January 1, 2009:

• All cable households (almost 70% of TV households nationwide) will count towards

the 85 percent threshold in each market.

• All satellite households in local-into-local markets that receive the local broadcast

package, and all satellite households with HDTV service,7 will count towards

the 85 percent threshold in those markets.

• All households that purchased a new television set covered by the FCC’s DTV

tuner mandate will count towards the 85 percent threshold.8 It is possible that

the DTV tuner mandate alone could result in the 85 percent threshold being

met in some markets by this timeframe. Sole reliance on the tuner mandate,

however, would result in a spotty transition with a lack of predictability and

advance notice for consumers and the industries involved.

• All households that purchased a new ‘‘plug-and-play’’ DTV set, the first of which

will be introduced this year, will count towards the 85 percent threshold.9

6. As soon as possible after January 1, 2009, the FCC will make the appropriate

findings that the 85 percent threshold is met in the relevant markets and reclaim

the analog broadcast spectrum. There may be anomalous markets in which the 85

percent threshold is not met immediately, but it is expected that the proposal effectively will result in a nationwide transition on January 1, 2009.10

7. By January 1, 2009, the number of households that potentially could lose television service with the end of analog broadcasting should be well under the statutory maximum of 15 percent in many markets.11 Indeed, cable penetration alone exceeds 85 percent in several markets.12 In addition, the FCC’s digital tuner and ‘‘plug

and play’’ mandates—together with the incentives provided by a hard transition

date—will ensure that a substantial number of viewers that rely on over-the-air

broadcasting will have purchased digital receivers in the preceding five years.13

18

14 A copy of the Public Notice is attached. 15The issue of ‘‘primary video’’ as one stream only versus ‘‘multicasting’’ is on reconsideration

before the FCC in the digital carriage proceeding.

8. The digital tuner and ‘‘plug and play’’ mandates will drive down the cost of digital-to-analog converter equipment for those over-the-air viewers who have not invested in digital equipment by 2009. The Bureau and Commission are prepared to

provide assistance to Congress in determining whether and how to assist these

viewers in obtaining digital-to-analog converter boxes. Just last week, the Media Bureau issued a Public Notice seeking comment on those consumers that rely on overthe-air broadcast television service and potential options for addressing those overthe-air viewers with analog-only sets when the transition is complete.14

9. When a broadcaster turns off its analog signal and is broadcasting only in digital (whether because the 85 percent threshold was met and the analog spectrum

was reclaimed, or voluntarily prior to that date), the broadcaster may choose to have

its digital signal passed through to subscribers’ homes rather than being down-converted to analog at the cable head-end. Such a selection may be made at any time

with notice to the cable operator and, in such circumstances, the cable operator

would be required to notify subscribers that the digital signals are available if they

obtain the necessary equipment from the cable operator or at retail. The cable operator would not be required to provide the equipment for subscribers to view the digital programming.

10. If true digital must-carry meant that broadcasters were entitled to carriage

of all free broadcast streams, including free broadcast HDTV and/or ‘‘multicast’’ programming, it would give broadcasters additional incentive to return their analog licenses in a timely manner.15 From a policy perspective and in the context of this

proposal, the Media Bureau would recommend that as part of this Bureau proposal,

true digital carriage would mean carriage of all free content bits, including carriage

of all multicast programming. This proposal combines moving more quickly and certainly to the end of the transition, which both hastens the broadcasters’ spectrum

return and provides them opportunities to offer more programming to viewers.

Cable operators claim it is a burden to carry multiple broadcast streams, but we

believe the net result will be less cable capacity required to be devoted to broadcasters’ programming as the transition moves more rapidly to all digital cable systems. The digital carriage obligations for satellite operators will be determined in

a proceeding at the FCC examining alleged capacity constraints and potential technological solutions.

IV. BENEFITS OF MEDIA BUREAU PROPOSAL

As a result of the Media Bureau’s proposal, the public will reclaim, on January

1, 2009, a significant amount of spectrum throughout the country that will yield

great benefits to our citizens, economy and the industries involved in the digital television transition. The public interest benefits include advances in homeland security, broadband deployment, economic growth and job creation and the consumer

adoption of digital television. The result of the Media Bureau’s construct is that

these substantial public interest benefits will be realized at minimal cost to the public and the various industry segments driving the digital transition.

As the government reclaims broadcasters’ analog spectrum and reclaims it for

other uses on behalf of the public, consumers will reap the rewards in several areas

of national importance, including:

• Homeland Security—the Media Bureau proposal will vastly increase the

amount of spectrum available to public safety officials across the country. This

additional spectrum will be especially useful in improving communications systems and the ability to deploy forces for first responders during national and

local emergencies. The need for this spectrum is greatest in many of our nation’s major metropolitan areas currently suffering from spectrum shortages.

• Broadband Deployment—the proposal will free up spectrum that can be used

for wireless broadband services. Chairman Powell has identified the deployment

of broadband infrastructure as a central communications policy. In addition,

there is strong bipartisan support in both the House and the Senate to make

broadband deployment a national policy objective. This plan will further those

national broadband ambitions.

• Economic Growth and Job Creation—as the Media Bureau plan unleashes

the development and deployment of broadband and other new and improved

wireless services, it, in turn, will help drive economic growth through increased

productivity and create jobs throughout the economy, most notably in the small

19

16Manufacture of DTV tuners and plug and play sets will create economies of scale for use

of the same technology, e.g., chips, to be used for the digital-to-analog converters.

business arena, as businesses are born and grow to provide and take advantage

of these new wireless services.

• Consumer Adoption of Digital Television—the Media Bureau proposal will

help drive the consumer adoption of digital television. Last year, approximately

25 million analog television sets were sold. By adopting a clear date for the end

of analog broadcasting, we can help shift the sales from analog to digital sets.

Publicity over the next five years in advance of the 2009 date for the DTV

switchover will combine with our recent tuner and plug-and-play mandates and

increased production of HD programming to quicken the pace of consumer purchases of digital televisions.

• Industry Benefits—the certainty of 2009 would provide benefits to those that

have a stake in an orderly transition, including broadcasters, public safety authorities, advanced wireless service providers, consumer electronics manufacturers and retailers. Advanced wireless service providers, for instance, could begin

to develop business plans, place equipment orders and participate in auctions

knowing that the 700 MHz band will become available on a nationwide basis

in 2009. Retailers and consumer publications will have a date-certain for describing when analog-only televisions will need additional equipment and when

it is time to buy digital equipment. Broadcasters will be ensured continued access to all cable subscribers, unless they voluntarily choose not to be down-converted after the transition is over and not all subscribers have the equipment

necessary to view the digital signal. In addition, broadcasters will avoid the

costs of running both analog and digital broadcasting, freeing up capital to invest in their digital services and programming.

These substantial public interest benefits will come at little cost to the public and

the industries with a stake in the digital television transition. By January 1, 2009,

the actual number of consumers dependent solely on analog broadcasting may be

far less than the 15 percent statutory maximum. For those remaining analog broadcast viewers, the FCC’s digital tuner and ‘‘plug and play’’ mandates will help to

drive down the costs of digital-to-analog converters.16

Cable and satellite television subscribers would experience a seamless transition

under the Bureau’s proposal. During the transition, they will continue to have access to at least one programming stream from every must-carry broadcaster. Moreover, the growing levels of HDTV and other value-added digital programming to

which these subscribers have access based on voluntary agreements will not be affected.

Finally, no additional capacity burdens will be imposed on cable television systems, either during or after the transition. This is in stark contrast to the questionable constitutionality and inherent legal risk of the ‘‘dual carriage’’ proposal advocated by some.

V. CONCLUSION

After many long years of hard work by all involved, the end of the DTV transition

is now in sight. I know some Subcommittee members have expressed specific concerns, particularly regarding those consumers who rely on over-the-air television

service. We share those concerns and look forward to working with this Subcommittee to bring the transition to a successful conclusion that will benefit all consumers and the national economy.

Thank you for the opportunity to discuss the Media Bureau’s recent work involving the DTV transition. I would be happy to respond to any questions the Subcommittee has concerning the Bureau’s framework proposal or any other issues related to the DTV transition.

ATTACHMENT

DA 04-1497

May 27, 2004

MB Docket No. 04-210

MEDIA BUREAU SEEKS COMMENT ON OVER-THE-AIR BROADCAST

TELEVISION VIEWERS

Comment Date: July 12, 2004

Reply Comment Date: August 5, 2004

20

Section 309(j)(14) of the Communications Act sets forth the conditions under

which analog television broadcasting will end in the United States. Those conditions

could be met as early as December 31, 2006, although the statute provides for extensions of that date if certain marketplace criteria have not been satisfied. As contemplated by Section 309(j)(14), up to 15 percent of television households in a given

market could lose television service altogether if they rely exclusively on over-theair broadcasting and have analog-only sets when the transition ends. In the remaining households, analog sets that are not connected to a pay television service could

lose service as well.

In this Public Notice, we seek comment on options for minimizing the disruption

to consumers when the switch-over to digital broadcasting occurs. We are primarily

concerned with those households that rely exclusively on over-the-air broadcasting

for their television service, but we seek comment more broadly on minimizing the

impact on all consumers. First, we seek comment on the identity of those consumers

that rely on over-the-air television broadcasting and why they do not subscribe to

a pay television service. Second, we seek comment on potential options for minimizing the impact on these and other consumers when broadcasters are operating

solely in digital.

Given the statutory directives and the nature of the potential solutions, we anticipate that the data submitted will be used primarily to help formulate possible recommendations to Congress. The Commission may, however, take other steps as appropriate.

Over-the-Air Television Viewers

We seek quantitative data on consumers who watch over-the-air broadcast television, including:

(1) The number of households that rely solely on over-the-air broadcasting (‘‘overthe-air households’’) for their television service;

(2) The number of households that subscribe to a multi-channel video service provider (‘‘MVPD’’) and have one or more television sets that rely on over-the-air broadcast service;

(3) The number of analog-only television sets in use by the households identified

in (1) and (2), above;

(4) The number of digital television receivers in use in the households identified

in (1) and (2), above, that are capable of receiving over-the-air digital broadcast television signals;

(5) The demographic characteristics of over-the-air households, including age, race

or ethnicity, and education and income levels;

(6) The geographic characteristics of over-the-air households, including urban/

rural and regional disparities;

(7) Data on why over-the-air households do not subscribe to an MVPD service, including specific data on: (a) the number of over-the-air households that would like

to subscribe but cannot afford it, (b) the number of over-the-air households that

could afford to subscribe to an MVPD service but choose not to, and (c) the number

of over-the-air households that would like to subscribe and could afford it but their

MVPD service of choice is not available in their community (e.g., no cable system

or no satellite provider with local-into-local service).

Options for Addressing Analog-Only Television Sets

We also seek comment on options for addressing the potential disruption to consumers with analog-only television sets when the transition is complete. As an initial matter, we seek comment on the extent to which market forces can be expected

to deal with this problem—e.g., consumers voluntarily buying digital-to-analog converter boxes before the end of the transition, cable or satellite providers that carry

all of the local digital broadcast stations connecting additional sets in subscribers’

homes to their networks, and broadcasters, wireless auction winners or others voluntarily subsidizing or deploying converter boxes in order to accelerate the transition. If marketplace forces alone cannot be counted on to address this issue, can and

should the affected industries be required to take steps to minimize the potential

for consumer disruption?

If government action is warranted, we seek comment on the nature and scope of

such involvement. Should the government subsidize consumers’ purchase of digitalto-analog converter boxes, or should it procure and distribute the equipment itself?

In either event, what minimum technical capabilities should the converter boxes

have? What do converter boxes cost today and what are they expected to cost in the

future?

If a subsidy is appropriate, we seek comment on the type and amount of subsidy

that should be considered. For instance, we seek comment on whether the subsidy

21

should be in the form of a tax credit, a refundable tax credit, or a voucher. We also

seek comment on whether the subsidy should be available for consumers who wish

to purchase a digital television set in lieu of a digital-to-analog converter, or for

those who wish to purchase a multi-channel video service from providers that carry

all the local digital broadcast signals.

We seek comment on the scope of any potential government action. Who would

qualify for the government subsidy or other program? If the subsidy or other program is means-tested, what test should be used? We also seek comment on the number of devices that the government should subsidize. For instance, is one digital-toanalog converter box per household sufficient, or should the government subsidize

the conversion of additional analog-only sets in consumers’ homes? Should the government subsidize conversion equipment for over-the-air households that have at

least one digital receiver and one or more analog-only sets? Should the government

subsidize conversion equipment for MVPD subscribers who receive all the local digital broadcast signals on the television(s) hooked up to the pay service, but who

have one or more analog-only sets not hooked up to the pay service?

Finally, we seek comment on how a government program would be financed and

administered. For instance, in bands where we intend to auction new licenses for

spectrum freed up by the digital conversion, we seek comment on whether, under

Section 309 and our precedent, we could require as a condition of the license that

auction winners pay for conversion of analog-only equipment as part of a mandatory

band-clearing mechanism. We note that in other auctioned bands, we have required

new entrants to bear the costs to retune existing equipment to new bands or replace

such equipment. We also seek comment on whether a government subsidy program

could be financed directly through auction revenues, spectrum license fees, or other

funding mechanisms, although we note that some of these options would require legislation.

Procedural Matters

Comments should be filed on or before July 12, 2004 and reply comments should

be filed by August 5, 2004. Comments and reply comments may be filed using the

Commission’s Electronic Filing System (‘‘ECFS’’) or by filing paper copies. See Electronic Filing of Documents in Rulemaking Proceedings, 63 Fed. Reg 24121 (1998).

All comments should reference MB Docket No. 04-210.

Comments filed through the ECFS can be sent as an electronic file via the Internet to <http://www.fcc.gov/e-file/ecfs.html>. Generally, only one copy of an electronic

submission must be filed. In completing the transmittal screen, commenters should

include their full name, U.S. Postal Service mailing address, and the applicable

docket or rulemaking number. Parties may also submit an electronic comment by

Internet e-mail. To get filing instructions for e-mail comments, commenters should

send an e-mail to ecfs@fcc.gov, and should include the following words in the body

of the message, ‘‘get form.’’ Parties who choose to file by paper must file an original

and four copies of each filing. Filings can be sent by hand or messenger delivery,

by commercial overnight courier, or by first-class or overnight U.S. Postal Service

mail. The Commission’s contractor, Natek, Inc., will receive hand-delivered or messenger-delivered paper filings for the Commission’s Secretary at 236 Massachusetts

Avenue, N.E., Suite 110, Washington, D.C. 20002. The filing hours at this location

are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with rubber

bands or fasteners. Any envelopes must be disposed of before entering the building.

Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.

U.S. Postal Service first-class mail, Express Mail, and Priority Mail should be addressed to 445 12th Street, SW, Washington, D.C. 20554. All filings must be addressed to the Commission’s Secretary, Office of the Secretary, Federal Communications Commission. In addition parties should serve a copy of each filing via e-mail

or one paper copy to John Berresford, Suite 3-A662, Media Bureau, FCC, 445 12th

St., S.W., Washington, D.C. 20554.

Comments, reply comments, and other submissions will be available for public inspection during regular business hours in the FCC Reference Center, Federal Communications Commission, 445 12th Street, S.W., CY-A257, Washington, D.C. 20554.

These documents also will be available electronically from the Commission’s Electronic Comment Filing System. Documents are available electronically in ASCII

text, Word 97, and Adobe Acrobat. Copies of filings in this proceeding may be obtained from Qualex International, Portals II, 445 12th Street, S.W., Room, CY-B402,

Washington, D.C., 20554, telephone (202) 863-2893, facsimile (202) 863-2898, or via

e-mail at qualexint@aol.com. To request materials in accessible formats for people

with disabilities (Braille, large print, electronic files, audio format), send an e-mail

22

to fcc504@fcc.gov or call the Consumer and Governmental Affairs Bureau at 202-

418-0531 (voice), 202-418-7365 (TTY).

For further information contact Rick Chessen, Media Bureau at (202) 418-7200.

By the Chief, Media Bureau

Mr. UPTON. Thank you.

Mr. Fritts.

STATEMENT OF EDWARD O. FRITTS

Mr. FRITTS. Thank you, Mr. Chairman. Thank you for the opportunity to participate in this hearing on expediting the transition to

digital television.

The recently announced FCC Media Bureau plan to end analog

television broadcasting is against the best interests of the American consumer, and, I would submit, premature. By counting local

television signals that cable companies down-convert into an analog

format as digital, the plan would turn the congressionally mandated 85 percent number on its head. Millions of Americans would

potentially lose their local television service altogether, and millions more would find secondary television sets in their homes

would be rendered obsolete. This was never the public policy objective of Congress.

Since Congress began the transition, first by temporarily loaning

spectrum for the transition, and second by establishing the 85 percent rule, it has consistently sought to advance three objectives:

First, to bring benefits of digital technology to the American television viewer while strengthening our system of free over-the-air

television and the unique benefits that system brings to American

communities.

Whether it be Amber Alerts, weather warnings, local news and

public affairs, or life-line information during crises, local television

stations are the only medium that can deliver these services to

your constituents, our viewers. It was because of the inherent value

of free over-the-air television that Congress established its second

goal to minimize consumer disruption throughout the process.

Changing out nearly 300 million television sets from analog to digital would never be a simple process, but this committee made it

clear that it sought to protect analog viewers.

And the third goal was to free up the current analog television

spectrum for other purposes. At the end of this transition, television broadcasters will use one-third less spectrum than is used

today. We are the only industry to reduce the amount of spectrum

we use while providing the same or additional services.

Broadcasters share the goal of ending this transition by returning the analog spectrum. In fact, we have a strong economic incentive to do so, because we are now operating essentially two separate transmission systems. The FCC has taken three steps that

have brought us close to realizing these goals: first, mandating TV

sets be equipped with tuners; second, developing consumer-friendly

plug-and-play standards; third, adopting broadcast flag technology

to address copyright concerns.

Local television stations have spent billions upholding our end of

the pact. According to the FCC, there are now 1,411 television stations on the air in digital in 207 markets serving over 99 percent

of the U.S. television households.

23

We believe the FCC can now take one more step to expedite this

transition: ensuring the 70 million cable subscribers have access to

local digital television signals. Today cable companies, which largely enjoy monopoly status, are denying consumer access to the vast

majority of DTV broadcast services. NAB has introduced a plan

that allows a broadcaster to choose either must carry for its digital

signal or must carry for its analog signal. And this NAB/MSTV

plan, we believe, is a proconsumer proposal. It does not mandate

dual carriage, nor is it burdensome to cable operators, and the FCC

could adopt it today. This is a plan that will expedite the DTV

transition rather than delay it, and it calls for immediate action,

rather than waiting for 5 years. It is a plan that protects consumers’ interests while accelerating the transition.

On the other hand, the proposal recently floated by the Media

Bureau would wait 5 years, until 2009, to focus exclusively on retrieving the analog spectrum at the expense of consumers and to

the detriment of local television. This plan would count as digital

households the cable subscribers that receive a digital signal in a

down-converted analog format. Why is that a solution? We have

been spending billions of dollars and years, as has been mentioned

here earlier, developing digital television.

The Media Bureau plan, with all due respect to my good friend

Ken Ferree, who I believe does a terrific job on most items, has it

backwards. It takes TV from digital to analog, rather than from

analog to digital. Furthermore, it will cause massive disruption

with the consumers. In short, the Media Bureau plan turns its

back on Congress’ aspiration of bringing digital television into

Americans’ living rooms.

Mr. Chairman, all of us, the Congress, the Commission, local

broadcasters and the public, are close to bringing this transition to

an end and thus achieving Congress’ three goals. So I would urge

the committee to reject any proposal that would pull the plug on

digital television just as your constituents begin to turn it on.

Thank you.

[The prepared statement of Edward O. Fritts follows:]

PREPARED STATEMENT OF EDWARD O. FRITTS, PRESIDENT AND CEO, NATIONAL

ASSOCIATION OF BROADCASTERS

Thank you, Mr. Chairman, for the opportunity to appear today on the issue of advancing the digital television transition, and in particular, the Media Bureau’s proposal for completing the transition. My name is Eddie Fritts. I am President of the

National Association of Broadcasters.

Broadcasters appreciate the efforts of Mr. Ferree and his staff to think creatively

about ways to speed the DTV transition. We are also grateful for the Bureau’s attempts to revise its thinking to address some of the plan’s defects identified by

broadcasters and others. For example, we support the Bureau’s decision to move the

target date for its plan to end the transition back from 2006 to 2009, thereby acknowledging the enormous dislocation and viewer disenfranchisement that the earlier date would have triggered.

Nevertheless, we remain concerned about other elements of the plan, specifically

because it mandates the down-conversion of broadcasters’ digital signals at a cable

or satellite operator’s headend. This is a fundamental flaw since the plan not only

sanctions cable operators’ degradation of broadcasters’ digital signals—in violation

of the Communications Act—but it would also thwart the many benefits that digital

service will deliver to consumers. In addition, the plan would block Congress’ overarching goal for the digital transition, which is to assure the universal availability

of digital services to the American public. Finally, the Ferree plan, by forcing broadcasters to choose between carriage of their full signals or serving their entire audiVerDate 11-MAY-2000 12:06 Aug 30, 2004 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 95439.TXT HCOM1 PsN: HCOM1
24

1Satellite carriers would carry one down-converted stream to subscribers in local-into-local

markets.

ence, would leave them second-class citizens in a digital world, instead of taking advantage of digital technology to strengthen free television service.

Our understanding of the Bureau plan is as follows: In the 2009 must-carry-retransmission consent election cycle (October 1, 2008 deadline for carriage beginning

January 1, 2009), television stations would have must-carry rights only for their digital signals. For stations electing must-carry, cable operators would be required to

make broadcasters’ digital signals ‘‘available’’ to subscribers by: (1) down-converting

a single digital stream from each broadcaster to analog at the cable operator’s

headend; or (2) passing through broadcasters’ digital signals, where all subscribers

have the ability to receive and display digital signals (e.g., through a converter box

or a digital plug-and-play set).1 Broadcasters would be allowed to negotiate for other

carriage rights, such as for HDTV programming, as they do today.

Under this scenario, the Media Bureau claims that cable’s carriage of a single digital stream, even if down-converted at the cable headend, would satisfy the requirement under Section 309(j)(14)(B)(iii)(I) that an MVPD must carry ‘‘at least one DTV

program channel of each station in the market that is on-air in DTV.’’ Thus, the

approximately 68 percent of television households that receive television service

over cable subscribers, and 10 percent who do so via satellite, would count towards

the 85 percent statutory threshold for when the transition will end. Combining

these households with those who will receive DTV over-the-air would mean that the

transition will end soon after the Bureau’s proposal became effect. In markets where

the penetration threshold is met, analog broadcasting would cease and the government would reclaim the analog spectrum. At that time, a second election would

occur and broadcasters could choose to have their digital signals, including any

multicast channels, passed through to subscribers’ homes rather than down-converted at the headend. Cable and satellite systems would have no obligation to ensure that subscribers without DTV receivers could see local broadcast signals.

Let’s examine some of the consequences of the Ferree plan. As Congress contemplated in the 1997 Budget Act, when analog broadcasting ends, 15 percent of

all TV households—about 16,200,000 homes—will lose all television service until

they purchase a DTV converter or a new set. We commend the FCC for its recent

request for comments on how to avoid this disruption. Of course, analog sets in

homes with DTV receivers will also lose service. But, under the Bureau proposal,

a second transition will occur shortly after the FCC deems the 85 percent threshold

to be met. At that time, the Bureau says broadcasters will have a second election

between cable and satellite carrying their down converted signals or carrying their

now-digital signals in digital form. If they choose the latter path—in order to obtain

the benefits of digital technology that Congress wanted to achieve—millions of more

cable and satellite homes without DTV receivers or converters will lose local broadcast service unless their cable or satellite provider voluntarily provides either a converter or agrees to carry a down-converted signal in addition to the digital signal.

These homes will lose access to local news, local political broadcasts, local emergency announcements, publicity for local charities and community groups and all

the other services local stations provide. Thus, while the prospect of losing local

service for some consumers was always part of Congress’ plan to transition to digital, the Ferree plan multiplies the number of consumers who will lose access to

local broadcasting. Consumers under this plan will pay a high—and totally unnecessary—price.

I am not here just to criticize. To the contrary, broadcasters applaud the Commission, and especially Chairman Powell, on the great strides it has taken so far towards completing the digital transition. In 2001, the Commission adopted revised

build-out rules that have been extremely successful in getting TV stations on air in

digital. In 2002, Chairman Powell introduced his plan that recognized the key fact

that all parts of the television industry—programmers, stations, multichannel video

programming distributors and manufacturers—must play an active role in the transition to digital. The Powell Plan also recognized the importance of the availability

to consumers of high definition signals in high definition format. Then, in 2003, the

Commission adopted vital rules addressing plug and play and the broadcast flag, as

well as rules mandating that all new television sets have a DTV tuner. Each of

these steps has helped move the DTV transition towards a rapid conclusion.

Indeed, we are almost there. Broadcasters sincerely believe that with the steps

the Commission has taken so far, and a few additional steps designed to address

the remaining issues, as discussed below, we will reach the end of the DTV transition in most markets by 2009 without the need to go outside the statutory framework, as would be the case under the Bureau’s proposal. Broadcasters and others

25

2 National Association of Broadcasters, DTV Stations in Operation, http://www.nab.org/Newsroom/issues/digitaltv/DTVStations.asp (as of May 25, 2004). 3See Mark R. Fratrik, Ph.D, Reaching the Audience: An Analysis of Digital Broadcast Power

and Coverage (BIA Financial Network, Oct. 17, 2003) (prepared for the Association for Maximum Service Television, Inc.) (‘‘MSTV Study’’). 4See www.fcc.gov/mb/video/dtvstatus.html (‘‘Commission statistics’’). 5This includes 38 with licensed full-power digital facilities and two New York City stations

with Special Temporary Authority (‘‘STA’’) currently covering a significant chunk of their service

areas and with plans to expand even more. 6This includes 72 with full-power licensed digital facilities and seven with STAs.

7See Commission statistics.

already have entered into the Commission’s record several proposals with the potential to rapidly resolve the few remaining issues and bring a prompt end to the transition within the statutory framework.

Even without the final pieces of the puzzle in place, evidence of the remarkable

progress made so far can be found everywhere, due in no small measure to broadcasters’ commitment and actions. Our industry has spent enormous sums of money

and undertaken extraordinary steps to implement the transition, and I am pleased

to report that these efforts are paying off. Broadcasters have built—and are on air

with—DTV facilities in 207 markets that include 99.69% of all U.S. TV households.2

Midway through the transition, almost three-quarters—73.7%—of U.S. television

households have access to at least six free, over-the-air digital television signals.3

Nationwide, at least 1411 television stations in 207 markets are delivering free,

over-the-air digital signals today.4 Currently, more than 70 million households receive six or more DTV signals; 49 million households receive nine or more DTV signals; and a full 30 million households receive 12 or more DTV signals. More and

more digital stations are overcoming their unique obstacles and going on air almost

daily. The digital transition is working and moving ahead quickly, and any claims

to the contrary are simply untrue.

In the top ten markets, covering 30% of U.S. households, all top four network affiliates are on-air with digital signals,5 and in markets 11-30 (24% of U.S. households), all 79 top four affiliated stations are on-air.6 Thus, all ABC, CBS, Fox, and

NBC affiliates in the top 30 markets, representing 53.5% of all U.S. households, are

on air with DTV. Even smaller stations in these markets and in smaller markets

are making terrific progress, with at least 1292 out of a total 1524 stations currently

on air in digital,7/ and this despite the far fewer resources of these stations. In fact,

many firms have been forced to mortgage their stations to afford the equipment

needed to implement the transition, and without any immediate prospect of revenues to offset these huge investments.

On the programming side, both networks and local stations are providing an extraordinary amount of high-quality DTV and HDTV programming, as well as a

growing number of valuable multicast channels, to entice viewers to join the digital

television transition and purchase DTV sets. For example, three networks currently

offer virtually all their prime time programming in HDTV, along with high-profile

specials and sporting events like the Academy Awards and the Grammy’s, the Masters, and playoff games in all the major professional sports leagues.

Local stations are also doing more all the time to supplement the network HDTV

and multicast fare, at an enormous cost for full local HD production facilities. Examples of local HDTV programming abound, including WRAL-TV’s (Raleigh, NC) daily

local newscast, the broadcast of America’s Thanksgiving Day Parade by Post-Newsweek’s station in Detroit, and KTLA’s (Los Angeles, CA) broadcast of the Rose Parade in a commercial-free HD broadcast that was simulcast in Spanish and closed

captioned and distributed on many Tribune and other stations, not to mention the

large quantity of children’s education, foreign language programming and gavel-togavel coverage of state legislatures provided by non-commercial DTV television stations nationwide. Indeed, the FCC’s recent localism hearing in San Antonio was provided to local viewers in full on a multicast channel of Belo’s San Antonio station.

All of these developments demonstrate that broadcasters are more anxious than

anyone to get the transition over and done with. Broadcasters have no interest in

shouldering the enormous costs of operating dual facilities any longer than absolutely necessary to avoid disruption to consumers. Building a second transmitter,

and then maintaining and powering two transmitters for any period of time is extremely expensive, especially since there will be no opportunity to recover much of

these costs. Similarly, any need to repair or replace analog equipment now is little

more than wasted resources. Indeed, by the time the transition is over, broadcasters

will spend between $10 and $16 billion to fully convert to digital, and we simply

cannot afford to strand this investment, or accept any further delays in our ability

to provide new digital services to recoup at least some of this investment.

26

8 142 Cong. Rec. H8254-03 (explaining that broadcast licensees will have to make a huge investment in the digital transition ‘‘[t]hat is for the benefit of the public, which is going to be

watching a new kind of technology coming over their television sets’’) (Rep. Dingell). 9 47 U.S.C. § 309(j)(14)(B). 10The Bureau’s plan leaves the first two goals to the marketplace to achieve or not, although

as noted above, the second election contemplated in the plan could result in millions of additional stranded analog homes. The Bureau apparently believes that full carriage of local broadcast digital signals will occur on cable systems through the operation of marketplace forces. The

underlying point of the 1992 Cable Act, however, was that cable systems’ carriage decisions

were not based on consumer preference but on the opportunity to disadvantage competitors for

advertising and ratings. See Cable Television Consumer Protection and Competition Act of 1992,

Pub. L. No. 102-385, § 2(a)(15). 11 Auction Reform Act of 2002, Pub. L. No. 107-195, § 6, 116 Stat. 715 (2002). 12 H.R. Conf. Rep. No. 105-217, at 576 (1997). 13 H.R. Conf. Rep. No. 105-2015 (1997). 14Moreover, it makes no sense to think that Congress intended that the 85 percent threshold

could be crossed through a combination of cable and satellite subscribers. If this was the case,

then the transition would be over in some markets before it ever started, since MVPD penetration already has reached over 85 percent of the television households in certain areas. Nothing

in the legislative history contemplates calculating the benchmark in such a way, and the Congress and the Commission should recognize the Bureau’s proposal for what it is; that is, a lastminute, artificial maneuver.

The purpose of the transition is to convert the American system of broadcasting

to digital, ultimately for the benefit of the American consumer, not the broadcaster

or the cable operator.8 Congress sought to achieve three overarching goals in the

DTV transition:

(1) Bring the benefits of digital technology with its potential for more programming

options and advanced services to consumers;

(2) Avoid the loss of free television to large numbers of consumers stranded with

analog-only receivers; and

(3) Reclaim channels 52-69 to be reallocated for other purposes.9

The Commission’s actions under the Powell Plan have put the DTV transition on

the right track towards completing the DTV transition. On the other hand, the

Media Bureau’s plan would knock the transition off course by focusing the Commission’s attention solely on the third goal above, while essentially ignoring the first

goal, and either punting on the second or perhaps making it harder to achieve.10

The Commission, however, may not pick and choose among the goals Congress established for the transition; rather, it must treat them all as equally important. The

plan’s emphasis on reclaiming spectrum as soon as possible is misplaced. For example, Congress’s rejection in the Auction Reform Act of band clearing plans that

would reduce the level of free television service clearly shows that early return of

spectrum at the cost of television service is contrary to Congressional intent.11

The Bureau’s plan conflicts with both Congressional intent and the Communications Act, and would undermine the economic incentives of consumers, set manufacturers and broadcasters to expedite the transition and achieve the consumer benefits of digital television.

First, the Bureau plan violates Congress’ vision for the DTV transition. The crux

of the plan is to count cable and satellite homes as ‘‘digital’’ when, in reality, these

households would receive only down-converted analog versions of digital signals;

that is, the same analog quality they received before. Nevertheless, the Bureau

would count all cable and satellite homes in a market toward the 85 percent benchmark for purposes of declaring the digital transition complete. However, in passing

Section 309(j)(14), Congress intended that consumers would set the course for ending analog broadcasting, and not just watch from the sidelines while cable drives

the pace car. Specifically, Congress recognized ‘‘that not all consumers and broadcast stations will convert to the new digital services format at the same time,’’ 12 and

thus acted to ensure that ‘‘a significant number of consumers in any given market

are not left without broadcast television service’’ at the end of the transition.13 The

statute is squarely focused on the percentage of consumers who can actually receive

and view digital signals in their homes, so that analog broadcasting may not end

until it means that substantial numbers of consumers will not lose service. The

number of digital signals delivered to cable or satellite operators is irrelevant.14

The Ferree plan, by focusing only on the provision of Section 309(j)(14)(b)(iii)(I)

that refers to carriage of a digital programming channel, entirely reads out of the

statute the next subsection. Section 309(j)(14)(b)(iii)(II), provides that, in addition

to carriage of a digital programming channel from each local DTV station, analog

service should continue until 85 percent of TV homes in a market have either a DTV

receiver or at least one DTV converter. Note that Congress—with laser-beam preciVerDate 11-MAY-2000 12:06 Aug 30, 2004 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 95439.TXT HCOM1 PsN: HCOM1
27

15 47 U.S.C. §§ 614(b)(4)(A), 615(g)(2). 16DTV Must Carry Notice, 13 FCC Rcd 15122. A similar provision applies to DBS carriage

of local broadcast signals. 47 U.S.C. § 338(g). 17First Report and Order and Further NPRM, 16 FCC Rcd 2598, 2629 (2001). 18 Id. (emphasis added). Moreover, Section 614(b)(4)(B) specifically requires that the FCC

adapt the carriage rules applicable to analog signals to achieve the same goals for advanced television signals. Strengthening cable systems’ gatekeeper opportunities, as the Bureau plan does,

would be directly opposite to this statutory directive.

sion—required DTV reception capability at the home, not at a cable or satellite

headend. Thus, the Ferree plan simply misreads the FCC’s governing statute.

Congress thus intended for consumers to have the choice of viewing local broadcast signals in digital format over new receivers or in analog format with converters

attached to their old analog sets. The distinction between conversion at the headend

or at a consumer’s home is critical. In the latter case, while not being able to view

HDTV, consumers could still have access to the full range of other broadcast digital

services. Under the Bureau Plan with conversion at the headend, consumers would

receive only a version of what they get today, without any of the benefits of digital.

However, for consumers to have a meaningful choice about the way they will receive

DTV, local broadcasters’ digital signals must be delivered all the way to the television sets in consumers’ homes, not just to the cable or satellite provider where

they will be converted back to analog. Nothing in the statute or its legislative history contemplates counting cable and satellite subscriber without digital receive

technology towards the 85 percent benchmark.

Down-conversion of broadcasters’ digital signals at the headend also directly violates the Communications Act’s bar on material degradation of local broadcast signals.15 Specifically, pursuant to section 614(b)(4)(A) of the Act, the Commission’s

rules must make sure that, ‘‘to the extent technically feasible, the quality of signal

processing and carriage provided by a cable system for the carriage of local commercial television stations will be no less than that provided by the system for carriage

of any other type of signal.’’ 16

The Commission has recognized this mandate, stating in the DTV Must-Carry

First Report and Order that ‘‘the issue of material degradation is about the picture

quality the consumer receives and is capable of perceiving . . .’’ 17 The Commission

went on to recognize specifically that, ‘‘in the context of mandatory carriage of digital broadcast signals, a cable operator may not provide a digital broadcast signal

in a lesser format or lower resolution than that afforded to any digital programmer... carried on the cable system, provided, however, that a broadcast signal

delivered in HDTV must be carried in HDTV.’’ 18

The Bureau’s proposal, however, would reverse that conclusion. Indeed, the Bureau’s plan not only permits, but requires cable operators to do exactly what the

Communications Act prohibits: carry local broadcast signals in a degraded fashion

(i.e., down-converted) such that cable and satellite subscribers will receive digitally

broadcast signals in a lesser format, while cable digital signals would be distributed

as is. Consumers with digital receivers or converters should be able to receive television service through their cable or satellite provider that, at a minimum, is equal

in quality to what they can obtain over-the-air. NAB can find no other reasonable

way to read Section 614(b)(4)(A).

Third, the Bureau’s proposal undercuts the economic incentives of almost all the

relevant parties to advance the transition. The fact that cable and satellite households would count as digital households under the plan, even though they will not

actually receive digital television service, will reduce consumer demand for new digital television sets. Cable and DBS subscribers who recently purchased digital capable sets certainly will be upset to discover that their investment was for naught,

since they still we be unable to view their local stations in digital, or access the additional local public interest programming and services that broadcasters will provide on multicast channels. It follows that word-of-mouth interest in digital programming will slow, as people with digital sets will not receive any programming

or services they might praise to their friends or neighbors. Furthermore, people not

yet interested in upgrading their television sets will find it more difficult to sample

the benefits of digital service.

In turn, the Bureau’s proposal would stall the development of new and innovative

free broadcast services that optimize consumer benefits, including not only HDTV,

but also novel multicast services, many of which will deliver programming on local

public affairs, or in Spanish and other languages, local weather and traffic, and

other community-oriented fare. The opportunity for these new universal free services was one of the key reasons that Congress authorized the DTV transition, and

it is simple economics that the consumer appeal of the HDTV/multicast mix will

28

19 47 U.S.C. § 614(b)(4)(B). 20 Allowing DBS providers to deliver high definition distant signals to subscribers would not

be a remedy and indeed would harm local digital broadcast service. Like cable operators, DBS

providers should be required to provide local digital signals without degradation, as the Act requires. See Letter from Marsha J. MacBride and Benjamin F.P. Ivins, National Association of

Broadcasters, to Michael K. Powell, Chairman, FCC, in MB Docket No. 03-15 (Mar. 22, 2004). 21 Although the Bureau appears to recognize the need for Congressional action to take care

of consumers who would be stranded by the Bureau Plan, statements by Bureau officials seem

to indicate that the Commission could act on its own to adopt the Ferree plan. It is worth noting

in this regard that even the cable industry has concluded that a Berlin-like forced transition

is not appropriate for the United States. See Letter from Michael S. Schooler, NCTA, to Marlene

H. Dortch, CS Docket Nos. 98-120, 03-15 (March 29, 2004) & Attachment.

help drive the transition. However, the Bureau’s plan would undercut broadcasters’

incentives to invest in the creation of these new services. Indeed, the Bureau’s proposal may better suit a digital-to-analog transition than the analog-to-digital transition envisioned by the Congress and the American public.

Moreover, with respect to broadcasters, the Bureau’s must-carry provision offers

local television stations an impossible ‘‘Hobson’s Choice.’’ That is, the plan would

give broadcasters the right, after their analog signals are shut down, to choose between down-conversion of their digital signals to analog at the cable headend, or cable’s pass-through of broadcasters’ digital signals, without any provision requiring

cable systems to make them viewable on analog receivers. Thus, a broadcaster could

choose down-conversion of its signals at the cable headend, and thereby block the

delivery of HDTV or any other digital service to the many consumers who already

have invested in digital television sets. Or, a broadcaster could have its digital signals passed-through, and thereby cut off service to the millions of households that

still have analog receivers. The Bureau’s plan is a no-win proposition for consumers.

Mr. Chairman, the purpose of the transition is to convert the American system

of broadcasting to digital, ultimately for the benefit of the American consumer, not

for the benefit of the broadcaster or the cable operator. Congress directed the FCC

to craft rules to ensure that cable subscribers get access to broadcasters’ digital signals, whether HDTV or multicast or a mix.19 However, the Bureau’s proposal would

sacrifice that goal to focus exclusively on the goal of reclaiming the spectrum for

new purposes. Indeed, the Bureau’s idea not only would fail to advance, but also

would retard, the primary goal of the transition: to deliver improved digital signals

to the public and replace viewer reliance on analog service. Several specific harms

to consumers would result:

• No assured HDTV for cable viewers with digital sets: Cable homes with digital

sets would not be assured of access to HDTV or multicast services because cable

operators would down-convert broadcast digital signals at the headend, unless

television stations elected to pass-through their digital signals at the cost of

disenfranchising MVPD subscribers with analog sets.

• No assured HDTV for DBS viewers with digital sets: DBS systems could presumably downconvert broadcasters’ HDTV services pursuant to the Bureau’s proposal indefinitely into the future, so that even DBS homes with DTV sets would

not receive HDTV service.20

• Stalled access to affordable digital sets: Cable subscribers with analog sets will

have reduced incentives to purchase digital sets because they would have no assurance of receiving broadcasters’ digital signals after making that investment.

As a result, the price for digital sets would remain high, thereby discouraging

adoption by American viewers.

• No television service of any kind for analog over-the-air households, including

many rural and poor viewers: Over-the-air viewers with digital sets would continue to receive service after 2009, but over-the-air viewers with analog sets,

unless they purchased set-top boxes, would lose service. Many rural viewers and

the poor would be disenfranchised, and broadcasting would lose its proud

achievement of providing universal service.21

In addition to the consumer harms described above, the Bureau’s proposal would

also harm the public interest:

• Harm to the DTV transition: The incentive for consumers to obtain DTV receivers

or converters would decline, delaying or preventing the benefits of digital technology flowing to consumers. The consumer benefits of the Commission’s tuner

and plug and play decisions would largely be lost since most consumers would

receive only analog versions of DTV signals.

• Harm to manufacturers: Set manufacturers would suffer because the plan would

discourage the demand for digital sets and for new digital features that receiver

manufacturers have been mandated to produce in increasing volume.

29

22This would not be the case where broadcasters chose full digital pass-through. 23This harm could be avoided under the revised Bureau plan by broadcasters’ choosing digital

pass-through, but only at the cost of cable homes with analog sets losing local broadcast service. 24This proposal imposes no material burden on cable operators. At its option, a cable system

could cease carrying broadcasters’ analog signals when it had provided digital set-top boxes to

all of its subscribers. Cable operators recently have volunteered to provide new set-top boxes

in order to ensure broad-based channel blocking capability by all consumers (in an effort to

avoid Congressional decency mandates). 25Letter from Edward O. Fritts, NAB, and David L. Donovan, MSTV, to Michael Powell,

Chairman, FCC, in CS Docket Nos. 98-120, 00-96, at 2 (Nov. 25, 2003).

• Harm to diversity: Cable programmers would not have the greater access to cable

carriage that would result if cable systems were to transmit broadcasters’ digital signals from their headends, which would free up 50 percent of the capacity

that cable systems currently devote to carriage of broadcast signals.22 Also, programmers seeking access to consumers over broadcasters’ multicast services

would be thwarted because there would be no assurance that consumers could

receive them.

• Harm to localism and public service: By not being able to deliver HDTV and

multicast services to cable and DBS subscribers with HDTV sets, broadcasters

would be relegated to second-class status. After analog broadcasting ends, many

cable households would lose access to local signals and their essential services

altogether. Avoiding these results and strengthening the free, over-the-air system were the reasons the Commission and Congress supported the DTV transition in the first place. Broadcasters’ efforts to deliver localized multicast services (local news and weather and local sports coverage, for example), as well as

multicast services offered by independent programmers, would be aborted.23

As noted above, the broadcasting industry sincerely believes that the Commission

under the Powell Plan is on the right track towards an end to the transition. The

Commission has taken several successful actions to expedite the conclusion, including rules governing cable compatibility, the broadcast flag and tuner requirements,

and with a few more steps designed to address the remaining issues, NAB is convinced that the digital transition will reach a natural conclusion in most markets

on its own by 2009. It is simply unnecessary to adopt a proposal that violates the

Act, Congress’ intent, and consumers’ interests, in an ill-conceived attempt to accelerate the transition.

First, and most significantly, the Commission must deal with the issue of cable

carriage of digital signals. This question continues to stall what has been the Commission’s otherwise constructive implementation of Congress’ will. NAB and MSTV

have already placed in the Commission’s record a reasonable, middle ground position that will advance the transition consistent with the Act and not harm consumers.24 Specifically, MSTV and NAB proposed in November 2003 that a cable system be permitted to ‘‘terminate carriage of a station’s analog channel if the cable

system (a) passes through the station’s digital signal to all digital television receivers and (b) down-converts the digital signal for receipt at no extra charge on all analog-only receivers for carriage on the analog basic tier.’’ 25 Such a rule would:

• Ensure that all non-subscription content in digital signals are passed through to

subscribers’ homes without material degradation;

• Allow MVPD households with analog sets to continue to receive local broadcast

signals by down-converting at the home; and

• Count toward the 85 percent threshold only those households that receive un-degraded digital signals.

Other steps that the Commission must take to bring the transition to an end by

2009 include rapidly resolving long-pending negotiations with Canada to provide interim DTV channels for all U.S. stations. The Commission also should initiate discussions to develop a final DTV channel agreement with Canada and Mexico. Further, the Commission should require stations with analog and DTV assignments in

the ‘‘core’’ to make a channel election in 2005. All of these steps are essential to

developing a final channel assignment plan, something that must be completed well

before the end of the transition so that stations can construct and move to new digital facilities.

Broadcasters already have discussed with Commission staff a repacking plan that

represents industry-consensus on how to address the many thorny, technical relevant issues. To date, however, the Commission staff has not been receptive to industry’s efforts, although we remain committed to cooperating with the Commission

to craft a workable repacking plan that addresses all of the Commission’s concerns.

Mr. Chairman, the Commission and the country are on the threshold of achieving

the primary goal of the digital transition: the ubiquitous availability of HDTV (and

30

multicast services) to all Americans on television receivers that are becoming increasingly affordable and of higher quality. NAB believes that the Commission

under the Powell Plan has brought us to the cusp of success, and that the prompt

resolution of a few remaining issues will ensure a natural end to the transition before the end of 2009. On the other hand, the ‘‘short cuts’’ offered in the Media Bureau’s plan will stall, if not nullify, all of the efforts already made by the Commission, broadcasters, cable operators, manufacturers, and most importantly, the American public. NAB believes that the Commission instead should remain faithful to the

path that Congress envisioned and correctly believed would best serve consumer interests.

Mr. UPTON. Thank you.

Mr. Sachs, welcome.

STATEMENT OF ROBERT SACHS

Mr. SACHS. Thank you, Mr. Chairman and members of the subcommittee. Thank you for providing us this opportunity to testify

this morning. This subcommittee has played a pivotal role in promoting the transition from analog to digital television. Your leadership has produced increased cooperation among all parties.

For cable’s part, I am pleased to report that our industry has

made substantial progress in creating and delivering high-definition programming and other digital cable services to consumers.

We have also negotiated a landmark agreement with the consumer

electronics industry for digital cable-ready products, and cable operators have voluntarily entered into agreements to carry digital

TV signals of nearly 400 local broadcast stations.

The technological advances which have transformed our business

have resulted from cable companies investing risk capital without

any government guarantees or subsidies. With an 8-year capital investment of nearly $85 billion that began with passage of the 1996

Telecommunications Act, the cable industry has built a highly

versatile broadband infrastructure.

In addition to offering high-speed Internet and digital phone

service, cable systems now provide HDTV, personal video recording, video on demand and other interactive digital services. More

than 30 percent of basic cable customers already subscribe to digital cable.

The full scale deployment of HDTV has been the fastest rollout

of any cable product. HD is today available from at least one cable

system in 99 of the top 100 markets, plus 56 smaller markets.

Cable companies across the U.S. are offering digital programming

packages that include a mix of broadcast and cable HD content. As

of March 31 of this year, cable systems carried 382 broadcast stations offering HDTV, a more than fourfold increase since January

2003. This remarkable growth demonstrates that market forces are

working and working well.

According to Keegan Research, a leading industry analyst, 12

million, or about 10 percent, of U.S. TV households will own digital

televisions by the end of this year. By the end of 2008, Keegan

projects that number will soar to 64 million or 55 percent of television households. Similarly Keegan projects digital cable

subscribership will jump from 23 million, or 30 percent of cable

households today, to 41 million, or about 60 percent in 2008, the

end of 2008.

Even with such impressive growth, by the Media Bureau’s proposed DTV transition date, December 31, 2008, tens of millions of

31

American consumers will still watch television on analog TV sets.

And herein lies the real challenge of expediting return of the analog broadcast spectrum.

We commend FCC Media Bureau Chief Ken Ferree and his staff

for thinking creatively about ways to complete the transition, while

at the same time minimizing disruption to consumers. We think all

stakeholders would benefit by having greater certainty as to the

transition’s end date, be it December 31, 2008, or some other date.

Clearly, the biggest challenge posed by the DTV transition is to

ensure uninterrupted television viewing by the approximately 15

percent of TV households that don’t subscribe to cable or DBS.

Having sufficient numbers of low-cost digital-to-analog broadcast

converter devices available in the market is essential to avoiding

massive consumer disruption.

Also, it must be recognized that at year end 2008, at the time

that the transition would occur under the Bureau’s plan, only 40

million or 41 million cable subscribers would be digital cable subscribers. Another 30 million would still have not voluntarily upgraded from analog to digital. For this reason, we think the Bureau

plan has it right by recognizing that digital-to-analog conversion of

broadcast signals at a cable system’s head end may be the best way

to ensure uninterrupted viewing of broadcast television by millions

of analog-only cable subscribers.

However, we respectfully disagree with the Bureau’s suggestion

that must carry broadcasters should decide whether a cable operator can convert digital broadcast signals to analog at the cable

system head end. Cable operators have a great interest in minimizing disruption to cable customers, so we believe it would be

more appropriate to let them determine how to deliver digital must

carry broadcast signals to their customers, at least until cable systems are fully digital or 85 percent of a cable systems customers

have digital-to-analog equipment. An earlier version of the Bureau’s plan recommended just this.

Second, the DTV transition plan should not expand existing must

carry broadcast rights. The FCC has already ruled that a cable operator is not required to carry under the Cable Act more than one

digital video channel per broadcast station. As we explain in our

written testimony, mandated cable carriage of up to six digital

video channels per broadcast station would be harmful to cable programmers, operators and consumers, and do nothing to advance

the digital TV transition.

In closing, Mr. Chairman, let me reiterate that the Media Bureau should be commended for putting forward ideas for others to

scrutinize. These are complex issues that warrant thorough review.

We appreciate as well the evolving nature of the Bureau’s plan and

the Bureau’s willingness to consider further changes.

Finally, let me again congratulate this committee for its leadership in exploring ways to expedite the digital television transition.

Since the DTV roundtable discussions that committee leaders convened 3 years ago, a great deal of progress has been made, and

much of this is due to your constructive efforts. Thank you very

much.

[The pepared statement of Robert Sachs follows:]

32

PREPARED STATEMENT OF ROBERT SACHS, PRESIDENT AND CEO, NATIONAL CABLE

AND TELECOMMUNICATIONS ASSOCIATION

Mr. Chairman, and members of the Subcommittee, my name is Robert Sachs and

I am President and CEO of the National Cable & Telecommunications Association.

NCTA is the principal trade association of the cable television industry in the

United States. It represents cable operators serving more than 90% of the nation’s

approximately 70 million cable television households and more than 200 cable program networks, as well as equipment suppliers and providers of other services to

the cable industry. Thank you for providing me with the opportunity to testify this

morning.

INTRODUCTION

This Subcommittee has played a pivotal role in promoting the transition from

analog to digital television and I commend you for your ongoing commitment to seeing the process through to completion. Your leadership has been important to encouraging increased cooperation and inter-industry negotiations between the cable,

consumer electronics, broadcast and content industries. For cable’s part, I am

pleased to report that our industry has made major progress in delivering HDTV

and other digital products to our customers and is continuing its efforts to advance

the DTV transition on various fronts.

As I discuss the specifics of our efforts, it’s important to point out that the cable

industry’s leadership in the digital revolution is largely attributable to a regulatory

environment which has allowed companies to invest, take risks and compete in the

video marketplace. Cable’s own transition from analog to digital technology has

been spurred by competitive market forces. The technological advances which have

transformed our business and benefited consumers have resulted from cable entrepreneurs risking private capital without any government guarantees or subsidies.

Starting with an eight-year capital investment of nearly $85 billion, or nearly

$1,200 per customer, that began with the passage of the 1996 Telecommunications

Act, the cable industry has built a robust, multi-functional and highly versatile infrastructure. This has not only enhanced our delivery of traditional cable services

to tens of millions of basic cable customers, but provided the platform for the cable

industry to provide broadband services to 23 million digital cable, 17 million highspeed Internet, and two-and-a-half million digital phone customers. This broadband

platform has enabled cable companies to greatly increase the quality and expand

the variety of video programming and other services available over their systems.

Today cable offers high definition television, personal video recording capability,

video-on-demand and other interactive services that were not available in the market at the time of the ‘‘96 Act.

Consumers are becoming more and more aware of what digital technology offers

and are buying digital products in record numbers. More than 30% of cable customers already subscribe to digital cable services. And as consumer awareness

grows, so are consumer expectations about viewing options, convenience and control.

The cable industry’s incentive to bring the digital transition to full fruition is about

serving these growing needs and interests in a highly competitive video marketplace.

When Michael Willner, President and CEO of Insight Communications, testified

almost two years ago before this Committee about the nation’s transition from analog to digital broadcasting, he reported that cable had fully embraced digital technology in an effort to offer consumers new competitive services and that the industry was committed to help expedite the DTV transition.

Over the past two years, the cable industry’s unwavering commitment to the digital transition has been marked by the rapid rollout of high definition services, the

development of new and exciting HDTV content, and the completion of a major

stage of negotiations with the consumer electronics industry on national standards

for digital television products. Competition from an aggressive, well-financed direct

broadcast satellite (DBS) industry has played no small part in accelerating cable’s

digital advances.

CABLE COMPANIES HAVE ROLLED OUT HDTV SERVICES AT A RAPID PACE

The full-scale deployment of HD service has been the fastest rollout of any product launched by the cable industry. Beginning in early 2003, cable companies initiated HDTV service in various markets across the country. At that time, HD content

was available over cable systems to approximately 37 million US households. By the

end of the first quarter of this year, that figure has more than doubled with 84 million American households able to receive high quality HDTV programming from

33

their local cable operator. The availability of high definition services to cable subscribers jumped 125 percent from January 2003 through March 2004. HDTV is now

available from at least one cable system in 99 of the top 100 markets.

HD over cable is by no means limited to large urban areas. Cable operators in

a variety of mid-sized to smaller markets are providing the service to their customers too. An additional 56 markets beyond the top 100 have a package of HDTV

channels being offered over cable, bringing the total number of markets where cable

systems are offering HDTV to 155 nationwide.

Cable companies are now offering packages that include a full mix of broadcast,

basic and premium networks featuring HD content. Here in Washington, for example, Comcast provides 11 channels of HDTV programming, including five broadcast

stations. Time Warner Cable has entered into carriage agreements with all of the

major commercial broadcast networks for the HD programming carried by the stations they own, and in testimony two weeks ago before this Subcommittee said that

by year-end, its systems will offer an average of 15 HD channels each.

Cox Communications recently announced an agreement with the Public Broadcasting Service (PBS) and Association of Public Television Stations (APTS) to carry

the digital signals, including high definition programming, of 70 PBS stations on its

systems. Public broadcasters have similar company-wide deals with Time Warner

Cable and Insight Communications, as well as market-specific carriage agreements

with Comcast, Adelphia, Cablevision, Bright House and other cable operators. 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 92 local broadcast stations’ HD programming was being carried.

This remarkable growth demonstrates that market forces are working, and working well. And it confirms what the cable industry has said since the outset of the

DTV transition—that when local broadcasters offer HDTV and other compelling digital content, and make it freely available to cable, cable companies want to carry

it, and are doing so. It also reminds us that consumer demand is at the core of the

digital transition and that marketplace solutions usually produce better results than

government mandates.

CABLE NETWORKS ARE LEADERS IN PROVIDING HDTV CONTENT

In addition to cable systems carrying broadcast HD programming, cable systems

are carrying HD programming from cable networks who have catapulted over their

broadcast counterparts in creating HD content. Today, 15 different cable networks

are producing HD programming in popular genres, such as movies and sports, and

a wide array of original and general interest programming. Pay TV pioneers HBO

and Showtime were the first to offer HDTV programming, including original movies.

Other premium channels, such as Cinemax HDTV, The Movie Channel HD, Starz

HD! and INHD have now joined their ranks offering first-run and recent movies and

other HD programming, commercial-free 24-hours a day.

Unlike many broadcast stations which just offer HD programming a few hours a

day, most cable networks that offer HD do so on a 24-hour or nearly full-time basis.

Discovery launched its 24-hour-a-day HD Theater two years ago. It recently announced plans to spend $65 million over the next five years on Atlas HD, a series

of 30 two-hour, high definition documentary specials on countries around the world.

Bravo HD now offers symphonic concerts, ballet, theater, and opera in high definition. TNT-HD, which launched just last week, will feature original dramatic series,

sporting events and other HD programming.

Mark Cuban’s HDNet produces and televises sports, news and entertainment programming in high definition 24 hours a day. The network includes NHL games,

Major League Soccer games, horse and auto racing, and NCAA football and basketball games.

Regional sports networks, MSG Network, Comcast SportsNet and Fox Sports Net

NY, are also major providers of HD programming. And NBA-TV provides exclusive

live National Basketball Association games in high definition.

For its outstanding leadership in advancing the digital television transition

through innovative HDTV programming, ESPN HD was recently honored by the

Consumer Electronics Association. This month the network will debut the ESPN

Digital Center, a state-of-the-art facility, that will telecast the network’s signature

sports news and information program, SportsCenter, and offer over 3000 hours of

originally produced high definition studio programming a year.

34

MARKETPLACE FORCES ARE WORKING

The rapid rollout of HDTV over cable would not have occurred but for compelling

HD content and the enhanced viewing and listening experience that HD offers to

consumers.

According to Kagan Research LLC (‘‘Kagan’’), a leading industry analyst, more

than eight million DTV’s were purchased by consumers through the end of last year

and an additional six million are expected to be purchased in 2004, bringing total

U.S. DTV sales to nearly 15 million by the end of this year. (In view of the fact

that some of these sales represent multiple purchases by the same TV household,

Kagan estimates that approximately 12 million TV households (‘‘TVHH’’) or 10.7%

of total TVHH’s will own DTVs by the end of this year.)

Clearly, there is something of a ‘‘chicken and egg’’ phenomenon when it comes to

HDTV programming and equipment. But as equipment prices drop, more and more

American consumers will be able to avail themselves of the crystal clear pictures

and Dolby surround sound that HD uniquely provides. According to Kagan, total

numbers of DTV sales and households are likely to reach 35 million (sales) and 27

million (23.9% TV HH) by year end 2006 and 89 million (sales) and 64 million

(55.1% TVHH) by year end 2008. So, even though less than 10% of TV households

own DTVs today, these growth projections may help to explain why cable operators

and programmers have so strongly embraced HDTV.

DBS COMPETITION SPARKED STRONG GROWTH IN CABLE DELIVERY OF HDTV

The growth in cable delivery of HDTV is also stark evidence of the fierce competition between cable and DBS. The battle between these two industries to attract and

retain customers is a major driver of HD. As the FCC recognized this year in its

10th Annual Video Competition Report, cable operators face vigorous competition

from an ever-stronger DBS industry serving nearly one out of four multi-channel

video households. DirecTV and Dish Network are now the second and fourth largest

providers of multi-channel video services in the US. In the first quarter of 2004

alone, DBS added 820,000 new customers, bringing its total subscriber base to 22.4

million.

Competition is a very powerful motivator and cable companies are continually

seeking new sources of high quality digital content to maintain their competitive

edge.

NATIONAL DIGITAL TV TECHNICAL STANDARDS ARE HELPING TO SPEED THE TRANSITION

Along with creating and carrying compelling digital programming, the cable industry has joined with the consumer electronics industry and various standards-setting organizations to establish digital standards. In December 2002, the cable and

consumer electronics industries entered into a landmark agreement that set the

stage for a national ‘‘plug and play’’ standard between digital television products

and digital cable systems. As a result of this agreement, cable customers can buy

unidirectional DTVs and other devices that connect to digital cable systems without

a set-top box, and enjoy easy access to HDTV and other services offered by cable

providers.

The agreement ensures that the next generation of digital television sets will receive one-way cable services without the need for set top converter boxes; enable

consumers to receive HDTV signals with full image quality and easily record digital

content; allow for an array of new devices easily to be connected to the new HDTV

sets; permit access to cable’s two-way services through digital connectors on high

definition digital sets; and encourage manufacturers to speed the production of new

sets and services for delivery to market.

The FCC adopted implementing rules in September 2003. These rules track the

voluntary agreements between the cable and consumer electronics industries and

impose legal obligations on cable operators to facilitate the commercial availability

of ‘‘digital cable ready’’ equipment. The FCC also required that these ‘‘cable-ready’’

DTV sets include over-the-air digital tuners, a requirement the cable industry supported.

The FCC’s rules assure consumers that cable operators will provide them with

Point of Deployment or POD separate security modules, now called CableCARDs,

that will work in their CableCARD-enabled equipment purchased at retail. Motorola

and Scientific-Atlanta have shipped CableCARDs to MSOs.

Under the rules, all digital cable systems are required to maintain an adequate

supply of CableCARDs and ensure convenient access to these devices for their customers. In addition, all digital cable systems must conform to technical standards

governing digital interfaces and the CableCARD copy protection system.

35

Most large cable systems already comply with these standards and other operators are implementing them at their head-ends and in their networks in the near

term.

As cable operators implement the ‘‘plug and play’’ agreement, unidirectional digital cable ready products are well on their way into the market, as evidenced by

the presence of products from a number of manufacturers at the January 2004 Consumer Electronics Show in Las Vegas and last month’s NCTA Show in New Orleans.

I am also pleased to report that the cable and consumer electronics industry discussions on two-way digital cable ready products are well underway. This process

includes many other interested industries and companies. The CE and cable industries—individually and jointly—have reached out to third parties, including representatives of the information technology and content communities, and the broadcast and satellite industries, to get their views on the key components of a two-way

digital cable ready framework. NCTA will continue to collaborate with other industries and the FCC to implement the unidirectional ‘‘plug and play’’ agreement and

to expeditiously reach agreement on ‘‘two-way’’ digital cable ready products.

Meanwhile, CableLabs, the cable industry’s research and development consortium,

is continuing to work with manufacturers in testing products that are built to conform to CableLabs’ OpenCable specifications as well as the FCC rules for

unidirectional ‘‘plug and play’’ digital cable products.

On the consumer side of the equation, cable companies recognize the importance

of minimizing the potential for confusion regarding the capabilities of ‘‘digital cable

ready’’ devices. To avoid such confusion, the cable industry has partnered with the

CE industry to develop logos to make consumers aware of ‘‘Digital Cable Ready’’ and

‘‘Interactive Digital Cable Ready’’ devices.

THE FCC MEDIA BUREAU PROPOSAL TO ACCELERATE THE DTV TRANSITION

As you have heard this morning, the Media Bureau of the FCC has initiated an

important discussion about how the government can accelerate return of the spectrum loaned to television broadcasters to transition to digital broadcasting. We commend Bureau Chief Ken Ferree and the Bureau for thinking creatively about how

to end the transition in order to reclaim valuable public spectrum for public safety

and wireless needs while, at the same time, minimizing disruption to consumers.

We think all those affected by the transition are benefited by a Bureau proposal to

interpret existing law to provide some certainty as to the transition’s end date—either December 31, 2008 or at some later date, depending on the immediacy of the

government’s needs for reclaiming the analog spectrum. And we think it’s vitally important that any policies adopted minimize disruption to consumers.

Given the evolving nature of the Bureau’s plan and the fact that we have only

just recently seen it described in writing, it is difficult to offer definitive comments

about it. However, we are able to offer some preliminary observations.

First, clearly the biggest challenge posed by the DTV transition is to ensure that

television viewing enjoyed by some 15 million broadcast-only TV households and

tens of millions of cable and satellite households where multiple TV sets may not

be hooked up to cable or DBS is not disrupted. At a minimum, marketplace availability of low-cost digital-to-analog converter devices is essential to ensure that massive disruption of consumers who rely solely on broadcast TV does not occur. In this

regard, the FCC recently issued an NOI seeking public comment on how this problem can be addressed. We commend the Commission for recognizing the critical importance of having consumer solutions in place well in advance of the date by which

broadcasters must return the analog spectrum to the government.

Second, it must be recognized that the broadcasters transition to a digital-only

broadcast system under the Bureau’s transition plan will occur long before a substantial number of cable customers have migrated from analog to digital viewing.

As I mentioned earlier, 23 million or more than 30% of cable customers subscribe

to digital cable today. While only a small percentage of these consumers own DTVs,

enabling them to receive programs in HDTV or standard definition TV, digital cable

set-top-boxes still allow them to enjoy digital cable channels, video-on-demand and

other interactive programs in analog on existing TV sets.

By the end of 2008, Kagan Research LLC projects that nearly 41 million cable

subscribers will be digital cable subscribers. If these projections are correct, it

means that nearly 30 million cable customers will still be analog-only as of December 31, 2008. Kagan also estimates that digital cable homes will contain an average

of 1.9 digital set top boxes versus an average of 2.6 TV sets. This means that an

additional 30 million TV sets in digital cable households will not be able to receive

digital broadcast signals without a digital-to-analog cable converter device. As

36

shown in the following chart, a total of 106 million analog TV sets (30 million analog cable customers x 2.6 TV sets (78 million TV sets) plus 40 million digital cable

customers x .7 TV sets (28 million TV sets) will be in cable households:

Cable operators have a very strong interest in ensuring that these 106 million

analog TV sets continue to work in their customers’ homes. For this reason, we

think the Bureau plan has it right where it recognizes that down-conversion of a

digital broadcast signal to analog at the cable system’s head-end would be the most

cost-efficient way to continue to serve these millions of sets. Unlike over-the-air

viewing, for which digital-to-analog converter devices will be the only way that

broadcast viewers can continue to watch television on their analog sets, cable operators must have the option of down-conversion for its customers to achieve this same

goal.

Where we take issue with the Bureau’s plan is its proposal that a must carry

broadcaster should be able to determine when and whether a cable operator can

down-convert its digital signal to analog at the head-end. We believe it would make

more sense and be more appropriate to allow cable operators to decide how best to

deliver digital must carry broadcast signals to cable customers until a cable system

has totally converted to digital, or at least until 85 percent of its customers have

‘‘plug and play’’ DTV sets or digital-to-analog converter devices. Giving broadcasters

control would limit cable operators’ ability to serve cable customers in the least disruptive manner or effectively impose a dual must carry regime on cable operators.

In an earlier version of its plan, the Bureau proposed that cable carriage of broadcasters’ digital signals in digital would be subject to the above conditions. We believe that the Bureau’s earlier plan would prove much less disruptive for cable consumers.

Second, the DTV transition plan should not provide must carry broadcasters with

expanded must carry rights. The FCC in 2001 already ruled that a cable operator

is not required under the Cable Act to carry more than a single digital program

stream, plus program-related material. The Commission concluded that ‘‘based on

the plain words of the [Cable] Act . . . to the extent a television station is broadcasting more than a single video stream at a time, only one of such streof each television station is considered ‘primary’ ’’ and therefore entitled to mandatory carriage.

In the FCC’s digital must carry proceeding, CS Docket No. 98-120, NCTA and others

have commented extensively on the substantial legal and policy reasons why that

is the right decision.

As we have made clear in those filings, imposing multicast carriage requirements

would do nothing to advance the digital transition. Most obviously, a multicast must

carry rule, were it legal, would, under the Bureau’s plan, take effect only after the

broadcaster has returned its analog spectrum. By counting a broadcaster’s single

down-converted signal carried by cable towards the 85 percent test, the Bureau’s

plan already would achieve the goal of expediting the transition’s end. Secondly,

there is no reason to believe that standard definition multicast digital signals would

cause consumers to purchase HDTV sets. Indeed, multicast rights for must carry

stations after the transition adds nothing to the objectives sought by the Bureau’s

plan. As importantly, government-required cable carriage of multicast digital broadcast signals would be harmful to other programmers, consumers and public policy

goals of promoting programming diversity.

Multicast must carry would harm the public interest by greatly expanding the

number of channels that the government would compel cable operators to carry from

broadcasters that already have a voice on the cable system. Under current technology, six standard definition digital video channels can be compressed within a

19.4 megabits stream. If under the FCC’s new media ownership rules a broadcaster

were to own two or three TV stations in some markets, the Bureau plan would require cable operators to carry as many as a dozen or 18 digital video channels from

a single broadcast source in those markets. How is that possibly fair to other programmers who must compete for carriage on the basis of program quality and consumer demand?

The Bureau plan sweeps aside these clear legal, practical and public policy reasons for maintaining the Commission’s existing decision against mandatory

multicast carriage. It instead raises the prospect of government-mandated multicast

carriage after the transition as an ‘‘additional incentive’’ for broadcasters to ‘‘return

their analog licenses in a timely manner.’’ But broadcasters should need no added

inducement to return this valuable government-owned property, which the government loaned them to transition to digital television by 2006. Moreover, broadcasters

should not be rewarded for doing what the law requires them to do at the expense

of cable operators, programmers and consumers.

37

We appreciate the Bureau’s continued efforts to seek input as it develops its DTV

transition plan. We look forward to working with the Bureau, the Commission and

Congress as this plan continues to evolve.

CONCLUSION

Mr. Chairman, in summary, the cable industry has advanced the digital transition

by undertaking a massive, multi-year upgrade of its plant and facilities, spurred by

intense competition from DBS and fueled by a private capital investment of over

$85 billion since 1996. The resulting digital broadband platform has positioned the

industry to continue to be a leader in the provision of home entertainment, information, and other services to the American public. The benefits of cable’s investment

in digital technology and infrastructure improvements is shown in the dramatic

growth in cable’s delivery of HDTV services to consumers from both broadcast stations and cable networks, the creation of new and exciting HDTV content, and the

emphasis on resolving standards issues for new digital television products. It also

shows that the marketplace is working well and that consumer demand will further

drive the digital transition.

The government’s need for the return of the analog spectrum for important public

safety and wireless purposes provides further impetus for expediting the digital

transition. But as the FCC Media Bureau plan properly recognizes, the transition

must be accomplished with a minimum of consumer disruption.

The cable industry stands ready to work with the Subcommittee in its efforts to

advance the DTV transition for the benefit of American consumers.

Mr. UPTON. Thank you.

Mr. DalBello.

STATEMENT OF RICHARD DALBELLO

Mr. DALBELLO. Thank you, Mr. Chairman and members of the

subcommittee. We appreciate this opportunity to give the satellite

industry’s perspective on the FCC digital transition plan.

The digital transition has long been a priority for Congress and

the FCC. SBCA supports the FCC Media Bureau proposal because

we believe it will produce tangible benefits for consumers, drive the

adoption rates for new HD devices, encourage the demand for our

member services, spur the economy, and free up spectrum that is

important for many reasons, including homeland security.

Today over 22 million households in the United States receive

multichannel video service via satellite. That is one in every five

television households in the country. DBS has offered subscribers

100 percent digital transmission since launch in 1994. DBS also pioneered the carriage of HD television by broadcasting the first HD

signals in 1999.

The DBS industry is also supporting the digital transition from

the hardware side of the equation. All DBS providers currently

offer set-top boxes that decode both satellite and over-the-air HD

programming. By providing compelling content on an all-digital

platform, DBS providers are giving the American consumer a reason to invest in digital equipment.

In the past 2 years, the FCC has done a commendable job of resolving many of the complex technical and legal issues surrounding

the transition to digital; however, there are two issues that I would

like to mention this morning. The first issue is a concern over possible digital must carry requirements.

The carriage regime for over-the-air digital television stations

both during and after the transition has not yet been finalized by

the Commission. Due to the finite amount of spectrum and orbital

resources available to satellite operators, special consideration

38

must be taken when imposing mandatory carriage of local digital

signals on the satellite industry.

DBS operators have spent millions of dollars to design, build,

launch and operate the satellites that are now in orbit. The bandwidth consumption required by full digital must carry obligations

would force DBS companies to dramatically restructure their entire

business model, potentially eliminating the local-into-local services

currently being offered in 127 markets. This could undermine the

congressional and FCC intent to provided local-into-local services to

as many consumers as possible as rapidly as possible.

The second issue is the lack of definition of an unserved digital

viewer. It is inevitable that certain households for topographical

reasons or due to their distance from the broadcaster’s tower will

not be able to receive an over-the-air digital signal. The current

statute only defines an unserved analog household, not the

unserved digital household. Before satellite carriers can avail themselves of the compulsory license to retransmit digital signals, Congress, the FCC and the copyright office will have to develop an

unserved household definition for digital broadcast signals.

Once there is a reliable predictive model of which consumers will

be unserved by over-the-air digital broadcast stations, the DBS industry is uniquely positioned to help ensure that digital television

will become available to all Americans. Our proposal is simple:

Allow households that cannot receive their local affiliate’s digital

signals to receive network DTV signals from their satellite TV provider. This can be done by broadening the existing compulsory license to permit DBS providers to offer network digital services in

unserved areas.

In conclusion, SBCA and the DBS industry support the FCC’s

plan to accelerate the transition to digital broadcasting. As we have

stated, we believe the plan will result in tangible and important

benefits for consumers, taxpayers and the security of our Nation.

We understand that the plan could mean that there are people who

will no longer be able to receive an over-the-air signal on their analog television. However, as an industry, we have been providing a

national digital signal to consumers with analog televisions since

our inception. We believe that affordable technologies can be made

available to solve the analog-to-digital conversion problem. The

DBS industry is willing to work with Congress to aid in any additional solutions to meeting these consumer needs in a manner that

is reasonable and cost-effective for both the consumer and the government.

Thank you again for your time again today. I look forward to

your questions.

[The prepared statement of Richard DalBello follows:]

PREPARED STATEMENT OF RICHARD DALBELLO, PRESIDENT, SATELLITE

BROADCASTING AND COMMUNICATIONS ASSOCIATION

Thank you Mr. Chairman and members of the Subcommittee, my name is Richard

DalBello, and I am the president of the Satellite Broadcasting and Communications

Association, or SBCA. SBCA is the national trade association that represents the

consumer satellite services industry—our members include satellite television, radio

and broadband providers, programmers, equipment manufacturers, distributors and

retailers. Thank you for taking the time to hear the satellite industry’s perspective

on the digital transition.

39

The digital transition has long been a priority for the Congress and the FCC.

SBCA supports the FCC Media Bureau proposal as it has been described to SBCA

by FCC staff, because we believe the proposal will:

• Accelerate the timeframe in which millions of Americans will receive quality digital and high definition television services

• Rapidly increase the sales of digital and HD televisions

• Spur the production of high-quality digital and HD programming

• Return more than $50 billion to the US treasury as a result of the auction of the

analog spectrum

• Free up valuable spectrum for new applications and essential public safety services

DBS AND THE DIGITAL TRANSITION

Today, over 22 million households in the U.S. receive multi-channel video service

via satellite—that is one out of every five television households in the country. The

growth that DBS has experienced and the resulting benefit to consumers of having

a competitive alternative to cable are due in large part to the support the industry

has received from Congress—especially in the form of a local-into-local license from

the 1999 Satellite Home Viewer Improvement Act—and the FCC.

DBS has offered subscribers a 100% digital transmission since its launch in 1994.

For consumers with analog televisions, the digital signal sent from the satellites operated by the DBS providers is, for the most part, transformed back to an analog

signal in the subscriber’s set-top box, enabling service to these customers.

Without the introduction of DBS as a viable competitor in the multi-channel video

market, the word ‘‘digital’’ would not be part of the cable industry on such a widespread scale today. By offering a superior quality product at a competitive price, the

DBS industry has not only given consumers a choice, but it has also accelerated the

digital transition by introducing digital signals to the U.S. television industry.

DBS also pioneered the carriage of High Definition, or HD, television by broadcasting the first HD signals by a multi-channel video programming distributor in

1999. By providing compelling content on an all-digital platform, DBS providers are

giving the American consumer a reason to invest in digital equipment. DBS providers offer movies, sporting events, documentaries, concerts, public affairs programming and original series in HD. Right now, the two largest DBS service providers,

DIRECTV and EchoStar, offer eight and nine HD channels respectively, and programmers are continuing to roll out HD programs and channels to meet this growing demand. With regard to network programming, both DIRECTV and EchoStar

have negotiated a deal with Viacom to permit the rebroadcast of a distant HDTV

feed of CBS into the owned-and-operated markets of Viacom providing a viable alternative to over-the-air reception. In addition, a new DBS operator, Rainbow DBS’s

VOOM, launched late last year. They offer an exclusive package of 39 High-Definition channels via satellite—including 21 exclusive HD channels and HD channels

from many popular national cable networks.

The DBS industry is also addressing the digital transition from the hardware side

of the equation. All DBS providers currently offer set top boxes, or the boxes which

sit on top of your television set, which decode both satellite and terrestrial (overthe-air) HD programming. Furthermore, DBS providers are the first pay television

providers to offer high definition receivers with personal video recording capabilities.

By continuing to lead the way in providing HD to homes across America, DBS is

not only meeting consumer’s wants and needs but also driving money into the economy by giving consumers a reason to upgrade their existing television sets.

ISSUES RAISED BY FCC’S PROPOSAL

In the past two years, the FCC has done a commendable job of resolving many

of the complex technical and legal issues surrounding the transition to digital, which

at one time seemed an impossible task. I would like to take this opportunity to

thank them for their hard work and their efforts to come up with a feasible plan

for this transition. However, there are two issues that I’d like to raise for discussion

surrounding the overall digital transition: what material must be carried by satellite

operators under the must-carry regime, and how to define an un-served digital

household for the importation of a distant digital network signal.

DIGITAL MUST-CARRY CONCERNS

The carriage regime for over-the-air digital television stations both during and

after the transition has not yet been finalized by the Commission. Due to technical

burdens shouldered only by satellite operators because of the finite amount of specVerDate 11-MAY-2000 12:06 Aug 30, 2004 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6621 95439.TXT HCOM1 PsN: HCOM1
40

trum available, special consideration must be taken when imposing mandatory carriage of local digital signals on satellite operators. DBS operators have spent billions

of dollars to design, build, launch and operate satellites that now are now in orbit.

The bandwidth consumption required by full digital must-carry obligations (dual

carriage, multicast must-carry, full local HD carriage) would force DBS companies

to dramatically restructure their entire business model, potentially eliminating the

local-into-local services currently being offered in 127 markets. This undermines the

Congressional and FCC intent to provide local-into-local service to as many consumers as possible as rapidly as possible.

Dual Carriage of Analog and Digital Signals During the Transition

In 2001, the FCC correctly concluded that ‘‘a dual carriage requirement may burden cable operators’ First Amendment interests more than is necessary to further

the important government interests they would promote.’’ While the FCC Order did

not address dual carriage requirements for DBS, technical and statutory reasons

exist that make dual carriage even less appropriate for satellite operators. Satellite

operators have a fixed amount of allocated spectrum within which to operate. If a

dual carriage regime were imposed during the transition that required a satellite

operator to carry both a broadcaster’s analog and digital signal, DBS operators

would be forced to turn off local service in many of its 127 markets where it is currently offered today, and the roll out of new markets would be aborted.

Multicast Must-Carry Should Not be Required

The FCC addressed cable’s carriage requirement for a broadcasters’ multicast programming stream in 2001, and determined that only one video stream and programrelated services can be considered ‘‘primary’’ for carriage under the cable must-carry

regime. Program-related services that are entitled to carriage include: closed captioning, V-chip/program ratings, Source ID Codes (used by Nielsen), and channel

mapping and tuning protocol.

We believe the FCC made the appropriate determination that multicast programming should not have to be carried by any MVPD. However, multicast must-carry

is a bigger strain on DBS than cable, due to the nationwide nature of DBS and the

severe spectrum limitations in which we operate. If a broadcaster’s multicast content is compelling enough and our subscribers want it, we would carry it on our systems. The selection of HD and multicast programming stations should be driven by

consumer choice and market demand rather than a government mandate.

DBS Should be Allowed to ‘‘Downres’’ High-Definition Local Broadcasts

Since High Definition (HD) provides up to six times greater the resolution of

standard definition television, HD transmissions require significantly larger

amounts of bandwidth than a standard digital definition (SD) signal. On our current

satellites, compression methods allow for as many as 12 standard definition broadcast channels per transponder—with HD broadcasts, only 2-3 channels can be carried per transponder. Therefore, a DBS provider broadcasting 1 HD program must

eliminate approximately 6 standard definition channels. A requirement that satellite carriers retransmit the full HD signal of every local broadcaster would severely reduce the number of local markets where DBS offers local-into-local.

As long as the local broadcasters are making their digital signal available overthe-air, DBS consumers can receive the local HD transmissions through the digital

tuners included in high-definition set-top boxes, therefore avoiding loss of local HD

content while at the same time, conserving spectrum. For this reason, we encourage

broadcasters to increase the power of their digital broadcast signals. These HD settop boxes are becoming more widespread, and will continue to do so as the transition to digital television progresses.

UN-SERVED DIGITAL VIEWERS

It is inevitable that certain households, for topographic reasons or due to their

distance from a broadcaster’s tower, will not be able to receive an over-the-air digital signal. The compulsory license which authorizes satellite carriers to transmit

distant network signals to those households who are unable to receive an over the

air network signal doesn’t distinguish between digital or analog transmissions. Despite the fact that nothing in the compulsory license itself would prevent a DBS provider from retransmitting a broadcaster’s digital signal to subscribers, there are

both regulatory and practical limitations on the satellite industry’s ability to make

digital signals available to consumers.

Section 119 of the Copyright Act includes a very important limitation on the

transmission of distant network signals. Such signals can only be retransmitted to

un-served households. Un-served households are determined according to the IndiVerDate 11-MAY-2000 12:06 Aug 30, 2004 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 95439.TXT HCOM1 PsN: HCOM1
41

vidual-Longley Rice (ILLR) model developed by the FCC. The FCC’s ILLR is based

on each individual broadcast station’s analog signal propagation characteristics. In

other words, the statute only defines the un-served analog households—not the unserved digital households. While propagation of digital signals may have many of

the same characteristics as the analog signals, there will be differences. Indeed, a

representative of the NAB told the House Judiciary Committee earlier this year that

broadcasters have discovered that the digital contour ‘‘has some holes in it.’’ In other

words, some people who can receive the broadcaster’s analog signal are not able to

receive the digital signal. Before satellite carriers can avail themselves of the compulsory license to retransmit digital signals, Congress, the FCC and the Copyright

Office will have to develop an un-served household definition for digital broadcast

signals.

Once there is a reliable predictive model of which consumers will be un-served

by over-the-air digital broadcast stations, the DBS industry is uniquely positioned

to make good on Congress’ goal that digital television become available to all Americans. Our proposal is simple. Allow households that cannot receive their local affiliates’ digital signals to receive network DTV signals from their satellite TV provider.

This can be done by broadening the existing compulsory license to permit DBS providers to offer network digital service in un-served areas. The expanded license

would limit DBS service to only those households that cannot receive an over-theair digital network signal. The availability of distant digital signals would have no

real impact on the roll out of analog local-into-local service to additional markets

by DBS operators.

CONCLUSION

SBCA and the DBS industry support the FCC’s plan to accelerate the transition

to digital broadcasting. As we have stated, we believe the plan will result in tangible

and important benefits for consumers, taxpayers, and the security of our nation. We

understand that the plan could mean that there are people who will no longer be

able to receive an over-the-air signal on their analog televisions. However, as an industry, we have been providing a national digital signal to consumers with analog

televisions since our inception. We believe that affordable technologies can be made

available to solve the analog to digital conversion problem. The DBS industry is

willing to work with Congress to aid in any additional solutions to meeting these

consumers needs in a manner that’s reasonable to the consumer, the government

and the DBS industry.

Satellite operators were the first to offer digital multi-channel video to consumers,

spurring a $75 billion investment by the cable industry to keep up with our digital

offerings. We have long believed in digital. However, due to the technical burdens

of spectrum constraints and the questionable constitutionality of forced dual,

multicast and full local HD carriage, we encourage Congress and the FCC to continue to not impose a carriage regime for digital signals that will slow the rollout

of local channels via satellite and thus harm the MVPD competition fostered by over

ten years of this Subcommittee’s and FCC policy.

Thank you again for your time today, I look forward to answering any questions

that you may have.

Mr. UPTON. Thank you.

Mr. Shapiro.

STATEMENT OF GARY J. SHAPIRO

Mr. SHAPIRO. Thank you, Mr. Chairman, members of the subcommittee. I am Gary Shapiro, president of the Consumer Electronics Association. We have 1,500 corporate members, and we producers the Nation’s largest annual event, the international CES.

I thank you for inviting us to discuss the steps necessary to finish the transition to digital television. While most were skeptical,

we were true believers not only in digital television, but, in its

purest form, HDTV, with all of the glory, the full audio and video

experience HDTV bestows.

DTV is one of the fastest-selling products in our history. Americans have bought more than 9 million DTV products since the late

1998 introduction. Indeed, HDTV is the primary driver behind this

42

phenomenal sales figure, as 87 percent of the DTV products sold

to date are high-definition.

We now forecast that about 6 million digital TV units will be sold

this year, and it keeps going up. Indeed, DTV sales have surpassed

those of the VCR, PC, and color TV at similar stages, and we have

a chart which demonstrates that on your right side. You can see

that DTV is a killer product.

Indeed, we are at the start of the steep hockey stick curve of

sales. Under certain assumptions, with cable-ready sets and

CableCARDS being one of them, by 2010 we expect Americans will

own more than 90 million DTV sets, and over 85 percent of American’s homes will contain over-the-air DTV tuners.

Intense competition and low prices are helping drive HDTV

sales. Indeed, there are 800 different models from 60 manufacturers of HDTV products, DTV products. And consumers can buy several DTV products under the magic $1,000 mark, and even some

below $500.

As a trade association and as an industry, we have focused our

efforts wholly to assist the congressional mandate to shift to digital

television. We use every medium possible. We have a range of pamphlets, brochures, media resources, everything, computer programs

to educate retailers and millions of consumers about the benefits,

functions and features of digital television.

As a result HDTV is an unquestioned success. Product sales continue to rise; HDTV content is increasing; satellite broadcast and

cable are jumping onto the HDTV bandwagon; and manufacturers

are rolling out exciting new HDTV products every week.

With DTV becoming a mass-market product now, we must ensure the rapid recovery of the analog broadcast spectrum, while

also ensuring that at the end of the transition, every American has

received the benefits of DTV. We endorse the Media Bureau’s approach as we understand it, but we offer some slight modifications

that we believe will hasten the conclusion of the transition.

First, the plan should include a hard deadline for cable to stop

down-converting digital broadcast signals at the head end. This is

the only way we can be sure that HDTV signals will someday be

delivered to all Americans, including cable subscribers. This is the

exact opposite of what you heard Mr. Sachs just said about down

downresing potentially forever. HDTV is worth getting and requiring.

Second, cable operators should be required to keep their broadcast signal unencrypted. This will permit consumers with a DTV to

receive broadcast signals without a set-top box or extra fees, like

they can today with a cable-ready set in the analog world.

Third, cable operators are carrying digital broadcast signals.

They should not be allowed to reduce their sound or picture quality. If a broadcaster is making the investment to provide HDTV

and Dolby Digital Surround Sound, that is exactly what the cable

consumer deserves and expects to see and hear.

Fourth, cable operators must carry all broadcasters’ free programming and program-related material. This should include

multicast channels as well as V-chip, closed captioning and other

information.

43

Fifth, the FCC should ensure that all broadcasters are on their

permanent digital channels and operating their digital stations at

full power by 2006. Only one-third of the commercial stations are

delivering a full-powered DTV signal today. Millions of Americans

will soon be buying these over-the-air DTV tuners. Because of a

mandate, broadcasters have an obligation to reach them because

they are spending a lot more for that purchase.

Finally, the FCC should ensure a competitive market for cable

plug-and-play equipment by requiring cable operators to rely on

separable security or CableCARDS in the equipment they lease to

consumers.

In addition to these measures recommended in the Media Bureau

plan, there are other bold steps that can be taken to speed the

transition. For example, we urge, as the SBCA suggested, Congress

allow satellite providers to carry distant network signals in an area

where local broadcasters are not providing them.

Also, the FCC should reject content industry requests they be allowed to impose selectable output control or downresolution on

HDTV owners.

Finally, Congress and the FCC should closely oversee the introduction of digital cable-ready sets. When these sets are introduced

in a few months, American consumers will be able to buy a DTV,

plug the set into the wall, and with a local operator’s CableCARD,

view glorious HD programming without a set-top box. We presume

the cable industry has ordered a sufficient quantity of the new

cards to support the anticipated consumer demand for DCR sets.

We also presume that they won’t be charging a lot for them, and

they will be available at less than the cost of a set-top box.

I was an early adoptee of DTV, and I believe that the American

public should join me in thanking this subcommittee for its focus

on the DTV transition as a national priority.

In closing, we will continue our broad efforts to educate consumers and retailers about digital television. And I pledge our commitment as an industry and as an association to work with you,

the FCC, and others to ensure a speedy and consumer-friendly

transition and a prompt return of the analog broadcast spectrum.

[The prepared statement of Gary J. Shapiro follows:]

PREPARED STATEMENT OF GARY J. SHAPIRO, PRESIDENT AND CEO, CONSUMER

ELECTRONICS ASSOCIATION

Mr. Chairman and Members of the Subcommittee: Thank you for inviting me to

discuss our progress in the transition to digital television (DTV), and the steps that

should be taken to conclude the transition in the most beneficial and consumerfriendly manner.

I represent the Consumer Electronics Association (CEA), the principal U.S. trade

association of the consumer electronics and information technology industries. Our

1,500 members include virtually every DTV manufacturer, and our products are

found in 99 percent of American homes.

Our members invented DTV, and DTV is very much our baby. We marveled at

the miracle of birth, cheered when it took its first steps, were thrilled with its rapid

growth, and now look on proudly as it matures into a popular, mainstream consumer electronics product. In fact, you could say that our one-time baby has grown

up, gotten hold of the car keys and is now heading down the highway.

DTV Sales Continue to Rapidly Increase

Our most recent sales figures show that the first quarter of 2004 brought the

greatest volume of DTV sales ever recorded, with 1.39 million monitors and inteVerDate 11-MAY-2000 12:06 Aug 30, 2004 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6621 95439.TXT HCOM1 PsN: HCOM1
44

grated sets sold accounting for $2.1 billion of consumer investment. This is a remarkable 104 percent increase in unit sales from the same time period in 2003.

More than 10 million DTV products have been sold since the first sets hit the

market in the fourth quarter of 1998. Americans already have invested an astonishing $20 billion in DTV products, not including additional billions spent on DTV

cable set top boxes and satellite receivers. As we predicted years ago, HDTV is the

driver behind these phenomenal sales figures, as 87 percent of the products sold to

date are HD.

To put this into historical context, DTV sales already have far surpassed those

of the VCR, PC, and color TV at a similar point after introduction. Indeed, overall

revenues from digital TV now regularly outstrip those from analog TV. Television

manufacturing now is a digital industry, and there is no going back.

Consumer enthusiasm for HDTV is so strong that CEA has upwardly revised its

digital television sales projections. CEA now forecasts that 5.7 million digital television units will be sold this year, 9.4 million in 2005, 15.6 million in 2006 and 23

million in 2007.

As impressive as those numbers sound, we are only beginning to move up the

steep ‘‘hockey stick curve’’ of sales. By 2010 we expect that more than 90 million

DTV sets will reside in American homes.

Sales of DTV products have spread from specialty retailers and major consumer

electronics chains into warehouse clubs, mass merchants, and now discount stores

like Wal-Mart and Target. Weekly advertisements from national and regional retailers and specialty dealers are packed with ads for DTVs of various sizes and capabilities.

When consumers walk into retail stores, they now enjoy an unprecedented variety

of DTV products with more than 800 models available from 60-plus manufacturers.

Buyers can choose from a vast array of compelling displays from traditional CRT

sets to cutting-edge new technologies like plasma, LCD, DLP, and LCOS.

To be sure, the DTV category is so hot that new entrants with no previous history

in television are leaping into the DTV marketplace. Companies like Gateway, Hewlett-Packard, Dell and Motorola are now seeking to surf the wave of consumer DTV

enthusiasm.

Sales are being driven by plummeting prices—after all, this is the consumer electronics industry. DTV prices have been steadily declining by about 10 percent per

year. Today there are a host of DTV options for consumers under the magic $1,000

mark, and even some below $500.

Not only do consumers have more options at lower prices, but also the latest generation DTVs offers an array of compelling, consumer-friendly features.

For example, consumers now can choose from 81 models that include over-the-air

ATSC tuners. An avalanche of tuners will enter the market over the next few years

as manufacturers respond to the Federal Communications Commission (FCC) DTV

tuner mandate beginning next months. We estimate that by 2010, 86 percent of

American homes will contain TVs capable with DTV over-the-air tuners.

New Digital Cable Ready Plug-and-Play DTVs Will Help Drive the Transition, So Long as CableCARDS are Readily Available to Consumers

2004 also is the year that a ‘‘plug-and-play’’ transition to cable DTV should become a reality for American consumers. Last fall the FCC formally adopted the Digital Cable Ready DTV agreement for a nationwide plug-and-play digital cable standard. That means that American consumers—70 percent of whom rely on cable for

their primary TV reception—will now be able to buy a DTV, and, with a local operator’s CableCARD, plug the set into the cable jack in their wall and view glorious

high-definition programming without a set-top box.

Several models designed to accept CableCARDS are already on the market, and

dozens more will be available in the second half of this year. We anticipate that

these new CableCARD-ready sets will be a huge hit in the marketplace. In fact, we

project that more than one million digital cable ready sets and other products will

be sold over the next six or seven months. And of course, every CableCARD-ready

DCR set also will include an over the air digital tuner.

Starting July 1, FCC regulations require local cable operators to provide explicit

support for ‘‘Plug and Play’’ DTVs. Since hundreds of thousands of CableCARDS—

which contain security and other circuitry for particular local systems—will be necessary before football season begins, we presume the cable industry has ordered a

sufficient quantity of the new cards to support the anticipated consumer demand for

DCR sets, and will make them available to subscribers in a fast, simple and consumer-friendly manner.

45

We also presume that—to the extent cable operators are permitted to and elect

to charge consumers for the CableCARDS—they will be available at a reasonable

price that is significantly less than that charged for a set-top box.

Given the critical importance of plug-and-play to the DTV transition, we call upon

cable operators to join the CE industry in aggressively promoting the use of

CableCARDs and DCR sets. We urge Congress and the FCC to continue their close

oversight of the rollout of digital cable ready products, and the resolution of remaining DTV-cable compatibility issues.

Digital CableCARD-ready sets are not the only attractive new technology that is

entering the marketplace. New products such as HDTV digital video recorders are

already giving Americans even more incentive to buy digital sets and demand high

definition.

The Amount of Compelling HDTV Content is Increasing

Of course, as much as we love our hardware, we recognize that an ample supply

of compelling content is critical to DTVs success. It is no coincidence that the upsurge in DTV sales happened at the same time that the amount of content began

to rapidly increase.

The recent explosion of HDTV content is the result of a beneficial competitive dynamic among broadcast, cable, and satellite operators. Each realized that consumers

want the best, and whoever does not provide it could wind up as the AM radio of

video delivery service. One new satellite service, VOOM, is building its entire business plan around HDTV.

CEA is the Leader in DTV Consumer Education

CEA has embarked on an unprecedented promotional effort to ensure that consumers are fully informed about their DTV options. Our industry has every business

incentive to educate consumers about the qualities and features of the DTV they

want to purchase. That is why we have developed a system of voluntary labels describing DTV product capabilities that is being widely used across the industry.

Most consumers today get their primary information through retailers. It is imperative that retailers are able to provide accurate and easy-to-understand information. CEA has aggressively responded to this challenge.

In the last three months alone, we have visited four of the major consumer electronics buying groups and talked with more than 2,000 dealers to bring them the

latest information on the DTV transition. We have generated point-of-sale materials

for use in stores; including consumer guides and retailer tip sheets. We have collaborated with Comcast on an educational DVD that covers DTV information ranging from basic definitions to the equipment required to receive and view HDTV content via antenna, satellite or cable delivery.

We also have launched a new retailer-training program called CEKnowHow (it

can be viewed online at www.ceknowhow.com). This program is available to all retailers over the Internet. It equips them with the most up-to-date online training

for sales associates, so that they can effectively respond to consumer inquiries on

DTV and HDTV.

CEA also is making every effort to reach out directly to consumers. Millions of

readers across the country saw our recent insert in TV Guide explaining the DTV

basics. We also have showcased HDTV before hundreds of thousands of consumers

through exhibits at home design shows and trade exhibitions across the nation.

CEA exposes millions of consumers to HDTV through our nationally pre-packaged

video and news releases, as well as our national CEA media tour. And our quarterly

HDTV Guide is the single most authoritative list of the DTV products and programming currently available to consumers.

CEA has single-handedly taken the lead in promoting consumer awareness and

use of over-the-air digital television reception. Through our AntennaWeb program,

consumers can visit a website (www.antennaweb.org), enter their home address, and

find the optimal outdoor television antenna for their specific location.

We also see it as our obligation to recognize those who are going above and beyond the call of duty in furthering the DTV transition. Every year, our Academy

of DTV Pioneers honors the best of the best in HDTV programming, reporting and

retailing. And, as it should be, every year the categories get more crowded and competitive.

In short, for the DTV transition, everything is moving rapidly in the right direction. Product sales continue to rise. HDTV programming continues to increase. Content delivery industries increasingly are jumping onto the HD bandwagon. Exciting

new products are rolling into the marketplace. Consumer and retailer education is

advancing. By almost any measure, digital television—particularly HDTV—is a

marketplace success.

46

CEA Endorses the Media Bureau’s Approach with Modifications

The question now facing our industry—along with this Subcommittee and the

FCC—is how to bring the transition to a successful conclusion in the most beneficial

and consumer-friendly manner.

In particular, we believe it imperative to ensure the expeditious and certain return of the analog spectrum. The recovery of the analog spectrum will benefit consumers as it is reallocated for purposes ranging from public safety communications

to exciting new services like wireless networking and Internet access.

For that reason, we appreciate the FCC Media Bureau’s initiative in its proposed

interpretation of the Congressionally-mandated 85 percent take back trigger for reclaiming the analog TV spectrum. Although we project that more than 85 percent

of American homes will contain DTV tuners by 2010, we recognize the public benefits of setting a national, fixed date for the end of analog service.

However, the DTV transition is not just about recovering the analog spectrum.

From the beginning it has also been about bringing a new and improved TV experience to consumers. A primary reason that broadcasters were allocated 6 MHz of

spectrum in the first place was to allow them to provide their viewers with a full

HDTV signal.

While the Media Bureau’s plan creates a nationwide transition from analog to digital over-air broadcasting on a certain date, it does not create a national digital

transition for broadcast signals carried on cable, which is the delivery method for

the vast majority of American viewers.

Of course, the FCC recognizes that delivery of a broadcaster’s digital signal in

down-converted analog form is not digital TV and will not motivate consumers to

buy new digital products or enable them to enjoy a new digital experience. The

Media Bureau’s plan trusts that market forces will motivate cable operators to carry

at least the most desirable broadcast signals in digital form in order to please their

subscribers.

CEA agrees that current market forces appear to be pushing cable operators to

carry growing numbers of broadcast channels digitally, including high definition and

to a lesser extent, multicast standard definition broadcasts. However, this voluntary

transition is not comprehensive, will not achieve a simultaneous nationwide digital

conversion on cable, and will confuse consumers about the timing and availability

of digital TV. Moreover, market forces can change rapidly in our industry, and there

is no guarantee that cable operators will continue to support digital carriage even

to the extent they do today.

CEA therefore endorses the Media Bureau’s approach as we currently understand

it, but with modifications to ensure that it achieves both of the equally vital goals

of recovering broadcast spectrum and completing the digital transition for the benefit of all consumers. Specifically, we recommend the following:

1. Down Conversion Deadline: Cable and DBS operators should be required to

transmit all broadcasters’ DTV signals digitally (i.e., rather than sending only a

version that is down converted at the head-end) by January 2009. This will ensure

that consumers with DTV sets will have access to digital signals. By 2009, cable operators will have had ample time to deploy digital-to-analog converters to customers

with analog sets. Cable digital-to analog converters should be available in large volumes at low cost by that date. Most major cable systems will be almost completely

digital by this time, given that more than 30 percent of cable customers are already

subscribed to digital cable. In addition to carrying all DTV broadcast content

digitally, cable operators, of course, may also choose to transmit the down converted

version of the signal as well.

2. No Cable Encryption: When cable operators carry broadcast signals digitally,

the broadcast signals must remain unencrypted. This will ensure that subscribers

who have a digital receiver can receive broadcast digital TV without a cable operator-provided set top box or Cable CARD and with no extra fees, as is the case today

for analog cable-ready TV.

3. No Material Degradation: The FCC should require that when cable operators

are carrying broadcast signals digitally, they cannot reduce the sound or picture

quality. All of the broadcast signal’s program-related bits should be carried. In other

words, if a broadcaster is making the investment to provide HDTV programming

and Dolby Digital surround sound, then that is what the cable viewer should see

and hear.

4. Carriage of All Free Bits: We endorse the FCC’s proposal that, when cable

operators are carrying the broadcast signals digitally, they must carry all the free

broadcast streams, including multicast channels. It is essential that broadcaster

program-related data, such as V-Chip, closed captioning, and program system information protocol (PSIP) information also be passed on to the television. Broadcasters’

47

pay services need not be carried, consistent with the statutory exemption to mustcarry that exempts ancillary or supplementary services.

5. Full Power Broadcasting: To ensure the public continues to have robust access to digital broadcast TV comparable to its access to analog broadcasts, the FCC

should require all broadcasters to be on their permanent digital channels and

digitally transmit at their full authorized power by January 1, 2006. While many

DTV stations claim to be replicating their analog broadcast service area, according

to FCC data, only 477 of the 1362 commercial broadcast stations are actually delivering a full power DTV signal. The result is that spectrum continues to be unused

and yet, because it is reserved for incumbent broadcasters, others are blocked from

providing DTV to unserved consumers. A full-power requirement ensures that all

consumers who currently can receive an analog signal over-the-air can obtain a digital tuner and receive a digital signal over-the-air. This is particularly important as

DTV manufacturers move ahead with the implementation of the FCC’s over-the-air

tuner requirement.

6. Ensure that All Parties Rely on the Plug-and-Play Standards: Since most

consumers are cable customers, they are motivated to buy DTV products in large

part by their ability to receive digital cable programming. For this reason digital

cable plug-and-play compatibility is critically important to the digital transition.

Our industry negotiated a set of ‘‘one way’’ digital plug-and-play standards and

licensing terms with the cable industry, and the FCC has implemented regulations

based on this agreement. Our two industries are now negotiating to add compatibility in cable systems and consumer products for two-way interactive services.

We appreciate the encouragement of this Committee, and of the FCC, in that next

important step to expanding digital cable-ready access by consumers. By the way,

this step and future enhancements—as cable systems continue to develop their services and their infrastructures and operations—will require completion of the ‘‘twoway’’ CableCARD (now under development through CableLabs). This must be a

‘‘multi-stream’’ CableCARD which will permit multiple cable services to operate simultaneously on a DTV or computer or other cable-ready digital product. This kind

of flexibility is part of what the digital revolution is all about; and consumers want

and deserve a choice of such fully digital cable-ready products both from their cable

operator and from independent retailers and manufacturers.

However, unless the cable operators also rely on the use of CableCARD in all the

equipment they acquire and provide or lease to their customers, consumers will

never be sure that retail products will work on cable systems as well as the cable

operators’ equipment. CEA therefore recommends that the FCC maintain, if not

move forward, its current requirement that cable operators also rely exclusively on

CableCARDs in their new equipment starting July 1, 2006. Indeed, in whatever new

equipment they provide to consumers after that date—whether themselves directly

or through retail or other channels—cable operators themselves should rely solely

on techniques that are made available simultaneously to competitive entrants. The

FCC set this requirement in its rules in 1998. Despite having provided cable operators five years to plan and implement, the Commission last year slipped the deadline another eighteen months, to July 1, 2006. There must be no more delay. Common reliance by all parties on common technical requirements is the only way to

fulfill Congress’ direction to ensure a competitive retail market in cable equipment.

It is the only way that consumers will see the benefit of this competition, in the

choice, variety, and cost of the equipment they wish to attach to their local cable

system.

With these modifications, we believe that the Media Bureau’s plan will successfully hasten the return of the analog spectrum and ensure that all Americans receive the full benefits of the transition to digital television.

We must also deal with the fact that, under the Congressional 85 percent test,

TV households that rely solely on over-the-air broadcasts will someday have to purchase a new set or a digital-to-analog converter box when the analog spectrum is

returned. We applaud the FCC’s recent announcement of a study on how best to

ensure that consumers who depend on over-the-air broadcasting and cannot convert

to digital on their own for financial reasons are not stranded when analog broadcasts are turned off. For example, one option could be a tax credit or subsidy for

the purchase of a digital-to-analog converter box.

One way to estimate the worst-case number of viewers who may require assistance is to consider the number of households who receive assistance with telephone

service. In May 2002, FCC data showed that approximately 7.7 million households,

or 7 percent, received either LifeLine or Linkup assistance. Of course, by 2008-09,

the prices of simple digital-to-analog converters will be very affordable for most

Americans.

48

Congress and the FCC Can Take Additional Actions to Spur the DTV Transition

In addition to the actions recommended in the Media Bureau Plan, there are

other things that can be done by Congress and the FCC to move the DTV transition

forward.

For example, CEA endorses and urges Congress to act on the proposal allowing

satellite providers to carry distant network HDTV signals in areas where local

broadcasters are not providing them. Congress can do this simply by broadening the

SHVIA definition of ‘‘unserved household’’ to include these viewers.

This ‘‘digital white area’’ proposal would provide an incentive for the purchase of

DTV sets, and would give broadcasters a strong incentive to get on the air with a

full-power HDTV signal. As I noted previously, less than half of the nation’s commercial broadcasters are currently providing a digital signal at full power. Viewers

should not be deprived of the extraordinary HDTV experience simply because the

local broadcaster is not yet offering the service, or offering it only to a reduced service area.

Finally, a successful transition will require Congress and the FCC to safeguard

consumers’ customary viewing, recording, and time shifting rights in the digital age.

CEA recognizes the right of the content industry to protect its intellectual property

from commercial piracy, and our industry has developed a number of effective copy

protection technologies for this purpose.

At the same time, it will be difficult to convince Americans to invest in DTV if

they must forfeit their reasonable viewing and recording rights as the price of moving form the analog to the digital age.

For example, there now are proposals before the FCC that would allow cable operators, at the behest of Hollywood to unilaterally ‘‘downres’’ or remove three quarters

of the pixel resolution from HDTV programming. Hollywood also is seeking permission to invoke ‘‘selectable output control’’ to unilaterally turn off outputs into consumers’ DTV sets.

Both of these measures are promoted as combating pirates, but primarily punish

law-abiding consumers. Needless to say, Americans will not be eager to purchase

HDTV if they understand that their viewing privileges can be revoked unilaterally,

by a third party, through no fault of the consumer. We call on the FCC to reject

these proposals.

While these ‘‘white area’’ and digital rights management issues are not the primary focus of this hearing, they significantly impact the pace at which Americans

will invest in DTV, and the speed at which broadcasters will be able to return their

spectrum to the government. We welcome the Subcommittee’s focus on these issues

as its agenda allows.

Conclusion

Speaking personally, I have been fortunate enough to be an early adopter of DTV.

For years I have watched eagerly as more compelling content has become available

over broadcast, satellite and cable. Now, along with millions of Americans, I enjoy

everything from ‘‘CSI’’ to the ‘‘Sopranos’’ to the ‘‘NBA Playoffs,’’ all in brilliant high

definition.

All of us should be gratified to know that, within a few short years, most American households will be sharing this extraordinary DTV experience.

I believe the American viewing public should join me in thanking this Subcommittee for its longstanding focus on the DTV transition as a national priority.

This Subcommittee can be proud that HDTV is well on its way to being a fixture

in the American living room.

In closing, CEA will continue our unprecedented efforts to educate consumers and

retailers about digital television. I pledge CEA’s continuing commitment to working

with you, the FCC and other stakeholders to ensure a speedy and consumer friendly

transition, and a prompt return of the analog broadcast spectrum.

Mr. UPTON. Thank you.

Ms. Tristani.

STATEMENT OF GLORIA TRISTANI

Ms. TRISTANI. Mr. Chairman and members of the committee,

thank you for the opportunity to testify on behalf of the Public Interest, Public Airwaves Coalition and the Children’s Media Policy

Coalition. I am the managing director of the Office of Communication of the United Church of Christ, Inc. I am also a former FCC

49

commissioner. Throughout the years, the Office of Communication

has advocated for those historically excluded from the media, especially women and people of color. We are a member of the Public

Interest, Public Airwaves Coalition, an alliance that is urging the

FCC and Congress to take advantage of the transition to digital to

reestablish meaningful public interest obligations for America’s television broadcasters. I am also testifying on behalf of the Children’s Media Policy Coalition which seeks to improve the media environment for our children and is urging the FCC to ensure that

broadcasters meet their public interest obligations to children in

the digital age. What we would like to highlight today is what is

missing from the Ferree plan, and that is any discussion of the

public interest. While broadcasters stand ready and eager to reap

the benefits of the digital largesse and the FCC appears ready and

eager to speed up the digital transition, the public interest has

been woefully neglected.

It has been almost 4 years and I know, because I was there,

since the FCC initiated proceedings asking how the public interest

should be served by digital television, but the FCC has yet to act.

Both our coalitions believe it is imperative that the FCC reestablish meaningful public interest obligations now and before it

reaches any decision on must carry or on any Ferree-type plan. It

makes no sense to talk about the potential consumer benefits of

digital television or of achieving a full transition before reestablishing the public interest obligations, whether it is enhanced children’s educational programming, serving Americans with disabilities, programming for underserved communities or enhanced opportunities for civic and electoral discourse. The public interest coalition has asked the FCC to adopt a processing guideline for expedited license renewal. The proposal focuses on a core component of

the public interest, that broadcasters provide opportunities for citizens to become informed about local civic affairs and elections.

A Lear Center study showed that 56 percent of local newscasts

that aired in the weeks leading up to the 2002 elections contained

no mention of any campaign. And a 2003 Alliance For Better Campaigns analysis of seven media markets found that in a typical

week, just .4 percent of television was devoted to local public affairs. Our proposal seeks to ensure that broadcasters air a minimum of 3 hours per week of local, civic or electoral affairs on the

most-watched channel; and in the 6 weeks prior to the election, 2

of the 3 hours per week must be devoted to electoral affairs. The

proposal includes language to ensure access for independently produced programming and we also support enhanced disclosure and

reporting requirements.

The Children’s Coalition has recommended that broadcasters

provide educational and informational programming in the digital

age, that the FCC prohibit commercial Web sites from being embedded in children’s programming and that datacasting technology

is used to help parents make informed decisions about the programs their children watch. The current requirement that broadcasters air 3 hours of children’s educational programming per week

should translate into a digital children’s programming requirement

of 3 percent of the total number of hours broadcast over digital

streams. Datacasting technologies would be used to provide parents

50

with ratings information throughout the length of a program. We

also ask that the FCC mandate an open V-chip system.

We are also concerned about the potential harms from advertisers’ use of interactive technology that is targeting children.

Many companies are already using a new type of marketing, known

as advergaming, which encourages children to play Internet games

and permit advertisers to monitor players without their knowledge.

The Children’s Online Privacy and Protection Act should be incorporated into the digital transition. Congress and the courts have

repeatedly recognized that among the media, broadcasting is

unique. Broadcasters are the trustees of the publish airwaves and

they have a statutory and fiduciary responsibility to serve the public interest. They now stand ready to reap enormous profits from

the digital spectrum they have been gifted and this is a critical opportunity to reestablish meaningful public interest obligations and

to ensure that the public does not miss out on the unique benefits

of the digital age. Thank you, Mr. Chairman.

[the prepared statement of Gloria Tristani follows:]

PREPARED STATEMENT OF GLORIA TRISTANI, MANAGING DIRECTOR, OFFICE OF

COMMUNICATION OF THE UNITED CHURCH OF CHRIST, INC.

As Thomas Jefferson put it long ago: ‘‘I know of no safe depository of the ultimate

power of the society but the people themselves. And if we think them not enlightened enough to exercise their control with a wholesome discretion, the remedy is

not to take it from them, but to inform their discretion.’’

Good morning. Thank you for the opportunity to testify today on behalf of the

Public Airwaves, Public Interest Coalition and the Children’s Media Policy Coalition

at the Subcommittee’s hearing entitled ‘‘Advancing the DTV Transition, An Examination of the FCC’s Media Bureau Proposal.’’

I am Gloria Tristani, Managing Director of the Office of Communication of the

United Church of Christ. The United Church of Christ is a mainline Protestant denomination of 1.4 million members in more than 6,000 churches, 30 colleges and institutions of higher education, 15 seminaries and more than 340 health and human

service centers in every state and in Puerto Rico. I am also a former Federal Communications Commissioner, and served from November 3, 1997 to September 7,

2001.

The Office of Communication (OC, Inc.) advocates for the public interest in media

and communications before the courts and the FCC. Throughout the years OC., Inc.

has advocated for those historically excluded from the media, especially women and

people of color, for equal employment opportunity rules in broadcasting and cable,

for minimum hours of children’s educational and informational programming and

for other public interest obligations.

OC, Inc. is a member of the Public Interest, Public Airwaves Coalition. (List of

Public Interest Coalition members attached as Exhibit 1). This Coalition, an alliance

of public interest groups, media activists and grassroots organizations, is urging the

Federal

Communications Commission (FCC) and the Congress to take advantage of the

transition to digital to reestablish meaningful public interest obligations for America’s television broadcasters.

I am also testifying on behalf of the Children’s Media Policy Coalition and as a

Board member of Children Now, itself a member of the Children’s Coalition. (List

of Children’s Coalition members attached as Exhibit 2). The Children’s Coalition is

dedicated to improve the media environment for children and is currently urging the

FCC to ensure that broadcasters meet their public interest obligations to children

and their families in the digital age.

THE FERREE PLAN

The Committee has asked for comment on the FCC Media Bureau’s proposal to

advance the digital transition, commonly referred to as the ‘‘Ferree’’ plan. This plan

has been floated around by the FCC, discussed by the press and interested parties,

but there is no written or definitive version publicly available. As understood, the

purpose of the Ferree plan is to speed up the digital transition and free up the valuVerDate 11-MAY-2000 12:06 Aug 30, 2004 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6621 95439.TXT HCOM1 PsN: HCOM1
51

able analog spectrum held by the broadcasters. It would do so by counting anyone

who has a DTV set, as well as those who have digital-to-analog converters and anyone with a cable or satellite set-top that can either ‘‘down covert’’ or pass-through

a broadcaster’s digital signal, towards the threshold ‘‘85% of the population who is

capable of receiving a digital signal.’’ It would also push back the conversion date

to 2009.

Many in the public interest community and the public safety community welcome

any idea that might speed up the return of the valuable analog spectrum. But many

are also concerned about the details and trade-offs that may be involved, including

potential harm to consumers that still rely exclusively on over-the-air free television

for their news, information, and entertainment.

Both coalitions that I represent today, the Public Interest, Public Airwaves Coalition and the Children’s Media Policy Coalition have not taken a position as Coalitions on the Ferree plan at this time, although many coalition members may have

specific positions. Given the fact that the Ferree plan is still fluid, it is important

that this Committee explore the answers to some of the following questions before

it passes judgment on the merits of the plan. Does the plan comply with the law

as written by Congress? Does the plan, by counting any consumer that receives

cable and/or satellite, even though the consumer may down convert to analog, comply with the intent of the statute? Do the benefits of quickly freeing up the analog

spectrum to the public safety community and consumers generally outweigh the

harms to consumers that may be left in the dark, with outdated equipment and the

need to invest in new equipment? If government mandates this sped up transition

should government and industry or both, subsidize this new transition plan? And

under any plan what provisions will be made for the consumers that rely exclusively

on over-the-air free television?

As a former FCC Commissioner that dealt with some of these issues, I know how

critical it is to get as much information and discussion as possible before making

major policy choices. And too often, the public looses out as evidenced the major consolidation that has occurred in radio and other media.

While we appreciate the efforts by the FCC to propose ideas to advance and to

address some of the mechanics of the digital transition we’d like to comment on

what has been missing from this picture. And, that is, any discussion of the public

interest in the digital age.

THE PUBLIC INTEREST

The public interest is the foundation of broadcasting as we know it and Congress

has repeatedly directed the FCC to ensure that the public interest is served. With

the Children’s Television Act, Congress of 1990 directed the FCC to ensure that children receive specifically-designed educational and informational programming under

the current single analog channel. In the Telecommunications Act of 1996, Congress

required that the FCC ensure that broadcasters fulfill obligations in the public interest.

In December 1999, the FCC initiated various proceedings dealing with the public

interest in the digital age—a Notice of Inquiry on the Public Interest Obligations

generally, a Notice of Proposed Rulemaking on the Children’s Public Interest Obligations and a Notice of Proposed Rulemaking on Disclosure. Almost four years later,

the FCC has yet to act on any of these proceedings and to ensure that the American

public—children, families and citizens—will meaningfully benefit from the digital

transition. Yet, at the same time, the television industry stands ready and eager to

use the government giveaway involving billion of dollars worth of digital broadcasting capacity.

Both the Public Interest and Children’s Coalitions believe that it is imperative

that the FCC clearly define broadcasters’ public interest obligations now and before

the FCC reaches any decision on broadcasters’ demands that it compel local cable

operators to carry not just one, but all their digital program channels.

While both Coalitions would like to see a successful transition to digital, it is imperative that the FCC first clearly define the broadcaster’s public interest obligations so that the public knows what it is getting for its benefits. Both Coalitions

have advocated for meaningful public interest obligations and have presented specific proposals and/or recommendations to the FCC on what the public interest

should entail in the digital age. The Public Interest Coalition has also presented a

specific proposal to improve broadcaster disclosure and reporting. Following is a

brief discussion of the Public Interest, Public Airwaves Coalition ‘‘processing guideline’’ proposal; and the Children’s Media Policy Coalition’s recommendations.

52

THE PUBLIC INTEREST, PUBLIC AIRWAVES COALITION PROPOSAL

The Congress and the courts have repeatedly recognized that among the media

broadcasting is unique. Under the current statutory regime broadcasters are the

trustees of the public airwaves, and they have a statutory and fiduciary responsibility to serve the public interest. The Public Interest, Public Airwaves Coalition

sees the digital transition—the moment when broadcasters stand poised to reap

enormous profits from multicasting—as the critical opportunity to reestablish meaningful public interest obligations. The Coalition recognizes the television industry

has changed significantly over the last twenty years. The Coalition also recognizes

that the public interest is broad and requires that broadcasters air programming

that serves the educational needs of children, Americans with Disabilities (i.e.,

closed captioning, video description, digital features that would provide for more access), underserved communities, and generally promote local and community programming and a diversity of viewpoints and voices.

The Public Interest Coalition has focused on the core component of the public interest requirement—that broadcasters provide opportunities for citizens to become

informed about local civic affairs and elections. Our proposal (attached as Exhibit

3) is in the form of a ‘‘processing guideline’’ to allow for expedited license renewal.

The proposal seeks to ensure that broadcasters air a minimum of three (3) hours

per week of local civic or electoral affairs programming on the most watched channel

they operate, and also contains provisions addressing additional free over-the-air

programming streams. The proposal requires that at least 50 percent of the local

civil and electoral programming on the most watched channel be aired between 5:00

pm and 11:35 pm. And during the six (6) weeks prior to a general election, at least

two hours of the three hour minimum shall be local electoral affairs programming,

aired between the hours of 5:00 pm and 11:35 pm.

Broadcasters may counter that they are already providing ample programming

covering local civic and electoral affairs. Yet study after study shows that local civic

and electoral affairs programming is woefully inadequate. According to a Lear Center study 56% of local newscasts that aired in the six weeks leading up to the 2002

midterm elections contained no mention of any campaign. What little coverage there

was mostly focused on strategy and polls. And less than one quarter of all stories

examined candidate issue positions. (See Broadcaster Public Interest Obligations:

Local, Civic and Independently Produced Programming, Background Material List

attached as Exhibit 4).

An October 2003 Alliance for Better Campaign analysis of seven media markets

found that, in a typical week, just 0.4 percent of television programming was devoted to local public affairs. This compared with 14.4 percent in paid programming

(home shopping or infomercials), 9.9 percent in reality or game shows, and 7.9 percent in sporting events. Also, most of the local public affairs programming aired on

weekend mornings, not at times when the greatest number of people are watching

television. (See Alliance for Better Campaigns website at www.ourairwaves.org).

The proposal includes language to ensure access for independently produced programming. A licensee that is an affiliate of a national television network (ABC,

CBS, NBC, FOX, UPN and WB) must air independently produced programming for

at least 25 percent of the primary channel’s prime time schedule.

The proposal is crafted to balance the First Amendment rights of broadcasters

and the First Amendment rights of the viewers, and allows broadcasters to retain

editorial control while ensuring that the public receives a reasonable minimum of

local civic and electoral discourse.

Nonetheless, broadcasters may counter that this proposal is unconstitutional and

infringes on their First Amendment rights. More than 70 years of legislation, regulation and court rulings argue against this. In the landmark court ruling, Red Lion

v. FCC, 395 U.S. 367 (1969) (which was favorably cited in McConnell v. FEC, No.

Slip Op. No. 02-1674 (Dec. 10,2003)), the Supreme Court held than when the government regulates access to the spectrum it must balance the First Amendment

rights of broadcasters against the rights of the public, and that when these rights

come into conflict, the rights of the public are ‘‘paramount.’’

CHILDREN’S MEDIA POLICY COALITION RECOMMENDATIONS

The Children’s Media Coalition, which is comprised of eight (8) children and children related advocacy groups, sees the digital transition as an opportunity to improve the media environment for children and to protect against any potential harm

to children from the new and ever expanding digital interactive technologies. The

Children’s Media Coalition has made specific recommendations to the FCC including

the following; 1) that broadcasters be required to provide educational/informational

(E/I) programming in the digital age; 2) that it prohibit commercial web sites from

53

being embedded in children’s programming; and 3) that datacasting technology be

used to help parents make informed decisions about the programs their children

watch, including using datacasting to provide parents with ratings information

throughout the length of any given program and to help find educational programming. (See Children Now Spring 2004 Newsletter on Digital Television available at

www.childrennow.org).

Despite the amount of time children spend watching television, they still have

limited options for educational programming. Numerous research studies show that

exposure to educational television has positive effects on the social, intellectual and

educational development of young children.

In the current world, broadcasters are required to air three (3) hours of educational/informational (E/I) programming per week between the hours of 7:00 am

and 10:00 pm as part of their station licensing renewal guidelines. This amounts

to about three (3) percent of their total broadcasting. In the digital world, broadcasters will have the potential to multicast up to six (6) channel streams which

should translate into a minimum digital children’s hour requirement of three (3)

percent of the time broadcast over all a broadcasters channel streams. This proportional rule would offer a minimum guarantee of programming for children, while at

the same time giving broadcasters the flexibility to determine how to meet their

educational programming obligation.

Already advertisers are trying new ways to reach consumers including using

interactive advertising technologies to target children. Young children, however, inherently lack the reasoning ability to understand that advertising may be biased

and exaggerated. The vulnerability of children to commercial persuasion, coupled

with innovations by advertisers to reach child consumers, raise serious concerns

about the marketing methods that may be employed on digital television.

Advertisers are using interactive media, specifically the Internet, to entice child

customers. Many companies are using a new type of marketing, known as

‘‘advergaming,’’ which encourages children to play Internet games. Advergames are

often found on Web sites of popular products or video games. Some advergames permit advertisers to monitor players without their knowledge, providing advertisers

information about the length of time child consumers are online and what choices

they make while playing.

Advocates are concerned that this new technology will be used to track the viewing habits and interest of viewers without their knowledge or consent. In an interactive television environment, advertisers will be able to target children according

to their gender, age, household income and/or race, tracking the history of their individual viewing habits.

The FCC should prohibit commercial web site links from being embedded in children’s programming. To further protect children, The Children’s Online Privacy and

Protection Act should be incorporated into the digital television transition.

One of the potential benefits of the digital television is that it could be used to

better inform parents about programs their children watch. The TV ratings system

have had limited success in helping parents control their children’s viewing habits

because often parents do not understand how it works. With datacasting technology,

a program’s rating could be shown throughout the length of a program.

The FCC should require that datacasting be used to provide parents with ratings

and other useful information to help parents guide their children’s television viewing. The FCC should also mandate an ‘‘open V-chip system, which would allow a

broader range of ratings to be supported by digital television sets. An ‘‘open’’ system

could help parents proactively find educational programming.

IN CONCLUSION

Before the FCC makes any new decisions on the digital transition, whether it is

the adoption of a Ferree type proposal or the carriage rights of digital broadcasters,

it must clearly define the public interest obligations of broadcasters in the digital

age. The public deserves to know what benefits it will get from the digital largesse

that has been gifted to the broadcasters.

That benefit should include reasonable minimums of local civic and electoral discourse as described in the Public Interest Proposal; and for children, commensurate

amounts of educational and informational programming, a prohibition of commercial

website links embedded in children’s programming and incorporation of children’s

privacy protections, and, the use of datacasting to provide enhanced and better information for parents about programs their children watch.

The public should not miss out on this unique opportunity to benefit from the new

digital age.

Mr. UPTON. Thank you.

54

Mr. Lenard.

STATEMENT OF THOMAS M. LENARD

Mr. LENARD. Thank you, Mr. Chairman and members of the subcommittee. I am vice president for research at the Progress & Freedom Foundation. PFF is a market-oriented think tank that studies

the digital revolution and its implications for public policy. I appreciate this opportunity to testify on the DTV transition, which I believe is one of the most important communications policy issues we

face today. In my opinion, the transition to DTV has foundered on

the shoals of a policy that is at odds with the reality of where the

market is going.

Namely, we are embarked on a prescribed course premised on a

transition to free over-the-air broadcast DTV when, in fact, only

about 10 percent of the viewing population receives its television

that way and that percentage is declining over time. As a result,

the transition has stalled and something is needed to get it moving

again, which is why the new ideas emanating from the FCC are

very encouraging. The government, by necessity, has an integral

role in the DTV transition because of its role as the manager of the

radio spectrum.

Indeed, in my view, the government’s primary goal should be to

free up the very valuable chunk of spectrum currently allocated to

broadcast television because delay in freeing up the spectrum

means delay in making new wireless services available to consumers. There are significant benefits in making that happen sooner rather than later. The current deadline for the end of the transition when the broadcasters are supposed to relinquish their analog

spectrum, the end of December 2006, is not a meaningful deadline.

Nobody believes it will happen because it is conditional on 85

percent of the households in any market being able to receive digital broadcasts and the way this condition is now interpreted, cable

and satellite don’t count toward the 85 percent. This, as I indicated, flies in the face of reality because almost 90 percent of

households subscribe to an MVPD, 75 percent to cable and almost

22 percent to DBS. As FCC Chairman Powell has noted, ‘‘It seems

clear to me that at some point on the horizon, all Americans, perhaps in 10 years, will have pay TV.’’ By that time a significant portion of Americans may also be getting their TV over the Internet,

a technology that was in its infancy when the DTV transition plans

were being developed. As Chairman Powell has also noted, ‘‘If 100

percent of Americans don’t get free over-the-air TV, what are we

protecting?’’

Moreover, in the past 10 years, most MVPD has become digital.

The cable industry has been investing heavily in its facilities and

digital cable service is now available to almost all cable subscribers. The agreement on the new plug-and-play standard between manufacturers of digital television sets and the cable systems will also help to speed this transition along. Direct broadcast

satellite which barely existed 10 years ago is all digital. Currently

the two major DBS providers, DirecTV and Echostar, both offer

HDTV services in packages.

For its part, the FCC staff is proposing a way to move the process forward by establishing a new deadline of January 1, 2009 for

55

the end of the transition at which time the broadcasters would return their analog spectrum. To make this happen, the FCC has devised a plan that would count cable and satellite subscribers toward the 85 percent threshold and combined with other initiatives

this would help assure that the 85 percent threshold is met and

thereby free up the 108 megahertz of analog spectrum that the

broadcasters have been scheduled to return in 2006. Freeing up the

analog spectrum will produce public safety benefits, tens of billions

of dollars for the Treasury, and when benefits for consumers are

included, probably hundreds of billions in total economic benefits,

benefits that will accrue to consumers from all the new wireless

services that would be available.

I would commend the FCC staff for trying to tackle this very difficult problem but while a firm 2009 deadline is better than a deadline nobody believes will be met it is still quite a long way off. The

dominant priority, as I said, for policymakers in the transition,

should be to free up as much of the spectrum allocated to broadcast

TV as possible as soon as possible.

Finally, in this Internet age, it is not too early to start thinking

about freeing up all of the spectrum allocated to broadcast because

it may not be long before virtually all Americans will get their TV

from another source. When that day comes, as Chairman Powell

has said, ‘‘What are we protecting?’’ thank you.

[The prepared statement of Thomas M. Lenard follows:]

PREPARED STATEMENT OF THOMAS M. LENARD, SENIOR FELLOW AND VICE PRESIDENT

FOR RESEARCH, THE PROGRESS & FREEDOM FOUNDATION

Mr. Chairman and members of the Subcommittee, my name is Thomas Lenard

and I am senior fellow and vice president for research at The Progress & Freedom

Foundation. PFF is a market-oriented think tank that studies the digital revolution

and its implications for public policy. I appreciate this opportunity to testify on the

DTV transition, which I believe is one of the most important communications policy

issues we face today.

INTRODUCTION

DTV offers a number of advantages, including the ability to provide better-quality

pictures, a greater array of programming, and new services, such as interactive TV.

But the transition has foundered on the shoals of a government policy that is at

odds with the reality of where the market is going. Specifically, we are embarked

on a government-prescribed course premised on a transition to free over-the-air

broadcast DTV when, in fact, only about 10 percent of the viewing population receives its television this way, and that percentage is declining over time.

As a result, the transition has stalled, and something is needed to get it moving

again—which is why the new ideas emanating from the FCC are very encouraging.

Hopefully, the FCC media staff proposals signal the beginning of a broader discussion that will lead to greater certainty and completion of the transition (however

that is defined) in a timely manner. The current policy has large costs because it

involves tying up large blocks of spectrum that have valuable alternative uses—especially now, when demand for the airwaves for innovative new wireless communications technologies is exploding.

Even at its simplest, the transition to DTV is a classic ‘‘chicken-and-egg’’ problem

characteristic of many network industries. In the early stages of the transition, program producers and broadcasters have a limited incentive to provide digital programming because very few consumers have DTV receivers. Consumers, on the

other hand, have little interest in purchasing such receivers because there is limited

digital programming available, all of it is available in analog format anyway, and

because digital receivers (especially at the beginning) are very expensive. Nevertheless, successful transitions to new superior formats in network industries are frequently made. The transitions from long-playing records to CDs and from VHS

tapes to DVDs are two recent examples.

56

1See Federal Communications Commission Report and Order In the Matter of Reallocation

and Service Rules for the 698-746 MHz Spectrum Band (Television Channels 52-59), GN Docket

No. 01-74, released January 18, 2002; and ‘‘Completing the Transition to Digital Television,’’

Congressional Budget Office, September 1999. 2 CRS Report for Congress, Lennard G. Kruger, ‘‘Digital Television: An Overview,’’ Updated

April 23, 2004.

Left to its own devices, the market could be expected to make a successful transition in the case of DTV as well, but probably a transition to digital subscription

TV—cable and satellite—rather than over-the-air broadcast TV. However, the federal government is by necessity integrally involved, because of its role as the manager of the radio spectrum, and because each of the program delivery media—broadcast, cable and satellite TV—is affected in significant ways by a range of government policies.

The government’s primary goal should be to free up the very valuable chunk of

spectrum currently allocated to broadcast television, because, under current law, the

normal market mechanisms for that spectrum to find its way to higher-valued uses

are not available. Because delay in freeing up the spectrum means delay in making

new wireless services available to consumers, there are significant benefits in making this happen sooner rather than later.

THE CURRENT DTV TRANSITION FRAMEWORK

The basic framework for transitioning to DTV was established in the Telecommunications Act of 1996 and the Balanced Budget Act of 1997. The 1996 Telecommunications Act directed the FCC to give each analog television licensee an additional digital channel free of charge to provide over-the-air digital broadcasting.

Each broadcast station now is licensed to use 6 MHz of spectrum for analog and

an additional 6 MHz for digital broadcasting so that, during the transition, broadcasters can broadcast on both channels simultaneously.

The 1997 Balanced Budget Act (BBA) established December 31, 2006 as the conditional deadline for the end of the transition. After the transition is complete, the

broadcasters are supposed to relinquish their analog spectrum, which can then be

used by the government for public safety or auctioned to the private sector for other

uses. The initial FCC plan (from the early 1990s) was to release 138 MHz (out of

402 MHz dedicated to television broadcasting), with the remainder continuing to be

allocated to television after the transition. The FCC subsequently reduced this to

114 MHz, with 24 MHz allocated to public safety uses (in response to a BBA directive), and then further to 108MHz.1

The 2006 date for relinquishing the spectrum is subject to three statutory conditions:

1. All of the licensees or affiliates of the four largest networks are broadcasting a

DTV signal.

2. Digital-to-analog converter technology is generally available (so that individuals

with analog TVs can still use them).

3. 85 percent of households in any market are capable of receiving digital broadcasts. To be counted, a household needs to be able to receive over-the-air digital

signals using a digital TV set or a digital-to-analog converter, or subscribe to

a multichannel video programming distributor (MVPD, such as cable or satellite) that carries at least one digital programming channel of each broadcaster

in the market.

Finally, the FCC has established timetables to speed up the transition: a schedule

for stations receiving DTV licenses to build out DTV facilities, with all commercial

stations required to broadcast digital signals by May 1, 2002; and a schedule for

manufacturers to include over-the-air tuners that receive digital broadcast signals,

with all sets over 13 inches required to include the tuners by July 1, 2007.

HOW FAR HAS THE TRANSITION PROGRESSED?

If the goal is to meet the statutory conditions (specified above) for freeing up the

spectrum, it is safe to say we are not close. While the first two conditions are not

likely to present a problem, there is no market in which the third condition—85 percent of households capable of receiving digital broadcasts—is close to being satisfied.

Indeed, the FCC has yet to precisely define what a market is for purposes of meeting this condition.

Whatever the definition, only about 8 to 9 percent of U.S. households have DTVs

(mostly monitors) and about 1 percent have the ability to receive digital over-theair signals.2 Moreover, in order for cable and satellite to be counted in the 85 percent they must carry at least one digital channel for every broadcaster, which they

57

3See Summary of DTV Applications Filed and DTV Build Out Status, May 26, 2004, http:/

/www.fcc.gov/mb/video/files/dtvsum.html 4Federal Communications Commission, Annual Assessment of the Status of Competition in

the Market for the Delivery of Video Programming, released January 28, 2004 (FCC 2003 Report). 5 ‘‘FCC’s Powell Sees Big Change in Broadcast Environment,’’ Communications Daily, October

23, 2001, pp. 1-2. 6Ted Hearn, ‘‘Could TV Stations Lose Their Spectrum,’’ MultiChannel News, June 18, 2001,

p. 56. 7FCC 2003 Report, p. 32.

8FCC 2003 Report, p. 35.

9FCC 2003 Report, p. 33.

10FCC 2003 Report, p. 54.

don’t do now, and probably won’t in the future, because of capacity constraints and

because some of the programming is of limited value to their customers. If MVPD

viewers are not counted the third condition, in effect, means that 85 percent of the

viewers in any market must be capable of receiving over-the-air digital broadcasts.

This, in turn, means that consumers would have to buy potentially expensive overthe-air receivers for the third condition to be satisfied. These receivers would have

virtually no utility for cable subscribers and would be useful for satellite subscribers

only in selected areas where satellite may not carry the local signals.

With respect to DTV build-out status, 1,642 stations (97 percent) have been granted a DTV construction permit or license.3 Of these, 642 are authorized to be on the

air with licensed facilities, implying that the remaining 1000 have not met the 2002

conversion deadline. Of the 1000, 781 stations are operating with ‘‘special or experimental’’ authority and the remaining 219 are presumably not on the air at all.

The problem is that the federal government’s plan to transition to over-the-air

DTV flies in the face of reality, because almost 90 percent of households subscribe

to a MVPD—75 percent to cable and almost 22 percent to DBS.4 The remaining 10

percent—households that presumably place a fairly low value on TV viewing—will

move more slowly, but many of them eventually will get there. As FCC Chairman

Powell has noted, ‘‘[I]t seems clear to me that at some point on the horizon, all

Americans—perhaps in 10 years—will have pay-TV. As an entity, [over-the-air TV

broadcasting] may and probably will be there but as a program supplying interest

more than a distribution platform.’’ 5 By that time, a significant portion of Americans may be getting their TV over the Internet, a technology that was in its infancy

when the DTV transition plans were being developed. As Powell has also noted, ‘‘If

100 percent of Americans don’t get free, over-the-air TV, what are we protecting?’’ 6

Moreover, in the past 10 years, most MVPD has become digital. The cable industry has been investing heavily in its facilities. Digital cable service is available to

90 percent of subscribers and, as of June 2003, there were more than 20 million

subscribers.7 In addition, over 60 million households are passed by cable systems

offering HDTV.8 Agreement on a new ‘‘plug and play’’ standard between manufacturers of digital television sets and cable systems will help speed the transition to

digital cable.9

DBS, which barely existed 10 years ago, is all-digital. Currently, the two major

DBS providers, DirecTV and EchoStar, both offer HDTV services and packages.

EchoStar has recently introduced a new satellite dish with which subscribers can

receive up to 50 HD channels.10

THE FCC MEDIA STAFF PROPOSAL

If 90 percent of Americans are getting their TV from a subscription service, why

do we have a national strategy to transition to over-the-air DTV—especially since

that strategy has associated with it very large costs?

The FCC staff is proposing a way to move the process forward. As I understand

the proposal, it would establish a new deadline of January 1, 2009 for the end of

the transition, at which time broadcasters would return their analog spectrum. To

make this happen, the FCC would require that broadcasters, if they want to assert

their ‘‘must carry’’ rights, do so with a digital rather than an analog feed. The cable

operators would then convert the digital signals to analog for viewers who don’t

have a digital TV. These subscribers would all count as being able to receive digital

broadcasts. Combined with other initiatives, this would help assure that the 85-percent threshold is met and thereby free up the 108 MHz of analog spectrum that the

broadcasters have been scheduled to return in 2006.

Other initiatives should include the ‘‘digital white area’’ proposal currently under

consideration as part of the reauthorization of the Satellite Home Viewer Improvement Act (SHVIA). This provision would extend the distant signal retransmission

provision of SHVIA to include distant digital signals. Measures like this, which inVerDate 11-MAY-2000 12:06 Aug 30, 2004 Jkt 000000 PO 00000 Frm 00061 Fmt 6633 Sfmt 6621 95439.TXT HCOM1 PsN: HCOM1
58

11See discussion in Thomas M. Lenard, ‘‘Accelerating the Transition to Digital TV: The Satellite Home Viewer Improvement Act Can Help,’’ The Progress & Freedom Foundation, Progress

on Point 11.4 (February 2004). 12These numbers are very large, but note that they represent discounted present values, not

annual figures. A 2002 paper by Thomas Hazlett estimates that the market value of the 402

MHz of TV band spectrum is between $52 billion and $470 billion and suggests that the annual

consumer surplus would be in the same range. See Thomas W. Hazlett, ‘‘The U.S. Digital TV

Transition: Time to Toss the Negroponte Switch,’’ Manhattan Institute, revised, December 26,

2002. More recently, Hazlett has estimated the social gains from productive use of 100 MHz

of TV band spectrum at about $1 trillion and of 400 MHz at about twice that amount. Another

estimate, based on recent auctions for 3G spectrum in both the U.S. and Europe, puts the market value of the TV spectrum as high as $367 billion. See Tom Wolzein, ‘‘Whose Bandwidth is

it Anyway?’’ Speech, National Association of Broadcasters Futures Summit, Bernstein Research,

April 2001, referenced in Michael Calabrese, ‘‘Battle Over the Airwaves, Principles for Spectrum

Policy Reform,’’ New America Foundation, October 2001, p. 4.

crease the demand for subscription TV and for digital TVs, make a lot of sense, especially in the context of the overall DTV transition and the need to free up the

broadcast spectrum.11

THE VALUE OF THE SPECTRUM

Freeing up the analog spectrum will produce public safety benefits, tens of billions

for the Treasury and, when benefits for consumers are included, probably hundreds

of billions in total economic benefits—benefits that will accrue to consumers from

all the new services that would be available.

We should not, however, limit ourselves to thinking about the 108 MHz of analog

spectrum, because we are very close to moving the nation the rest of the way from

its current approximately 90-percent subscription viewership to 100-percent, and TV

over the Internet may be just over the horizon. All this raises the prospect of being

able to reclaim the entire 402 MHz allocated to broadcast TV and auction it off for

other, higher-valued uses. The value of this spectrum in terms of innovative new

services would be some multiple of the value of the analog spectrum—probably well

over a trillion dollars.12

CONCLUSION

In conclusion, I would commend the FCC staff for trying to tackle this very difficult problem. But, while a firm 2009 deadline is better than a deadline nobody believes will be met, it is still quite a long way off. The dominant priority for policy

makers in the transition to DTV should be to free up as much of the spectrum allocated to broadcast TV as possible as soon as possible.

In this Internet age, it is not too early to start thinking about freeing up all of

the spectrum allocated to broadcast, because it may not be long before virtually all

Americans will get their TV from another source. When that day comes, as Chairman Powell has said, ‘‘what are we protecting?’’

Mr. UPTON. Right on the nose. Thank you all. I will start with

the questions. Mr. Ferree, in Mr. Fritts’ testimony, he said that the

NAB further suggests that it, ‘‘makes no sense to think that Congress intended that the 85 percent threshold could be crossed

through a combination of cable and satellite subscribers and that

nothing in the legislative history contemplates calculating the

bench mark in such a way and that Congress and the Commission

should recognize the bureau’s proposal for what it is, a last minute

artificial maneuver.’’ How do you respond to that claim?

Mr. FERREE. I have a lot of responses, Mr. Chairman. It is not

a last-minute, artificial proposal. It is a timely attempt at interpreting the must carry statute and the digital conversion statute

in a way that makes sense and will not leave consumers stranded

without their televisions. These are must-carry stations we are

talking about. The only way they will be carried on a cable system

is if the government mandates that they be carried. These are not

retransmission consent stations which are negotiating their carriage. So at some point in time, if we are to ever have their digital

signals carried on cable systems, the government is going to have

59

to say, ‘‘Cable systems, you must carry these digital signals.’’ At

that point you have an option. If you are going to try dual carriage,

which again we think is unconstitutional, the cable system would

be required to carry both. Putting aside dual carriage then, you

have a choice. Either the cable system is going to downconvert that

signal so that all consumers continue to see the same programming

they have always seen or they carry it in digital, which is fine, but

that means that all of those analog subscribers will no longer see

the programming.

As a Bureau looking after the public interest, we opted for the

former and said these signals should be downconverted, these must

carry signals, so that all consumers continue to see them. That

then meets the first prong of the statutory 85 percent test which

is the carriage by a cable system of all the digital signals.

Mr. UPTON. How do you respond, then, to the degradation of the

broadcaster’s signal by being converted from digital to analog? I

think just about everyone would admit that, in fact, it does degrade

the picture.

Mr. FERREE. Yes, that’s right.

Mr. UPTON. What is your response to that?

Mr. FERREE. The first part of the response is that this is only a

transitional mechanism. It is only during the transition which, in

effect, can be for zero time because the broadcasters will know that

come January 1, 2009, this switch in the must-carry right is going

to happen, so they can turn in their analog license at the same moment and then immediately it becomes their decision to have their

signal downgraded or not.

In this sense, we are very pro-choice in the Bureau and it is the

broadcaster’s choice, nobody else’s. Not the cable system’s, not

CEA’s, not the Bureau’s. It is their signal. It is their choice. If they

want it carried in full digital splendor, it is up to them, but they

will recognize at that point that they may lose some of the analog

subscribers on the cable system unless of course the cable system

voluntarily carries it in analog, too, which they may.

Mr. UPTON. Mr. Fritts? What is your response to that?

Mr. FRITTS. One, I don’t think we need to wait till 2009 to start

the transition. I think Ranking Member Markey talked about starting in 1987 in this very room. I happened to be here along with

others when that occurred. I think we are in a transition. If you

look at it this way, the transition began and we are here, and the

end of the transition is there. The FCC has proposed rules that

take place in 2009, ostensibly at the end of the transition. The

question is what happens to consumers between now and then?

Our plan where a broadcaster would be allowed to choose either

digital carriage or analog carriage on the cable system, not both

but one or the other, would, in fact, and indeed, expedite this transition.

Mr. UPTON. Mr. Shapiro, what is your comment?

Mr. SHAPIRO. I think the plan is actually quite creative because

actually it gives broadcasters an opportunity to compete with cable

and promote over-the-air broadcasting. We have been working for

several years to promote the concept of people actually buying antennas and getting the free over-the-air signal. We are a little bit

uncomfortable with the fact that you are taking an HDTV signal

60

and making it analog on cable, but every subscriber will have the

opportunity for a couple of bucks to put up an antenna and get a

beautiful HDTV signal and broadcasters will promote that naturally in a free market under the plan.

Mr. UPTON. Mr. Sachs?

Mr. SACHS. I think that the picture being painted is somewhat

unrealistic. What the bureau plan takes account of is that at the

end of 2008, there will be 30 million cable homes that are still analog cable subscribers and even in the homes of digital cable subscribers, there will be additional TV sets, third or fourth sets that

may be in a den or a child’s room that are analog TV sets. The

Kagan Research figures showed that there will be approximately

100 million such analog sets in cable homes as of the end of 2008.

That is, with 60 percent digital cable penetration. So what the bureau plan, as we understand it is attempting to do is to assure that

those consumers are still going to be able to watch broadcast television on those sets if the cable operator is able to downconvert

that signal at the cable system head end.

This does not mean that HD broadcast signals are not going to

be carried as well on cable systems. Today market forces are at

play here. We are competing vigorously with satellite and approximately 400 digital broadcast stations, most of whom are doing HD,

are being carried on cable systems in addition to the broadcaster’s

analog system pursuant to voluntary agreements.

Mr. UPTON. My time has expired. Mr. Gonzalez is recognized for

5 plus a 3-minute bonus, 8 minutes.

Mr. GONZALEZ. I will try not to take it all. Thank you very much,

Mr. Chairman. Not to make it real complicated, of course, I guess

the whole game is getting to 85 and deciding that we may just simply enlarge the pool definition and rather than aspire to having the

consumer having HD-ready TV, just basically put it on someone

else’s responsibility, so that if they don’t have it they still get the

HD signal. I think the most telling testimony today is the reality

of the consumer. None of us would be able to go back to our districts if we mandated that the consumer had to have an HDTV set,

otherwise they wouldn’t receive certain programming or whatever.

It is never going to happen. To even entertain that and—I don’t

know. We attempted to do it, I guess. I wasn’t on this committee,

I wasn’t even in Congress, but obviously all efforts have fallen

short. Manufacturers weren’t required obviously in any new set

being built to have that capability. I don’t know what happened

along that line. But the thing is we are facing that—the reality of

it today is we are still going to have millions of homes that are not

going to be capable of receiving that type of HD signal. I guess

what the bureau is proposing makes sense. When it comes to the

different stakeholders, I understand that they have business considerations. But can we start off with the basic proposition that

even in 2009 or 2010, and I was looking at the numbers, in 2008—

I think this was the testimony of Mr. Sachs—that 55 percent of the

TVs that are in households would be HD capable, whatever it is.

That is still 45 percent. Does anyone have any idea when we finally

will reach a point where it will be such an insignificant number of

consumers that have the old sets? I just don’t see that day coming

61

anytime soon, so we do have to move forward and being realistic.

I will ask Mr. Shapiro.

Mr. SHAPIRO. Congressman Gonzalez, actually we have some

marketplace projections based on the sales. Keep in mind that

there will be plenty of TV sets out there which are not HDTV, but

there is a requirement now legally that every TV set sold with an

analog tuner will have a digital tuner. The FCC has required it,

it is phased in over time, so a consumer really will not have a

choice. Also the cable ready sets will have over-the-air tuners so it

will evolve over time. Yes, there may be some concern that some

of the sets in the future, the analog sets, will not get an over-theair signal that is digital, but there will be inexpensive converter

boxes, plus those sets will be usable for a variety of functions as

they are today, whether it is for video games or playing things with

a video camera or so many other things that TVs are used for. TVs

are no longer just—in fact, the minority of the use is for over-theair broadcast signals.

Mr. GONZALEZ. Which goes back to what is going to happen with

Internet and everything else, and I guess we will cross that bridge

later. But the point being, every Sunday I love looking through the

electronic advertisements because we all dream—what we dream

about are basically these monitors that we have here. Until they

get down to where they are reasonably priced other than at about

$100 per inch, some of us will not have them. What they are not

telling you, the majority of the televisions that I see in any of these

ads really aren’t HD. They may say that they are compatible or

they are, and that is, on the very high end, and I realize that we

have something that is marginalizing over time, depending on the

size of the screen and so on, but can you tell me with any real definiteness, when are we going to reach a point when there is only

5 percent or whatever? We are not.

In the meantime, we have to take care of that consumer. I know

that the cost that is being incurred by broadcasters and such is

enormous, and I don’t know if this is really counterproductive to

getting to where we want to, but the bottom line is we want to free

up the spectrum, we don’t want to deprive the consumer of the

service in the product and which is the best way to do it.

I understand that in today’s testimony, we are probably not

touching on some of the economic considerations faced by the different stakeholders. That will await a different discussion and

probably a meeting in the office. Again, thank you very much for

your testimony. Unless there is anyone that wants to respond to

anything that I have said.

Mr. FERREE. Congressman, can I just make one comment about

that? I think you hit the nail on the head in the sense that if we

wait for 85 percent of consumers to have digital equipment in their

homes, we could well be waiting to 2050 or beyond to recover this

spectrum, and even then it is likely it is only one TV in the home.

The rest of those TVs that may be hooked up to cable or satellite

systems may well be the old analog TVs. Again, if we want most

people to feel nothing on the transition day, not even to know a

transition occurred, the only way to do that is to have

downconversion for those TVs.

Mr. GONZALEZ. Yes, Mr. Fritts.

62

Mr. FRITTS. Mr. Gonzalez, just to follow up on what you said, you

hit the nail on the head. This is all about consumers, no question

about it, and how do we take care of the consumers? In a way,

broadcasters and Members of Congress have the same constituents.

Our viewers are your constituents. Our goal is not to disenfranchise any of these viewers and, if so, a very minimal number of

them. We are concerned that this plan which goes up until 2009

and makes a flash cut. In fairness, we commend the Media Bureau

for thinking creatively and we obviously have some ideas that could

enhance that. But I would suggest that this plan is about cable.

In 1992, the Congress looked at this and said we are not going

to meet our mandated objectives unless we impose upon the cable

industry a thing called must carry. That has worked well. The

same arguments that we heard in 1990 and 1991 about not having

capacity and about imposition and about first amendment rights

were upheld by the Supreme Court, I might add. I am suggesting

now that you give the broadcaster, or you encourage the FCC, either way, to give the broadcaster the right to choose either carriage

of the digital signal, or of the analog signal on the cable system,

not both. If you would do that, then we can expedite this transition,

and 2009 in my view will be a victory day as opposed to a day of

angst and problems.

Mr. FERREE. Unless NAB has changed their proposal, what they

submitted to us was that there would be this either/or election

until January 2007 at which point unless the cable systems had

converted to all digital, they were demanding dual carriage at that

point. Maybe I should let Mr. Sachs comment on this, but I suspect

there will be very few, if any, cable systems all digital in January

2007.

Mr. GONZALEZ. Mr. Sachs?

Mr. SACHS. Congressman Gonzalez, what you have heard from

my friend, Mr. Fritts, is essentially a recycled version of the broadcast industry’s dual must-carry plan. This is something that the

FCC tentatively concluded 3 years ago was unconstitutional. Cable

operators are carrying in every market the television signal of the

local broadcast station either pursuant to must carry or retransmission consent. In a number of markets, cable operators are also

carrying the digital version as well as the analog version of the

broadcast station because the broadcaster is offering something additional of value to consumers.

In most instances, that is high definition television. That is what

is going to cause consumers to go out and purchase an HD-ready

TV set, not simply a standard definition digital duplicate of the

programming in analog that the cable system is already carrying.

Mr. GONZALEZ. Thank you very much. My time is about up.

Mr. UPTON. Mr. Barton.

Chairman BARTON. Thank you, Mr. Chairman. Mr. Ferree, does

the FCC have any estimates of how much the value of the spectrum will be that would be freed up when we get to the digital

transition, what the value of that is?

Mr. FERREE. Congressman, I don’t know that there is any definitive estimate of that. We certainly don’t have an official Commission estimate, but I have heard numbers in the multiple tens of billions of dollars and I have no reason to question those. I would add

63

that the great benefit may not come just from the auction revenues, but in terms of the ongoing benefits to the economy, of new

jobs through the new services provided to consumers that will be

developed in that spectrum.

Chairman BARTON. I don’t want to hold you to—I am just asking

for a ballpark number. Is there anybody on the panel that disputes

that ballpark number, tens of billions? That is close enough for this

subcommittee hearing. If you gentlemen were up here on the podium given the fact that we have got a commodity here, the public

airwaves, that is worth a lot of money, should we try to expedite

the transition or should we try to restrain the transition?

Mr. FRITTS. I would move that you expedite the transition.

Mr. FERREE. Here, here. I agree with Mr. Fritts.

Chairman BARTON. I especially appreciate Mr. Fritts saying that

because he represents a group that has a valuable commodity right

now and not all of his members but some of his members might

wish to retain that.

Mr. FRITTS. Mr. Chairman, you know that we have agreed to return one-third of the spectrum and to use new technology to skinny

down, if you will, the amount of spectrum that television uses and

to return that to the government. I think the question at hand is

how do we best get to that point without disenfranchising consumers. That is what we are saying. It is going to take a mix of

the cable industry, the broadcast industry, the satellite industry

and all of us working together. This committee has brought us together from time to time and has——

Chairman BARTON. Today is one of those times.

Mr. FRITTS. Today is one of those times. Let me say this. Unequivocally broadcasters want to end this transition quickly. We

are currently running two transmitter systems, two television stations. We are paying the power companies an enormous amount of

money to broadcast two signals when we know that one signal

would satisfy the concerns.

Chairman BARTON. We want to help you do that. Let’s stipulate

that everybody at the table is a white hat person. You are all wearing white hats, you are all good guys and girls. Woman. Lady. Let’s

get it right. My last question is, given that we are talking about

a transition and human nature being what it is, there are going to

be some people in this country that never want to pay the money

to upgrade to high definition television. I am probably one of those

people.

Mr. UPTON. Do you have a TV, Mr. Chairman?

Chairman BARTON. As Mr. Gonzalez said, when the price gets

down to where guys like me can actually afford those high definition TV sets or somebody wants to give me one legally as a Christmas present, then we will be okay. Why shouldn’t this committee

in the next Congress, if not this Congress, just say we are going

to uphold the 2006 deadline and set up some sort of a fund to pay

for the converter boxes for low-income citizens that can’t afford

them? Why shouldn’t we just do that and just short-circuit this debate about a transition that might drag out to 2009 or some further

date? Why don’t we just do that? Anybody.

Mr. SHAPIRO. Mr. Chairman, that is an option that has been successfully deployed in Berlin as they were the first city to make a

64

full transition to digital. On behalf of the consumer electronics industry, I guess that is an option. We are uncomfortable in asking

the government to pay for consumers to buy their products.

Chairman BARTON. I know, but that is our job. We can have that

debate. We have got a broad, diverse panel here of Members. We

have got folks that represent high-income constituencies and lowincome constituencies and middle-income constituencies. That will

be a real debate. I am not saying that is trivial. If we debate the

exact best time and place to do a transition, it is possible we will

be having that debate 30 years from now.

On the other hand, the Act says to December 31, 2006, or, if we

can find a consensus, we can just say it is going to be December

31, 2006 and then how to help pay for those citizens that can’t pay

themselves for the converter boxes if they choose not to actually

have an HDTV set. My time has expired. I will take this answer.

Mr. FERREE. Just very briefly. Even were you to do that, we

would still have this issue of how that signal is carried on the cable

system and would the broadcaster have a right to have its digital

signal carried digitally which might be an answer. But you have to

recognize again that means all of the analog subscribers are not

going to see the programming and are probably not going to be too

happy at that point.

Mr. FRITTS. You could downconvert at the box as opposed to the

head end, however.

Mr. FERREE. If the cable system were all digital.

Chairman BARTON. That is an important debate, but that is a

secondary debate to when we do it. The primary is when we do it

and how we do it. First you decide when to do it, then you decide

how to do it and then we want equity. We want all the players at

this table, the satellite people, the cable people, the broadcast people, the equipment people, to be fairly treated. I think this committee has got the ability to do that. I would yield back to the

chairman.

Mr. UPTON. Mr. Towns.

Mr. TOWNS. Thank you very much, Mr. Chairman. Mr. Ferree,

let me ask you, have you done any projections on what it would

cost to help consumers get a converter which would enable the analog television to receive a digital signal or even have you thought

about it?

Mr. FERREE. Yes, Mr. Congressman, we have thought about it.

In fact, we have issued a public notice seeking comment and information about how to make this transition smooth for analog overthe-air viewers including what to do with the kind of converter

equipment you are talking about. At this point, I have had informal

discussions with some of Mr. Shapiro’s constituents and have been

told that if they were to mass produce D-to-A converters today,

they would be in the ballpark of $100 apiece. By 2009, I have been

told that number probably would be half that, maybe in the $50

range. But actually, I probably should let Mr. Shapiro answer that

question.

Mr. TOWNS. Mr. Shapiro, if we expedite it in terms of increased

the amount, what would it cost?

Mr. SHAPIRO. I think Mr. Ferree’s numbers are probably close.

We will be responding to that inquiry and gathering actual data

65

from manufacturers. But there are licensing fees. That is an issue.

There is the issue of producing it today is fairly expensive, they are

a few hundred dollars apiece, but with manufacturer efficiencies, if

you are talking about orders of more than a million or so, the costs

come down considerably. But there is still a base cost there. It is

the same type of thing with the DTV tuner itself, the over-the-air

tuner. It is an expensive proposition today because of patent royalties and because of the cost of manufacturing, it is added to the

price at the low end of TV sets. But over time, that price will come

down considerably with mass production.

Mr. TOWNS. When you say ‘‘considerably,’’ would that be like

half?

Mr. SHAPIRO. At some point, half. It is just a question of when.

Mr. TOWNS. Thank you very much.

Mr. Sachs, your testimony highlighted that Time Warner has entered into agreements with the major broadcast networks to carry

high definition programming and that regional sports networks like

Madison Square Garden Network, also in New York, offer high definition programming. There is nothing in this proposal that would

impede these agreements from continuing and furthering the digital transition, is that not correct?

Mr. SACHS. You are absolutely correct. Time Warner is not alone.

In the New York market, Cablevision is currently carrying 14 HD

channels including the major broadcasters in that market. Comcast

here in the DC metro area is carrying 11 HD channels, including

five local broadcast stations in HD. These are not mutually exclusive propositions that the bureau has put forward.

Mr. TOWNS. Mr. Chairman, I yield back.

Mr. UPTON. Thank you.

Mr. Buyer.

Mr. BUYER. First of all, I would like to recognize the contributions of Chairman Powell. I think he has done a pretty good job

working this issue. I would take special notice of the letter he used

to respond to a letter I sent, and also then the public notice that

the Bureau had sent on their comment period on over-the-air

broadcast television viewers. Mr. Ferree, thanks for your good

work. I think this is very timely to help identify who these people

are out there. I note that bringing the DTV transition to completion as quickly as possible was and is one of Chairman Powell’s

strongest priorities.

I recognize he formed the digital television task force shortly

after he became chairman. He helped coordinate and prioritize the

Commission’s efforts related to DTV transition. He has been leaning on industry to come up with some workable solutions in the

private sector rather than turning to government. The Commission

adopted the digital tuner mandate. They adopted rules to enable

the production of the cable plug-and-play digital television sets.

They approved the broadcast flag system to protect digital television broadcast content from mass piracy over the Internet. The

Commission also enacted a clear set of graduated penalties for

broadcast stations that fail to meet the digital buildout deadlines.

Please take it back.

I recognize the chairman and his good work and those of you who

are working on this. I think there is a real test of our wise tolerVerDate 11-MAY-2000 12:06 Aug 30, 2004 Jkt 000000 PO 00000 Frm 00069 Fmt 6633 Sfmt 6602 95439.TXT HCOM1 PsN: HCOM1
66

ance. On that, I have some specific questions. We can talk about

different alternatives out there, whether the government subsidizes

or tax credits or whatever. I just have to come right at you, Mr.

Shapiro, and ask you, under the Media Bureau plan, it appears

that all analog TVs will virtually go dark in a little over 4 years.

So my question is, when is your industry going to stop making

these analog television sets? We don’t want you to continue making

these television sets if you want government to somehow participate in a subsidized process.

Mr. SHAPIRO. We still make black and white sets because consumers demand them. There are price points for everything. Those

sets have value. They have value as security systems. They have

value in so many different areas. Our industry responds to marketplace demand. Those TV sets, the analog sets, are available for a

very, very low price, and they serve needs of lower income Americans and other Americans as well.

As I said earlier, most TV sets are not used to get an over-theair signal. Indeed with converter boxes, low-cost converter boxes, it

may be a smart economic choice for someone to buy a large analog

set and even use a converter box to get a digital signal. I would

not suggest making those sets or any other types of product illegal

because I think the American consumer is the one that should

make that decision. Certainly, though, there is a phenomenal demand for HDTV and digital products. This is a marketplace which

is growing extraordinarily rapidly. Americans have decided with

their pocketbook that they want these products. They are buying

them in record numbers.

It is a phenomenal adoption curve. They have already invested $10 million in these products and they keep investing. It is just

going to go up radically. With the FCC various plans, I think that

has enhanced it. With the work of Congress, I think it has enhanced it. I think we are on the right track. I think there is very

little doom and gloom here. We have a success story on our hands.

It is just a question of when and how we declare victory, and we

are almost there.

Mr. BUYER. Your comment on doom and gloom, the reason I

smiled is the only time I sometimes hear this, I am walking down

the mall, I have got your consumers who are my constituents complaining about the televisions they just purchased at a particular—

I don’t want to start naming names, but they’ll say, when I walked

into this place, you should have seen what this set looked like and

the picture and the quality and they told me all the things it was

going to do. When I took it home and plugged it in, they said it

was supposed to be cable ready and it was supposed to do all kinds

of certain things and my picture is not the same as it was back at

X where I bought it. I just want to say that there is an education

phaseout there that is very poor. Would you concur?

Mr. SHAPIRO. I agree that consumers and retailers and even the

cable industry as do manufacturers have to step up more. That is

why we have consumer pamphlets, we have a Web site where a

consumer can go and find out the type of correct antenna they

could use to get the best signal. We have done retailer training in

every major portion of the country with every major retailer, every

major buying group. We are doing everything we can to ease the

67

transition. The fact is it is in our financial interest to do so. We

will sell more, and Americans believe they have a constitutional

right to return the products if they don’t work.

So they will return them if they don’t like them. That is a huge

cost for the retailer and for the manufacturer. What we are focusing on, I think, as a committee to avoid that problem is this great

cable ready deal that we have cut with the cable industry. We are

about to produce several hundred thousand, if not millions of cable

ready sets. They require the cable industry to provide cable cards

at a very reasonable or low cost. We are a little bit concerned because the initial reports we are hearing is they may be discouraging, they are charging the same as a converter box. At least some

cables companies have said that. If you want good cable-ready sets,

it is a two-way system that requires the cable companies and the

manufacturers and also the retailer to explain it well.

Mr. BUYER. I have to get into a hypothetical. Mr. Ferree, how

quickly would it be to reclaim the spectrum and end the transition

if cable companies carried all the broadcast digital signals tomorrow?

Mr. FERREE. If cable companies carried all of the digital broadcast signals as of December 31, 2006, the first prong of the 85 percent test statute would be met and the transition would end.

Broadcasters would not get extensions and they would have to turn

in their analog licenses at that point.

Mr. BUYER. How does the Media Bureau plan deal with the 80

or so million sets out there today in June 2004 that rely solely on

an over-the-air analog signal?

Mr. FERREE. Those are the true analog over-the-air sets. Many

of those are third and fourth sets in homes and those are the ones

that we are seeking comment on in our public notice about what

to do with those sets. The statute is set up to work such that there

will be some sets left over at the end of the transition that tune

only to analog signals.

Presumably they are going to have to get D-to-A converters for

those. Then we get back to the earlier question about what a Dto-A converter will cost. One of the reasons we initially pushed this

plan out to 2009 is because with our mandated tuner requirement

that Mr. Shapiro referred to, that is the same technology that goes

into the D-to-A converter boxes. We are essentially making them

mass produce these things now and the benefits of that mass production will drive the costs of the D-to-A converters down so that

by 2009 again, we believe they will be very reasonably priced, probably in the $50 range, maybe less.

Mr. BUYER. Another question. Why not just require cable carriage for a transitional period of both analog and digital signals?

Second, is that a proper way to get to 85 percent by dealing with

today and not in 2009 the 70 percent of households served by

cable?

Mr. FERREE. Firstly, if you did the dual carriage, you would have

the same problem. You would trigger the transition essentially so

you would still have that 15 percent test and the 80 million sets

and all of that and then you would just run into the constitutional

question. Based on the record in our proceeding, I am absolutely

convinced that that would be struck down and perhaps the entire

68

must carry regime would be struck down as unconstitutional as a

result.

Mr. FRITTS. In fairness, in the 1992 Cable Act, the same things

were said. It went to the Supreme Court and it passed clearance

at the Supreme Court. I am not so quick to prejudge that. If the

goal for this committee and indeed this Congress is to resolve the

transition, to return the spectrum, to auction it for the government

use, then I would be investigating the ways to end the transition

most quickly including, if indeed it needed to be, the must-carry regime.

Mr. SACHS. If I could comment on that, the 1992 Act pertained

to the carriage of a single broadcast channel per station, not two

versions of it for every station. We agree with the FCC’s preliminary conclusions here, that that would be unconstitutional, but

there is a larger issue here. The cable industry has just invested

$85 billion or about $1,200 per customer, essentially to create 200

megahertz of digital spectrum which is used for high definition television, for high speed Internet, for cable telephony, for video on

demand and a host of services. If Congress or the FCC were to

mandate a double dose of must-carry, it would be at the expense

of new and innovative programming and other services. We have

not created unlimited bandwidth and until our systems can reclaim

their analog bandwidth, we are going to have to look for the highest and best use of that limited digital capacity.

Mr. FRITTS. If I may follow up, Mr. Chairman, one of the issues,

of course, is that the cable industry will benefit from the return of

the analog spectrum. It will free up spectrum on the cable systems

that Mr. Sachs talked about and consequently there is a benefit,

I think, for the government and for the cable industry for broadcasters returning and ending the analog era. I, again, would underscore the idea that broadcasting wants to end this transition as

quickly as possible, and I would encourage this committee to explore every possible option toward moving this transition to a conclusion.

Mr. UPTON. Mr. Engel.

Mr. ENGEL. Thank you, Mr. Chairman. I want to first, before I

ask a question, say that Chairman Barton had mentioned the possibility of the government just making the purchases and us looking into that. I would really like to second that. I think that is

something that we should consider. I am not saying we should do

it, but I certainly think that it is something that we really need

to look at. I just want to say that. Mr. Fritts, I have some questions

about New York’s broadcasters. As you know, the Freedom Tower

is about to be built. They are breaking ground, I think, on July 4

at the site of the World Trade Center. Do you know how many plan

to use the Freedom Tower for the digital transmitters and what

would happen in New York in 2009 if the Freedom Tower is not

yet built already?

Mr. FRITTS. It is my understanding, Congressman Engel, that

virtually all of the New York television sets would like to use the

Freedom Tower. I guess if it is not concluded by 2009, that they

will need to find alternative sites or will upgrade the sites that

they are currently broadcasting from.

69

Mr. ENGEL. Thank you. In looking at your testimony, you spoke

at some length about Mr. Ferree’s plan and your trepidation about

multiplying the number of consumers who will lose access to local

broadcasting. Losing local service has always been a concern of

mine. I wonder if you would care to expound on that. I know you

said quite a bit in your testimony.

Mr. FRITTS. I think this is all about consumers. This is about

disenfranchising consumers. Mr. Sachs’ companies are going to continue with the cable systems being strong and healthy. Mr. Shapiro’s companies are going to enjoy the largest transference of electronic wealth in modern history. Broadcasters have made the investment. There is no new revenue stream for broadcasters attached to digital. It is quite frankly an opportunity for us to be digital—were we to continue to be analog in a digital world, we would

be out of play basically because computers, cable and everyone else

is moving in that direction.

Again, I just want to underscore the idea that, one, broadcasters

are living up to our responsibility in this area and that we encourage this committee to move forward. If it requires legislation, so be

it. If it requires government intervention with the FCC, so be it.

It is time to move this forward. In 1992 we heard the same arguments, it was unconstitutional, we don’t have space, it is a problem. But you know what, it worked. And this will work also.

Mr. ENGEL. Thank you. Mr. Sachs, would you be opposed to the

Federal Government using a portion of the money it realizes from

auctioning off spectrum to purchase, especially for low-income and

senior citizens, converter boxes to help finish or expedite the transition to digital?

Mr. SACHS. We would not be opposed to that at all. But I should

point out that the cable industry has not sought or received any

government subsidies as we have undertaken our own digital transition. So I don’t want my response to you to be interpreted as

cable seeking government subsidies. I think you are talking about

the end users and people who meet some sort of needs test. I think

that may well be an important component of completing the digital

transition.

Mr. ENGEL. Thank you. In your testimony, you mentioned that

Michael Wilner, who is the president and CEO of Insight Communications, testified about 2 years ago before our committee about

the transition from analog to digital and talked a lot about cable

embracing digital technology. You mentioned how the industry is

committed to help expedite this transition. I am wondering, you

said it in your testimony, if you would care to tell us a little more

about what the industry has been doing.

Mr. SACHS. Sure. At that time, the only carriage of high definition, for instance, on cable systems was anecdotal, so we have gone

from a handful of markets to more than 150 markets in the country. At that point in time, essentially two cable networks, HBO and

Showtime, had a large portion of their schedules in HD. Today, 15

different cable networks are offering high definition programming,

most of them full-time or near full-time. So there has been a tremendous amount of progress, not to mention the landmark agreement that our industry reached with the consumer electronics industry for plug-and-play digital TV sets.

70

Mr. ENGEL. Thank you. Mr. Shapiro, I think you sort of answered this, but I would like to give you a chance to respond about

what CEA’s position would be if the Federal Government decided

to assist low-income and senior citizens who would rely on free

over-the-air TV in purchasing converter boxes. I would like to also

ask you how much would a converter box cost now and what would

be the expected cost in 2009?

Mr. SHAPIRO. The cost now is about $200 to $400 a converter

box. It is a range. If there is sufficient demand, it should be able

to get under $100. That is millions of units being produced in the

next several years. Those are ballpark estimates obviously. As you

know, the consumer electronics business is phenomenally competitive, and if there is a way of getting the cost down, it will. Indeed,

part of the success story of HDTV is that prices have dropped anywhere between 10 and 25 percent a year for all the products as

they have gotten better, which is the history of consumer electronics. In terms of your first question, which was about——

Mr. ENGEL. Whether you would support the government, the

Federal Government, if we decided to assist low-income and senior

citizens.

Mr. SHAPIRO. That is a tough one for us. The Clinton administration dropped a trial balloon on that several years ago early on

when we were talking about the transition and we resisted it. We

really are uncomfortable asking the Federal Government to subsidize a product that is purchased by consumers. But on the other

hand, we recognize the value of speeding this transition along. I

think we have to—we will be responding to the FCC notice on that

and we will be looking at what other countries have done. In Berlin, it wasn’t as big a deal as everyone thought it would be to take

that approach, and I think that is going to be very instructive as

we keep studying what others have done.

Mr. ENGEL. Thank you. Thank you, Mr. Chairman.

Mr. UPTON. Thank you. Mr. Bass.

Mr. BASS. Thank you, Mr. Chairman. Mr. Shapiro, $200 to $400

for a converter box. Is that what they cost in Berlin?

Mr. SHAPIRO. The difference between us and Europe is the U.S.

took an approach on HDTV, which, I think, is the world’s best approach. In Japan, they went to an analog system and they had to

change it. In Europe, they haven’t gone to HDTV yet. They just

have a digital system. If you talk to the people there, they are very

envious of the way we are doing it here.

Mr. BASS. These converter boxes are for high definition? How

much does a converter box cost for analog to digital?

Mr. SHAPIRO. For analog to digital?

Mr. BASS. I mean digital to analog. Excuse me. The other way

around.

Mr. SHAPIRO. I would have to get back to you for the record on

what it is.

Mr. BASS. But it is more like 15, 20. I mean, $200 is the cost of

a whole television.

Mr. SHAPIRO. The actual, what it takes to capture a digital signal, millions of bits of information per second and convert that to

analog is a very expensive process. It is a real miracle what occurs

in the TV set. These are no longer dumb monitors. They are actuVerDate 11-MAY-2000 12:06 Aug 30, 2004 Jkt 000000 PO 00000 Frm 00074 Fmt 6633 Sfmt 6602 95439.TXT HCOM1 PsN: HCOM1
71

ally computers and it takes a lot to make it work certainly. But

there is such competition out there with 80 different manufacturers, I guarantee you they are fighting to get the price down. No one

has ever accused us of raising our prices ever in the history of consumer electronics.

Mr. BASS. Returning to Mr. Barton’s comments earlier, the bottom line is that if overnight there were digital-to-analog converters

on the 80 million analog televisions that will exist, the issue would,

for all intents and purposes, be over. The politics would be gone.

We would be out of the picture. We have to make the policy decision in that respect. I can’t believe that in that kind of an environment, these converters would cost much at all. Does anybody have

any comment on Mr. Barton’s contention that the underlying issue

is getting analog televisions capable of receiving a digital signal?

After that, the debate has ended. Is that true?

Mr. FERREE. Congressman Bass, I have two comments. First of

all, the prices that Mr. Shapiro are quoting you is in today’s environment, which has no real consumer demand for these devices.

Nobody is running out to buy D-to-A converters today. If you are

talking about 80 million sets and purchases in those multiple millions of ranges, I am sure the price will be considerably lower than

that and again we will wait to hear from CEA in our docket on

that. The other comment I have is again, we can’t confuse the overthe-air transition with the cable transition. Even once you shut off

the over-the-air analog signal, there is still this issue of how are

you going to take care of the analog cable subscribers. Are you

going to allow cable systems to downconvert so those people continue to see the programming, or are you not?

Mr. BASS. Analog cable subscribers. Mr. Sachs, can you comment

on that. I don’t understand it.

Mr. SACHS. Sure. Our industry serves approximately 70 million

cable customers. Of those 70 million, about 30 percent are digital.

So in addition to taking——

Mr. BASS. Meaning they have a digital set?

Mr. SACHS. No, meaning that they have a digital converter box.

Some small percentage may own a digital television or an HDready digital television, but they have a digital converter box which

enables them to receive additional channels of programming on the

digital tier and still use an analog TV set. Our industry is working

with manufacturers to try to drive the price of digital-to-analog

equipment below $50. But it is a work in progress, and the price

range quoted today is accurate. My understanding in Berlin is that

the boxes, the box cost was an average of about 175 euros.

Mr. BASS. Mr. Ferree, I notice that Mr. Shapiro made a series

of recommendations to your group. Have you given any thought to

Mr. Shapiro’s suggestions to your plan?

Mr. FERREE. Yes, Congressman. The only suggestion he had with

respect to this particular plan had to do with mandatory digital

carriage in 2009. Again, that is a policy decision that has to be

made recognizing that if the government says mandatory digital

carriage, that will mean millions of people with analog TVs hooked

up to their cable system will lose access to their programming. We

don’t think that is a good outcome from a public policy standpoint.

The rest of Mr. Shapiro’s suggestions have to do with issues that

72

are either in other dockets teed up already or that he would like

teed up in other dockets.

We will consider them, we are considering them, and I am not

going to prejudge how the Commission would act on any of them

other than to say it will act reasonably.

Mr. SHAPIRO. Actually there are a couple of suggestions there if

you read carefully. One was about not allowing consumers to get

less than the full audio and video signal from the broadcaster

downrezzing, if you will, by the cable. That is something we are uncomfortable with. It is a concern. If a consumer buys an HDTV set,

I think Mr. Fritts referred to this earlier, they expect to get a

broadcast signal and it is not really HDTV, they may be pretty disappointed. And if they are told that Congress or the government

was the one who required that it be downrezzed, that is something

that people would probably complain to their government and to

the manufacturer and to the cable company about.

Mr. FERREE. Fair enough. I was only talking about where you

suggested changes to our plan. Our plan already includes a full

carriage requirement once it is in digital which is the thing Mr.

Sachs objects to.

Mr. BASS. I guess I have one last general question. The debate

here as has been mentioned 4 or 5 times by panelists is about consumers ultimately. Can we envision the day when consumers

would be truly able to select what they want to watch and when?

I don’t want to get into Mr. Deal’s ala carte debate here. But will

it be possible to pick stations and only the stations you want

whether local or distance, broadcast, cable or whatever?

Mr. SACHS. From a technical standpoint, that will be achievable.

There are economic issues which go to how basic advertising-supported networks exist and broadcast stations exist, for that matter.

Some companies in our industry today are offering scription video

on demand. I was in Philadelphia last week and saw where

Comcast has a couple of thousand hours of programming essentially in a library where consumers, to their digital product, can

pick and watch any of that programming at whatever time they

want and can fast forward or pause, whatever. I think we are moving toward a more personalized television environment. The issues

ultimately probably are not technical issues but they are economic

issues.

Mr. SHAPIRO. They are also legal issues. There is a great product

called the Tivo, which allows you to do that. There was another

great product called Replay which was litigated out of existence.

There is bipartisan legislation called H.R. 107, which would make

it clear that products that allow you to do just what you want like

that are legal. It is before your committee and I urge you to support it.

Mr. BASS. Thank you, Mr. Chairman.

Mr. UPTON. Mr. Boucher.

Mr. BOUCHER. Thank you very much, Mr. Chairman. I had also

intended to question these witnesses about the Berlin solution. I

am pleased that Mr. Barton opened that subject. Let me simply

note my very strong interest in finding a way to hold harmless the

owners of analog television sets when the digital transition fully occurs, whatever the date chosen for that may wind up being. I think

73

the Berlin solution offers some real guidance for this committee. I

hope that we will look at it carefully.

Let me turn to another area. I think one of the most tangible

things that the FCC has done to date in order to stimulate the digital transition has been the embodiment in a regulation or an order

of the Commission of the plug-and-play agreement that has been

achieved by the external interested parties. The purpose of that

agreement and the Commission’s order was to make sure that digital television sets are just as portable from cable system to cable

system as analog sets are today, so that you can simply plug the

coaxial line into the back of the set and plug the cable compatibility card into the front of the set. I guess that is where these

slots are going to be located. And then you have a television set

that can operate with every cable system in the country without

the need to buy a separate set top box as you go from one cable

system to the other.

While, I think, that agreement and the embodiment of it in an

order may not have achieved a lot of public notice, it was tremendously important in order to set a firm foundation for the digital

television transition. But it really only works well if the cable compatibility cards are made available on a proper schedule, if they are

made available to the consumer in a convenient way, and if they

are made available to the consumer at a minuscule cost that

doesn’t exceed the transaction cost in actually creating the card

and making it available to the consumer.

This subject was opened somewhat in previous questioning and

I know that Mr. Sachs wants an opportunity to elaborate on the

cable industry’s positions with regard to these matters. Let me ask

you, Mr. Sachs, some very precise questions. By the end of this

year, it is estimated that there will be approximately 1 million

plug-and-play capable TV sets in the market. These will have the

slots included and they are simply then ready for the cards to be

inserted. So the first question is, what assurance can you give us

that the cable industry is producing a sufficient number of cards

to have them ready for the plug-and-play capable digital TV sets

that about 1 million in number will be in the consumer market before the end of this year?

That is question No. 1. Question No. 2. If you want to take notes,

that is okay. Question No. 2, how do you intend to make these

cards available? I would suggest that the best way to do it is at

the retailer, so that when a person goes in to buy a digital TV set

as a part of the transaction, the retailer supplies that person with

the cable compatibility card for the cable system that particular

consumer will be connecting to. I guess another way to do it perhaps as a supplement to making it available at the retailer is to

have you send it by mail, maybe not you personally, but your component members could send by mail the cable compatibility card to

that cable system’s customers.

Question No. 3. At what price? I have heard a rumor. I think Mr.

Shapiro alluded to this, that some cable systems might be planning

to charge as much as the cost of a cable set top box for this cable

compatibility card. And we are looking for your assurance that no

cable system in the country will do that, and that the price of the

74

card be no more than the transaction cost to the cable industry in

preparing the card, making it available, et cetera.

So, Mr. Sachs, three questions.

Mr. SACHS. Thank you, Congressman Boucher. I should also recognize that for a very long time, you were and have been a champion of resolving the digital compatibility issues. And were very

helpful in bringing the parties together.

Question number 1, on the number of cable cards. My understanding is that we are facing a July 1 FCC deadline, by FCC rule,

that cable operators I was—at a cable ops meeting in the last couple of weeks, and cable operators have stocked up on cable cards

in anticipation of the fact that consumers are going to be purchasing these units.

These are for the one-way digital cable-ready products. There are

ongoing negotiations concerning two-way devices. Now, some of

those consumers who purchase the one-way sets may want to avail

themselves of two-way interactive cable services, in which case

they would still need a convertor box.

Mr. BOUCHER. That is understood. But can you——

Mr. SACHS. That is why each operator is anticipating their own

needs, mindful of what manufacturers have told them about what

they are planning to produce between now and year end.

And I believe our companies understand the imperative of being

able to respond and respond properly to consumer demands and

have received delivery of cards and have more on order.

Second, how cards are to be made available. Each company does

its own marketing, its own pricing. But, I would assume that these

cards will be made available from cable operators, not at retail.

The card contains the conditional access mechanism for all of the

programming offered over the cable. One of the biggest issues for

our industry, and as well as the satellite industry, has been theft

of service. So the cable operator needs to know what equipment

customers have in their home that enables the customer to receive

the cable operator’s services.

As to your question about price——

Mr. BOUCHER. Before we get to price, we would like to have—I

would like to have your assurance that it is not anticipated that

a cable company technician would have to go to the premises of the

consumer simply for the purpose of inserting this plug-and-play

cable compatibility card. So you would intend to send it by mail?

Mr. SACHS. It costs a cable operator anywhere from 35 to $55

dollar for a truck roll. So I am sure that cable operators will either

want to enable customers to stop by the office and pick it up, or

to get it to them in some other way.

Mr. BOUCHER. By mail perhaps.

Mr. SACHS. Instead of incurring that expense.

As to the price of cards, since the 1992 Cable Act, most cable

equipment, including these cards which didn’t exist at the time, but

would be used also to receive basic cable services, are subject still

to price regulation, which I believe is at cost plus, I think Congress

had set 11.25 percent markup.

So I don’t know what rumors Mr. Shapiro has heard. Most of

these TVs are not even available at retail yet. So I would assign

those to the trash pile of rumors.

75

Mr. BOUCHER. Well, thank you very much. So you would—just to

stress the last point—you would give us assurance that the industry will be making the card available at a price to the consumer

that does not exceed cost plus some small percentage mark-up?

Mr. SACHS. Whatever the—I am sure cable companies will provide the equipment within the confines of this.

Mr. UPTON. Mr. Walden.

Mr. WALDEN. Thank you very much, Mr. Chairman. Mr. Ferree,

one of the issues that I have heard from broadcasters when it

comes to getting signals, allowing distant signals into markets

where there isn’t digital penetration of adequate level, the problem

exists in some rural committees that a lot of their audience in a

market is actually served by translators. Can you update me on

where the FCC is in filling that gap so that translators can actually broadcast digitally, and when will broadcasters be able to take

advantage of that?

Mr. FERREE. Sure. Happy to do that, Congressman. We have an

ongoing proceeding now on low power TV and translator, the transition for those stations as well. We expect to resolve that this summer, hopefully at the July agenda meeting.

And in terms of the transition time for those stations, it has to

be congruent, of course, with whatever we do for the full power stations, whether this plan or something like it is adopted or not. And,

at the same time, we are trying to make it as financially

unburdensome on the translator and low power TV stations as possible. So we are balancing those concerns. But that item should be

resolved this summer.

Mr. WALDEN. But there are markets where this is a problem.

Mr. FERREE. Yes, sir.

Mr. WALDEN. Do you think that the rulemaking that you have

entered into, not this one, but the one before us today, sufficiently

provides time for that transition, given the fact that a broadcaster

couldn’t today go file an application for a translator to broadcast

digitally, I mean, and still meet the various deadlines that are out

there?

Mr. FERREE. If I understand the question, yes, I do. The timeframes we have proposed here we think are very realistic and

would result in a nationwide transition and would not lead to any

kind of burden or a hardship on the rural or small markets.

Mr. WALDEN. Would those broadcasters be able to use the same

frequency they now broadcast in, analog in, or would they have to

be assigned a new frequency for their translator, and how will that

analog-digital piece work?

Mr. FERREE. Those are issues in the proceeding as well. Whether

they can flashcut on their existing station, which some would like

to do, or whether they will be assigned a second station to make

the transition the way the full power stations have.

For that latter course, we really have to complete the first transition and recover some of those stations from the full power analog

broadcasters if we are going to be assigning second stations to the

low power ones.

Mr. WALDEN. So if I am a broadcaster in Medford, Oregon, and

I rely on translators to serve a wide part of my viewing audience,

if you do decide I have to get a second frequency, then what will

76

the time line be on application processes for those translators? Will

they be subject to auction? And how will that be handled, because

I know in the radio side, translator window open, translator window closed. It is probably many years before that happens again.

Can you give me some sort of time line there?

Mr. FERREE. I can’t give you a very precise time line. We are

aware of those concerns. I think, again, we have to balance the

hardship versus how to get them to the end of the transition. And,

you know, again if we are going to assign second frequency to those

channels, we have got to complete the first transition and do the

repacking that was referred to earlier.

Mr. WALDEN. Well, then it leads me to this issue then, on the

calls by some that say in markets where there isn’t adequate penetration you can bring in a distant network signal via another type

of carriage, cable or satellite. That doesn’t seem really fair, if, on

the other hand, you have got the broadcaster who can’t fully serve

their market digitally because they don’t have access to the translators. Am I making my point here?

Mr. FERREE. Yes, you are making your point. Was there a question for me?

Mr. WALDEN. No, I just wanted to make a point, because I think

it is a real issue in some markets around the country, where you

could get run over by the notion, if you aren’t serving an adequate

percentage of your audience, then we are going to allow other stations that are digital to come in and provide a distant signal. It

just doesn’t seem fair. That is all. They are in a bit of a catch-22.

Mr. Fritts, could you talk about what you think the response of

consumers is going to be the day they wake up and their analog

set no longer works. I have toyed with the idea of maybe the best

thing we can do if we are really bold is change the deadline to say,

oh, October 10, October 31, of an even numbered year, and then

we will measure audience reaction when the analog set no longer

works.

I wonder about this issue and where consumers are going to go.

Mr. FRITTS. Well, we share that concern obviously. And we are

hopeful that we don’t have a time when consumers wake up and

they don’t have a television set. We are hopeful that this Congress,

this committee, will lead the way in setting the parameters or setting forward the structure by which we can seamlessly move

through this transition. We have some ideas on that which we have

submitted.

But, obviously, you can’t take care of the 15 percent until you

satisfy the 85 percent. So it seems to me the largest concern of this

committee is satisfying the 85 percent. Then, I think, Mr. Shapiro

and Mr. Sachs and myself and our respective industries will find

a way to resolve that 15 percent.

Mr. WALDEN. Mr. Sachs, let me ask you, just on the cable systems. What percent of your cable systems now have the capability

to distribute their programming digitally?

Mr. SACHS. It is probably 85 to 90 percent have upgraded to digital, which means they are probably still using 550 megahertz analog and then another 200 megahertz digital.

77

Mr. WALDEN. What would the impact be if you were mandated,

like broadcasters are, to have all of your programming in digital,

if we are going to drive this fully digital?

Mr. SACHS. Well, today it would be a huge consumer impact because you would be imposing on your customers the obligation to

have a set top device for multiple TV sets in their homes. So I

think we can give you the arithmetic, but I think you are talking

$10, $20, $30 billion, that range or degree of magnitude.

Mr. WALDEN. Is that obligation not the same, though, for consumers today who receive their TV over the air, when the analog

cutoff occurs?

Mr. SACHS. No, because I think under the bureau plan, they have

proposed providing the option of converting the signal at the head

end. If we were to——

Mr. WALDEN. I am taking about over the air receivers. We have

15 percent out there that don’t get their TV via cable or satellite.

Mr. SACHS. Correct.

Mr. WALDEN. Isn’t the obligation that you would have, if you

were forced to go all digital and get rid of analog the same placed

on the consumers, that consumers have with broadcast when they

lose the analog?

Mr. SACHS. Today, broadcast-only customers would have to get

converter devices for each analog TV set that they have.

Mr. WALDEN. And in an all-digital cable environment, that would

be the same requirement? I would have to get a converter for my

analog TV?

Mr. SACHS. Some signals may be converted to analog and other—

and if the—if the cost is low enough for digital to set-top equipment, the operator may want to provide that to all of its customers.

But, we are not at those price points today.

Mr. WALDEN. I realize my time has expired, Mr. Chairman.

Thank you.

Mr. UPTON. Well, I want to thank all of you today. You answered

a lot of good questions. We have made a quite a but of progress

on this. We appreciate your time and the many hours of our roundtable discussions as well.

I would just note that I talked to former Chairman Billy Tauzin

yesterday. He is looking forward to grabbing this issue by the

horns when he returns back to Washington perhaps as early as

next week. So I look forward to his continued involvement on this

issue as well.

I would just note that we are tentatively planning another hearing, particularly as it relates to the Berlin transition probably next

month. And we will look forward to some of our input there.

We have votes now, multiple votes. So this hearing is now adjourned. Thank you very much.

[Whereupon, at 12:25 p.m., the subcommittee was adjourned.]

Æ