Testimony 

Before the Subcommittee on 

Telecommunications and the Internet, 

Committee on Energy and Commerce, 

House of Representatives 

United States Government Accountability Office

GAO

For Release on Delivery 

Expected at 10:00 a.m. EST 

Thursday, February 17, 2005 DIGITAL BROADCAST 

TELEVISION TRANSITION 

Estimated Cost of 

Supporting Set-Top Boxes 

to Help Advance the DTV 

Transition 

Statement of Mark L. Goldstein, Director 

Physical Infrastructure Issues 

GAO-05-258T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

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

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Mark L. 

Goldstein, (202) 512-2834, 

goldsteinm@gao.gov. 

Highlights of GAO-05-258T, a testimony 

before the Subcommittee on 

Telecommunications and the Internet, 

Committee on Energy and Commerce, 

House of Representatives 

February 17, 2005

DIGITAL BROADCAST TELEVISION 

TRANSITION 

Estimated Cost of Supporting Set-Top 

Boxes to Help Advance the DTV 

Transition 

The three primary means through which Americans view television signals 

are over the air, cable, and direct broadcast satellite (DBS). GAO found that 

19 percent, or roughly 21 million American households, rely exclusively on 

free over-the-air television; 57 percent, or nearly 64 million households, view 

television via a cable service; and 19 percent, or about 22 million households,

have a subscription to a direct broadcast satellite (DBS) service. On 

average, over-the-air households are more likely to have lower incomes 

compared to cable and DBS households. While 48 percent of over-the-air 

households have incomes under $30,000, roughly 29 percent of cable and 

DBS households have incomes less than that level. Also, 6 percent of overthe-air households have incomes over $100,000, while about 13 percent of 

cable and DBS households have incomes exceeding $100,000. 

The specific equipment that each household needs to transition to DTV—

that is, to be able to view digital broadcast signals—depends on the method 

through which the household watches television, whether the household has 

already upgraded its television equipment to be compatible with DTV, and 

the resolution of certain key regulatory issues. GAO examined two key 

cases regarding the regulatory issues. The assumption for case one is that 

cable and DBS providers would continue providing broadcasters’ signals as 

they currently do, thus eliminating the need for their subscribers to acquire 

new equipment. In this case, only households viewing television using only 

an over-the-air antenna would need to take action to be able to view 

broadcasters’ digital signals. The assumption for the second case is that 

cable and DBS providers would be required to provide broadcasters’ digital 

signals to subscribers in substantially the same format as broadcasters 

transmitted those signals. This would require cable and DBS subscribers, in 

addition to over-the-air households, to have equipment in place to be able to 

receive their providers’ high-definition digital signals. 

If a subsidy for set-top boxes is only needed for over-the-air households 

(case one), GAO estimates that its cost could range from about $460 million 

to about $2 billion, depending on the price of the set-top boxes and whether 

a means test—which would limit eligibility to only those households with 

incomes lower than some specified limit—is employed. If cable and satellite 

subscribers also need new equipment (case two), the cost of providing the 

subsidy could range from about $1.8 billion to approximately $10.6 billion. 

We provided a draft of this testimony to the Federal Communications 

Commission (FCC) for their review and comment. FCC staff provided 

technical comments that we incorporated where appropriate. 

The digital television (DTV) 

transition offers the promise of 

enhanced television services. At 

the end of the transition, 

radiofrequency spectrum used for 

analog broadcast television will be 

used for other wireless services 

and for critical public safety 

services. To spur the digital 

transition, some industry 

participants and experts have 

suggested that the government may 

choose to provide a subsidy for settop boxes, which can receive 

digital broadcast television signals 

and convert them into analog 

signals so that they can be 

displayed on existing television 

sets. This testimony provides 

information on (1) the current 

distribution of American 

households by television viewing 

methods and whether there are 

demographic differences among 

these groups; (2) the equipment 

required for households to receive 

digital broadcast signals; and (3) 

the estimated cost to the federal 

government, under various 

scenarios, of providing a subsidy 

for set-top boxes that would enable 

households to view digital 

broadcast signals. 

We developed estimates of the cost 

of a subsidy for set-top boxes using 

data on household television 

characteristics, expected set-top 

box costs, and varied assumptions 

about how certain key regulatory 

issues will be decided. 
Page 1 GAO-05-258T 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to report on our work on the potential cost 

of providing a subsidy to consumers for the purchase of set-top boxes in 

order to accelerate the transition from analog to digital broadcast 

television. This transition—known as the DTV transition—offers the 

promise of more programming options, interactive services, and highdefinition television (HDTV). Moreover, the return of radiofrequency 

spectrum used for analog broadcast television at the end of the transition 

will provide many benefits to society, such as easing the spectrum scarcity 

facing public safety first responders, engendering economic growth and 

consumer value from spectrum redeployed to wireless services, and 

affording the federal government revenues from the proceeds of a 

spectrum auction. To facilitate the transition, the Congress and the 

Federal Communications Commission (FCC) temporarily provided 

television stations nationwide with additional spectrum so that stations 

could simultaneously broadcast both an analog and a digital signal. 

Stations’ analog licenses are mandated to terminate in December 2006, or 

when 85 percent of households in each market can receive digital 

broadcast signals, whichever is later.1

 While the purchase of digital 

televisions is steadily increasing, it nevertheless appears unlikely that a 

sufficient proportion of households will have digital television equipment 

in place by the end of 2006. 

In order to spur households’ adoption of the digital equipment necessary 

for the transition, some have suggested that the government provide a 

subsidy to certain households to purchase a device, known as a set-top 

box, that can receive digital broadcast television signals and convert them 

into analog signals so that they can be displayed on existing television 

sets. This device would enable the household to view digital broadcast 

signals without purchasing a digital television set; such sets currently sell 

at considerably higher prices than traditional analog television sets. Aiding 

in the deployment of set-top boxes may enable the transition to end 

sooner than it might otherwise by increasing the number of households 

that can view digital broadcast signals. 

 1

Additional requirements include (1) television stations affiliated with the four largest 

national networks (ABC, CBS, Fox, and NBC) are broadcasting a DTV signal and (2) the 

technology to convert a digital signal for use on an analog television set is generally 

available. 
Page 2 GAO-05-258T 

At the request of this subcommittee, we have examined (1) the current 

distribution of American households by television viewing methods and 

whether there are demographic differences among these groups; (2) the 

equipment required for households to receive digital broadcast signals; 

and (3) the estimated cost to the federal government, under various 

scenarios, of providing a subsidy for set-top boxes that would enable 

households to view digital broadcast signals. In addition to information 

provided in this testimony, we are conducting additional work on the DTV 

transition, subsidy options, and administrative approaches for 

implementing a subsidy program, and will provide a more detailed study 

for the Committee and the Subcommittee later this year. 

While a subsidy for set-top boxes may be one policy option to spur the 

transition, there are other policies that might do so as well. In our 

statement today, we provide cost estimates for a possible subsidy program 

under various scenarios. We note, however, that in providing these cost 

estimates, GAO is taking no position on this policy option. We are merely 

providing, as requested by the Committee and the Subcommittee, cost 

estimates for such a program. 

To address the issues we will discuss today, we purchased data from 

Knowledge Networks, a survey research firm that had conducted a 

consumer survey on household television characteristics. The survey 

provided the responses of 2,471 randomly selected American households 

and covers such topics as the method each household uses to view 

television (e.g., cable, over the air), how many television sets they have, 

and whether they have set-top boxes for digital cable service. The survey 

also provides information on an array of demographic characteristics for 

each household. These data were collected between February and April 

2004. The response rate for Knowledge Network’s survey was 47 percent. 

The relevance of the response rate for the study’s findings is discussed in 

appendix I.2

 Using a 95 percent confidence interval, all percentage 

estimates from the survey have margins of error of plus or minus 6 

percentage points or less, and all cost estimates based on the survey data 

have margins of error of plus or minus 16 percent or less. To assess the 

reliability of these survey data, we reviewed documentation of survey 

 2

Because we did not have information on those contacted who chose not to participate in 

the survey, we could not estimate the impact of the nonresponse on our results. However, 

distributions of selected household characteristics (including presence of children, race, 

and household income) for the sample and the U.S. Census estimate of households show a 

similar pattern. 
Page 3 GAO-05-258T 

procedures provided by Knowledge Networks and questioned 

knowledgeable officials about the survey process and resulting data. We 

determined that the data were sufficiently reliable for the purposes of this 

testimony. We also contracted with Knowledge Networks to recontact 

some of respondents to its survey to ask additional questions that GAO 

developed. 3 Because the number of recontacted households for the 

additional questions requested by GAO was small, the findings for these 

questions are not generalizable to a larger population. To gather 

information about the likely costs of set-top boxes, we interviewed several 

consumer electronics firms and experts. 

The estimate of the potential cost of a subsidy that we are providing 

should not be interpreted as the cost of a government program. In 

preparing these estimates we discussed the nature of our work with 

Congressional Budget Office (CBO). If the Congress considers legislation 

for a set-top box subsidy program, the CBO will, based on the specifics of 

the law, prepare an estimate of the cost of the program. We conducted our 

work from August 2004 to January 2005 in accordance with generally 

accepted government auditing standards. 

We provided a draft of this testimony to the Federal Communications 

Commission (FCC) for their review and comment. FCC staff provided 

technical comments that we incorporated where appropriate. 

In summary: 

• The three primary means through which Americans view television signals 

are over the air, cable, and direct broadcast satellite (DBS). We found that 

19 percent, or roughly 21 million American households, rely exclusively on 

over-the-air transmissions for their television viewing; 57 percent, or 

nearly 64 million American households, view television via a cable service; 

and about 19 percent, or about 22 million American households, have a 

subscription to a DBS service.4

 We recognize that others have estimated a 

 3

The additional questions were related to why the household chose to view television as 

they currently do and whether they are likely to make changes in the viewing methods in 

the near future. 

4

These percentages do not add up to 100 percent because (1) between 1 and 2 percent of 

American households do not have a television, (2) about 1 percent of households receive 

television service through other means, such as a wireless cable system, and (3) the 

numbers reported here do not include close to 3 percent of households that reported 

having a subscription to both cable and DBS. 
Page 4 GAO-05-258T 

lower value for the percent of households relying on over the air 

television. 5 Our results were derived from a survey of over 2,400 

households, from which we estimated with 95 percent certainty that 

between 17 and 21 percent of households rely on over the air television. 

On average, over-the-air households are more likely to have lower incomes 

compared to cable or DBS households. While 48 percent of over-the-air 

households have incomes under $30,000,6

 roughly 29 percent of both cable 

and satellite homes had household incomes less than or equal to that level. 

Also, only 6 percent of over-the-air households had incomes over $100,000, 

while about 13 percent of cable and satellite households had incomes 

exceeding $100,000. Additionally, non-white and Hispanic households are 

more likely to rely on over-the-air television than are white and nonHispanic households. 

• The specific equipment needs for each household to transition to DTV—

that is, to be able to view broadcast digital signals—depends on certain 

key factors. First, the method through which a household watches 

television and whether it has already upgraded its television equipment to 

be compatible with digital television, will factor into the equipment needs 

of the household. Additionally, certain regulatory decisions yet to be made 

by FCC will play a role in determining some consumers’ equipment needs. 

We examined two key cases regarding the regulatory decisions. 

• In case one, we assume that cable and DBS providers would continue 

providing broadcasters’ signals as they currently do, thus eliminating 

any need for their subscribers to acquire new equipment. That is, cable 

providers would initially “downconvert”7

 broadcasters’ high-definition 

digital signals to an analog format before they are transmitted to their 

subscribers. Similarly, DBS providers would initially downconvert 

broadcasters’ high-definition digital signals to a standard-definition 

digital format before they are transmitted to their subscribers. This 

enables the signals to be viewed on subscribers’ existing televisions 

 5

In its most recent report on video competition, FCC found that number of households 

subscribing to a multichannel video provider, such as a cable or DBS company, was 

approximately 85 percent of television households, thus implying that about 15 percent of 

television households rely on over-the-air television. The methodology employed by FCC 

differed from the household survey used to prepare our estimate. 

6

For a family of four, the poverty level is just under $19,000, so the $30,000 income level 

would correspond to about 160 percent of the 2004 poverty level for a family of four. The 

cutoff for eligibility for food stamps is 175 percent of the poverty level. 

7

The word “downconvert” means to take a signal in a given format and transform it into a 

lower-resolution format. 
Page 5 GAO-05-258T 

sets. In this case, only households viewing television using only an 

over-the-air antenna must take action to be able to view broadcasters’ 

digital signals. 

• In case two, we assume that cable and DBS providers would be 

required to provide broadcasters’ digital signals to subscribers in 

substantially the same format as broadcasters transmitted those 

signals. Because some of the broadcasters’ digital transmissions are in 

a high-definition digital format, the second case would require cable 

and DBS providers to transmit the signals in this format to their 

subscribers. To be able to view these signals, cable and DBS 

subscribers would need to have equipment in place, or to acquire new 

equipment, that can receive their providers’ high-definition digital 

signals. The second case would also require, as does case one, all overthe-air households to acquire new equipment. 

• If a subsidy for set-top boxes were needed only for over-the-air 

households, we estimate that its cost could range from about $460 million 

to about $2 billion. The subsidy cost varies depending on the price of the 

set-top boxes and whether a means test—which would limit eligibility for 

the subsidy to only those households with incomes lower than some 

specified limit—were employed. However, if cable and satellite 

subscribers also needed new equipment and the subsidy provides some 

support for these households as well, the overall cost of the program 

would grow. We estimate that in this case, the cost of providing the 

subsidy could range from about $1.8 billion to over $10 billion, depending, 

again, on the price of the set-top boxes and whether a means test were 

employed. 

The United States is currently undergoing a transition from analog to 

digital broadcast television. With traditional analog technology, pictures 

and sounds are converted into “waveform” electrical signals for 

transmission through the radiofrequency spectrum, while digital 

technology converts these pictures and sounds into a stream of digits 

consisting of zeros and ones for transmission. Digital transmission of 

television signals provides several advantages compared to analog 

transmission, such as enabling better quality picture and sound reception 

as well as using the radiofrequency spectrum more efficiently than analog 

transmission. This increased efficiency makes multicasting—where 

several digital television signals are transmitted in the same amount of 

Background 
Page 6 GAO-05-258T 

spectrum necessary for one analog television signal—and HDTV8 services 

possible. 

A primary goal of the DTV transition is for the federal government to 

reclaim spectrum that broadcasters currently use to provide analog 

television signals. The radiofrequency spectrum is a medium that enables 

many forms of wireless communications, such as mobile telephone, 

paging, broadcast television and radio, private radio systems, and satellite 

services. Because of the virtual explosion of wireless applications in 

recent years, there is considerable concern that future spectrum needs—

both for commercial as well as government purposes—will not be met. 

The spectrum that will be cleared at the end of the DTV transition is 

considered highly valuable spectrum because of its particular technical 

properties. In all, the DTV transition will clear 108 megahertz of 

spectrum—a fairly significant amount. In the Balanced Budget Act of 1997, 

the Congress directed FCC to reallocate 24 MHz of the reclaimed spectrum 

to public safety uses. Since the terrorist attacks of September 11, 2001, 

there has been a greater sense of urgency to free spectrum for public 

safety purposes. The remaining returned spectrum will be auctioned for 

use in advanced wireless services, such as wireless high-speed Internet 

access.9

To implement the DTV transition, television stations must provide a digital 

signal, which requires them to upgrade their transmission facilities, such 

as transmission lines, antennas, and digital transmitters and encoders. 

Depending on individual station’s tower configuration, the digital 

conversion may require new towers or upgrades to existing towers. Most 

television stations throughout the country are now providing a digital 

broadcast signal in addition to their analog signal. After 2006, the 

transition will end in each market—that is, analog signals will no longer be 

provided—when at least 85 percent of households have the ability to 

receive digital broadcast signals. 

 8

HD television provides roughly twice as many lines of resolution, creating a television 

picture that is much sharper than traditional analog television pictures. HD television can 

also provide CD-quality sound and is in “widescreen” format, with display screen ratios 

similar to a movie theater. 

9

Some of this spectrum—24 MHz—has already been auctioned. 
Page 7 GAO-05-258T 

The three primary means through which Americans view television signals 

are over the air, cable, and direct broadcast satellite (DBS). Over-the-air 

broadcast television, which began around 1940, uses radiofrequencies to 

transmit television signals from stations’ television towers to households’ 

television antennas mounted on rooftops, in attics, or directly on 

television sets. Over-the-air television is a free service. Cable television 

service, a pay television service, emerged in the late 1940s to fill a need for 

television service in areas with poor over-the-air reception, such as 

mountainous or remote areas. Cable providers run localized networks of 

cable lines that deliver television signals from cable facilities to 

subscribers’ homes.10 Cable operators provide their subscribers with, on 

average, approximately 73 analog television channels and 150 digital 

television channels. In 1994, a third primary means of providing television 

emerged: direct broadcast satellite (DBS). Subscribers to DBS service use 

small reception dishes that can be mounted on rooftops or windowsills to 

receive television programming beamed down from satellites that orbit 

over the equator. Like cable, DBS service is a subscription television 

service that provides consumers with many channels of programming. 

When the Congress enacted the Satellite Home Viewer Improvement Act 

of 1999, it allowed DBS carriers to provide local broadcast signals—such 

as the local affiliate of ABC or NBC—which they had previously not 

generally been able to provide. 

Over-the-Air Households. We found that 19 percent, or 20.8 million 

American households, rely exclusively on over-the-air transmissions for 

their television viewing. We recognize that others have estimated a lower 

value for the percent of households relying on over the air television. Our 

results were derived from a survey of over 2,400 households, from which 

we estimated with 95 percent certainty that between 17 and 21 percent of 

households rely on over the air television. Compared to households that 

purchase a subscription to cable or DBS service, we found that exclusive 

over-the-air viewers are somewhat different demographically. Overall, 

over-the-air households are more likely to have lower incomes than cable 

or satellite households. Approximately 48 percent of exclusive over-the-air 

viewers have household incomes less than $30,000, and 6 percent have 

household incomes over $100,000. Additionally, nonwhite and Hispanic 

households are more likely to rely on over-the-air television than are white 

 10When cable service first emerged, it was simply a service that provided a wire-based 

delivery of broadcast, or traditional television stations’ signals, but by the late 1970s, cable 

operators began to provide new networks that were only available through a pay television 

service, such as HBO, Showtime, and ESPN. 

Americans Watch 

Television through 

Three Primary Modes 
Page 8 GAO-05-258T 

and non-Hispanic households; over 23 percent of non-white households 

rely on over-the-air television compared to less than 16 percent of white 

households, and about 28 percent of Hispanic households rely on over-theair television compared to about 17 percent of non-Hispanic households. 

Finally, we found that, on average, exclusive over-the-air households have 

2.1 televisions, which is lower than the average for cable and satellite 

households. 

We asked the survey research firm to recontact approximately 100 of the 

respondents who exclusively watch television through over-the-air 

transmission to ask additional questions, including the primary reason the 

household does not purchase a subscription video service.11 Forty-one of 

these respondents said that it was too costly for them to purchase a 

subscription video service, and 44 said that they do not watch enough 

television to warrant paying for television service. Most of the recontacted 

households seemed unlikely to purchase a subscription service in the near 

future. Only 18 of the recontacted households said that they would be 

likely to purchase a subscription video service in the near future, and 

another 10 said that they might do so. 

Cable Households. We found that 57 percent, or 63.7 million American 

households, view television through a cable service. On average, cable 

households have 2.7 television sets. Sixteen percent of cable households 

have at least one television set in the home that is not connected to cable 

but instead receives only over-the-air television signals. Of the cable 

households surveyed, roughly 29 percent had household incomes of less 

than or equal to $30,000, and about 13 percent had incomes exceeding 

$100,000. We also found that 44 percent of the cable homes have at least 

one set-top box. Of those cable subscribers with a set-top box, about 67 

percent reported that their box is capable of viewing channels the cable 

system sells on “digital cable tiers,” meaning that the channels are 

transmitted by their cable provider in a digital format. A subset of these 

“digital cable” customers have a special set-top box capable of receiving 

their providers’ transmission of high-definition digital signals. 

Because the existence of a set-top box in the home may be relevant for 

determining what equipment households would need to view broadcast 

digital television signals, we asked the survey research firm to recontact 

approximately 100 cable households that do not have a set-top box to ask 

 11The actual recontacted number was 102. 
Page 9 GAO-05-258T 

questions about their likely purchase of digital cable tiers—which require 

a set-top box—in the near future.12 First, we asked the primary reason why 

the household did not currently purchase any cable digital tiers of 

programming. Fifty-one of the recontacted respondents said that they did 

not want to bear the extra expense of digital tiers of cable programming, 

and 33 said that they did not watch enough television to justify purchasing 

digital cable service. Only 9 of the recontacted respondents said that they 

would be likely to purchase digital cable service in the near future, and 

another 9 said that they might purchase such service in the near future. 

Finally, we asked these respondents whether they would be reluctant to 

change their service in any way that would require them to use a set-top 

box. Of the recontacted respondents, 37 said they would be very reluctant 

to change their service in a way that would require them to use a set-top 

box, and another 38 said that they would be somewhat reluctant to do so. 

DBS Households. We found that about 19 percent, or 21.7 million 

American households, have a subscription to a DBS service. These 

households have, on average, 2.7 television sets. About one-third of these 

households have at least one television set that is not hooked to their DBS 

dish and only receives over-the-air television signals. In terms of income, 

29 percent of DBS subscribers have incomes less than or equal to $30,000, 

and 13 percent have incomes exceeding $100,000. 

One important difference between cable and DBS service is that not all 

DBS subscribers have the option of viewing local broadcast signals 

through their DBS provider.13 Although the DBS providers have been 

rolling out local broadcast stations in many markets around the country in 

the past few years, not all markets are served. DBS subscribers in markets 

without local broadcast signals available through their DBS provider 

usually obtain their local broadcast signals through an over-the-air 

antenna, or through a cable connection. This is important to the DTV 

transition because how households with DBS service view their local 

broadcast channels will play into the determination of their requirements 

to transition to broadcast DTV. We therefore requested that the survey 

research firm recontact approximately 100 DBS customers to ask how 

 12The firm actually recontacted 102 such households. 

13While cable providers are generally required to provide the local broadcast signals in each 

market, DBS providers are required to provide all local broadcast stations in markets 

where they provide any of those stations. 
Page 10 GAO-05-258T 

they receive their local broadcast channels.14 We found that when local 

channels are available to DBS subscribers, they are very likely to purchase 

those channels. Well more than half of the DBS subscribers who were 

recontacted viewed their local broadcast channels through their DBS 

service. Nearly one-fourth of the recontacted DBS subscribers view their 

local broadcast channels through free over-the-air television. As DBS 

providers continue to roll out local channels to more markets, the 

percentage of DBS subscribers relying on over-the-air transmissions to 

view local signals will likely decline. 

The specific equipment needs for each household to transition to DTV—

that is, to be able to view broadcast digital signals—depends on certain 

key factors: the method through which a household watches television, 

the television equipment the household currently has, and certain critical 

regulatory decisions yet to be made. In this section we discuss two cases 

regarding a key regulatory decision that will need to be made and the 

implications that decision will have on households’ DTV equipment needs. 

Before turning to the two cases, a key assumption underlying this analysis 

must be discussed. Currently, broadcasters have a right to insist that cable 

providers carry their analog television signals. This is known as the “must 

carry” rule, and dates to the Cable Television Consumer Protection and 

Competition Act of 1992. FCC made a determination that these must carry 

rules will apply to the digital local broadcast signals once a station is no 

longer transmitting an analog signal. In our analysis, we assume that the 

must carry right applies to broadcasters’ digital signals, and as such, cable 

providers are generally carrying those signals. DBS providers face some 

must carry rules as well, although they are different in some key respects 

from the requirements that apply to cable providers. For the purposes of 

this analysis, we assume that to the extent that DBS providers face must 

carry requirements, those requirements apply to the digital broadcast 

signals. 

For nearly all cable subscribers, and more than half of the DBS 

subscribers, local broadcast analog signals are provided by their 

subscription television provider. This means that these providers capture 

the broadcasters’ signals through an antenna or a wire and retransmit 

those signals by cable or DBS to subscribers. We make two disparate 

 14They actually recontacted 102 such households. 

Households’ 

Equipment Needs for 

DTV Transition Will 

Depend on their Mode 

of Television Viewing 

and Current 

Equipment Status, 

and Will Also Be 

Affected by 

Regulatory Decisions 
Page 11 GAO-05-258T 

assumptions, which we call case one and case two, about how cable and 

DBS providers might provide digital broadcast signals to subscribers. We 

do not suggest that these are the only two possibilities regarding how the 

requirements for carriage of broadcast signals might ultimately be 

decided—these are simply two possible scenarios. 

Case One. In this case, we assume that cable and DBS providers will 

continue providing broadcasters’ signals as they currently do. This 

assumption would be realized if cable and DBS providers initially 

downconvert broadcasters’ digital signals at the providers’ facilities, 

which may require legislative or regulatory action. That is, cable providers 

would initially downconvert broadcasters’ high-definition digital signals to 

an analog format before they are transmitted to their subscribers. 

Similarly, DBS providers would initially downconvert broadcasters’ highdefinition digital signals to a standard-definition digital format before they 

are transmitted to their subscribers. In this case, there would be no need 

for cable and DBS subscribers to acquire new equipment; only households 

viewing television using only an over-the-air antenna must take action to 

be able to view broadcasters’ digital signals. This case shares many 

attributes with the recently-completed DTV transition in Berlin, Germany. 

All over-the-air households—which account for approximately 21 million 

households in the United States—must do one of two things to be able to 

view digital broadcast signals.15 First, they could purchase a digital 

television set that includes a tuner capable of receiving, processing, and 

displaying a digital signal. The survey data we used indicated that only 

about 1 percent of over-the-air viewers have, as of now, purchased a 

digital television that contains a tuner. However, some large televisions 

sold today are required to include such a tuner and by July 2007, all 

television sets larger than 13 inches are required to include a tuner. After 

that time, consumers who purchase new television sets will automatically 

have the capability of viewing digital signals. Approximately 25 to 30 

million new television sets are purchased each year in the United States. 

The second option available to over-the-air households is to purchase a 

digital-to-analog set-top box. That is, for those households that have not 

purchased a new television set, the set-top box will convert the digital 

broadcast signals to analog so that they can be viewed on an existing 

analog television set. Viewers with digital-to-analog set-top boxes would 

 15Additionally, these households could also choose to subscribe to cable or DBS service to 

eliminate the need to acquire additional equipment to view a television signal over the air. 
Page 12 GAO-05-258T 

not actually see the broadcast digital signal in a digital format, but would 

be viewing that signal after it has been downconverted, by the set-top box, 

to be compatible with their existing analog television set. Currently, 

simple set-top boxes that only have the function of downconverting digital 

signals to analog are not on the market. More complex boxes that include 

a variety of functions and features, including digital to analog 

downconversion, are available, but at a substantial cost. However, 

manufacturers told us that simple, and less expensive, set-top boxes would 

come to the market when a demand for them develops. 

Case Two. In the second case, we assume that cable and DBS companies 

would be required to provide the broadcasters’ signals to their subscribers 

in substantially the same format as it was received from the broadcasters. 

Because some of the broadcasters’ signals are in a high-definition digital 

format, cable and DBS subscribers—just like over-the-air households—

would need to have the equipment in place to be able to receive highdefinition digital signals. There are several ways these subscribers could 

view these signals: 

• Cable or DBS subscribers would be able to view digital broadcast 

television if they have purchased a digital television set with an over-theair digital tuner. They would then have the capability of viewing local 

digital broadcast stations through a traditional television antenna—just 

like an over-the-air viewer. However, many cable and DBS households 

may want to continue to view broadcast television signals through their 

cable or DBS provider. 

• Cable or DBS subscribers could purchase a digital television with a “cable 

card” slot. By inserting a “card” provided by the cable company into such a 

television, subscribers can receive and display the digital content 

transmitted by the cable provider. Only very recently, however, have 

cable-ready digital television sets—which allow cable subscribers to 

receive their providers’ digital signals directly into the television set—

come to the market. Similar televisions sets with built-in tuners for 

satellite digital signals are not currently on the market. 

• To view the high-definition signals transmitted by their subscription 

provider, the other possibility for cable and DBS households would be to 

have a set-top box that downconverts the signals so that they can be 

displayed on their existing analog television sets. That is, any 

downconversion in this scenario takes place at the subscribers’ household, 

as opposed to the subscription television providers’ facilities, as in case 

one. While all DBS subscribers and about a third of cable subscribers have 

set-top boxes that enable a digital signal from their provider to be 
Page 13 GAO-05-258T 

converted to an analog signal for display on existing television sets, few of 

these set-top boxes are designed for handling high-definition digital 

signals. As such, if broadcasters’ signals are transmitted by cable and DBS 

providers in a high-definition format, not all cable and satellite subscribers 

would need new equipment, although most would. In case two, as in case 

one, all exclusively over-the-air households need a digital television set or 

a set-top box. 

In this section we present the estimated cost of providing a subsidy to 

consumers for the purchase of a set-top box that would be designed to 

advance the digital television transition. The estimated subsidy costs 

presented here vary based on (1) the two cases discussed above about 

whether cable and DBS providers initially downconvert broadcasters’ 

digital signals at their facilities before transmitting them to subscribers; (2) 

varied assumptions about whether a means test is imposed and, if so, at 

what level; and (3) the expected cost of a simple digital-to-analog set-top 

box. All of the estimates presented here assume that only one television 

set is subsidized in each household that is determined to be eligible for the 

subsidy.16

Means test. Imposing a means test would limit the subsidy to only those 

households determined to be in financial need of a subsidy. A means test 

would limit eligibility for the subsidy to only those households with 

incomes lower than some specified limit. We employed two different 

levels of means tests. The scenarios with means tests are roughly based on 

200 percent and 300 percent of the poverty level17 as the income threshold 

under which a household’s income must lie to be eligible for the subsidy. 

The poverty level is determined based on both income and the number of 

persons living in the household; for a family of four the official federal 

poverty level in 2004 was $18,850. 

Set-top boxes. We provide estimates based on two possible price levels 

for the boxes: $50 and $100. This range is based on conversations we had 

with consumer electronics manufacturers who will likely produce set-top 

boxes in the future. Set-top boxes for cable and DBS are often rented by 

 16In our final report that will be issued later this year, we will also present scenarios under 

which more than one television set per household is subsidized. 

17See appendix I for a methodological discussion and assumptions surrounding our 

determination of thresholds used to approximate the poverty level. 

Cost of Federal 

Subsidy for Set-Top 

Boxes Varies 

Considerably, 

Depending on Several 

Factors 
Page 14 GAO-05-258T 

subscribers, rather than purchased. Nevertheless, in cases where cable 

and DBS subscribers need new equipment, we assume that the financial 

support provided to them would be equivalent to that provided to over-theair households. 

Table 1 provides the cost of a subsidy program under the assumption that 

cable and DBS providers downconvert broadcasters’ signals at their 

facilities in a manner that enables them to continue to transmit those 

signals to subscribers as they currently transmit broadcasters’ signals. In 

this case, cable or DBS subscribers do not require any new equipment, so 

only over-the-air households—approximately 21 million American 

households—would need new equipment. As shown in table 1, there is 

considerable variation in the cost of the subsidy program depending on the 

level of a means test and the price of the set-top box. 

Table 1: Estimated Cost of Set-Top Box Subsidy, Assuming Cable and DBS 

Downconversion, only Over-the-Air Households Are Subsidized 

 

Cost of subsidy, by estimated cost 

of set-top box (dollars in millions) 

Assumption 

about means 

test 

Percent of 

over-the-air 

households 

eligible 

Number of 

households 

subsidized 

(in millions) $50 set-top box $100 set-top box

Means test at 

200% of 

poverty level 

50% of overthe-air 

households 

9.3

(7.8 - 10.7)

$463

($391 - $534) 

$925

($782 - $1,068)

Means test at 

300% of 

poverty level 

67 % of overthe-air 

households 

12.5

(10.9 - 14.1) 

$626

($545 - $707)

$1,252

($1,090 - $1,415)

No means test All over-the-air 

households 

20.8

(19.1 - 22.6)

$1,042

($954 - $1,130)

$2,083

($1,907 - $2,259)

Source: GAO. 

Notes: Ninety-five percent confidence intervals in parentheses. 

Analysis based on the status of television households in 2004. 

Table 2 provides the cost of a subsidy program under the assumption that 

cable and DBS providers are required to transmit broadcasters’ digital 

signals in the same format as they are received. Under this scenario, nearly 

all over-the-air households and most cable and DBS subscribers will not 

have the equipment in place to view high-definition digital broadcast 

signals. Although subscribers typically rent, rather than purchase, set-top 

boxes, we assume that the same level of subsidy is provided to these 
Page 15 GAO-05-258T 

households as is provided to over-the-air households to defray the cost of 

having to obtain a new or upgraded set-top box from their provider. 

Table 2: Estimated Cost of Set-Top Box Subsidy, No Cable or DBS 

Downconversion, Subsidy Provided to Over-the-Air and Cable and DBS Households 

 Cost of subsidy, by estimated cost of 

set-top box (dollars in millions) 

Assumption 

about 

means test 

Percent of 

U.S. 

households 

eligible 

Number of 

households 

subsidized 

(in millions) $50 set-top box $100 set-top box

Means test 

at 200% of 

poverty level 

31% of 

households 

35.1

(32.7 - 37.5) 

 $1,753 

($1,633 - $1,873) 

$3,506

($3,266 - $3,745)

Means test 

at 300% of 

poverty level 

50% of 

households 

55.5

(52.9 - 58.1) 

 $2,775 

($2,646 - $2,904) 

$5,551

($5,293 - $5,809)

No means 

test 

Nearly all 

households 

106.2

(105.1 - 

107.3) 

 $5,312 

($5,257 - $5,367) 

$10,624

($10,514 - $10,734)

Source: GAO. 

Notes: Ninety-five percent confidence intervals in parentheses. 

Analysis based on the status of television households in 2004. 

There are two issues that stand as important caveats to the analyses we 

have presented on estimated set-top box subsidy costs. The first is that we 

based the majority of the analyses on survey results that provide 

information on the status of American television households as of early 

2004. Over the next several years, new households will be established, 

some households might change the means through which they watch 

television, televisions sets with integrated digital over-the-air tuners as 

well as digital cable compatibility will be purchased, and some cable and 

DBS households will have obtained set-top boxes capable of receiving 

high-definition digital signals from their providers. Households’ purchase 

of certain new equipment could obviate the need for a subsidy for new 

television equipment. For example, some households may purchase a 

digital television set with an over-the-air tuner and begin to view digital 

broadcast signals in this manner; some large televisions sold today are 

required to include such a tuner and by July 2007, all television sets larger 

than 13 inches are required to include a tuner. In time, these factors could 
Page 16 GAO-05-258T 

have the effect of reducing the cost of a set-top box subsidy because fewer 

households would need to be subsidized.18

The second caveat to these analyses is that these subsidy estimates do not 

include any costs associated with implementing a subsidy program. If the 

federal government determines that it would be worthwhile to provide this 

subsidy, the subsidy would need to be administered in some fashion, such 

as through a voucher system, a tax credit, a mail-in rebate, government 

distribution of equipment, or some other means. Any of these methods 

would impose costs that could be significant for the federal government 

and any other entities involved in administering the program. Such costs 

would be difficult to estimate until a host of decisions are made about how 

a subsidy program would be administered. 

As I mentioned earlier, our work on the DTV transition continues, and we 

will provide more information in a report later this year. We will discuss 

various ways that a subsidy program might be administered and provide 

some analysis of the benefits and drawbacks of these various methods. We 

will also provide a discussion of how information regarding the DTV 

transition and any associated subsidy program might best be provided to 

the American people. 

Mr. Chairman, this concludes my prepared statement. I would be happy to 

respond to any questions you or other Members of the Committee may 

have at this time. 

For questions regarding this testimony, please contact Mark L. Goldstein 

on (202) 512-2834 or goldsteinm@gao.gov. Individuals making key 

contributions to this testimony included Amy Abramowitz, Dennis Amari, 

Michael Clements, Andy Clinton, Michele Fejfar, Simon Galed, Eric 

 18As we mentioned above, if at a later date the Congress considers legislation for a set-top 

box subsidy program, the CBO will, based on the specifics of the law, prepare an estimate 

of the cost of the program. 

Contact and 

Acknowledgments 
Page 17 GAO-05-258T 

Hudson, Catherine Hurley, Bert Japikse, Sally Moino, Karen O’Conor, and 

Madhav Panwar. 
Page 18 GAO-05-258T 

To obtain information on the types of television service and equipment 

used by U.S. households, we purchased existing survey data from 

Knowledge Networks Statistical Research. Their survey was completed 

with 2,375 of the estimated 5,075 eligible sampled individuals for a 

response rate of 47 percent; partial interviews were conducted with an 

additional 96 people, for a total of 2,471 individuals completing some of 

the survey questions. The survey was conducted between February 23 and 

April 25, 2004. 

The study procedures yielded a sample of members of telephone 

households in the continental United States using a national random-digit 

dialing method. Survey Sampling Inc. (SSI) provided the sample of 

telephone numbers, which included both listed and unlisted numbers and 

excluded blocks of telephone numbers determined to be nonworking or 

business-only. At least five calls were made to each telephone number in 

the sample to attempt to interview a responsible person in the household. 

Special attempts were made to contact refusals and convert them into 

interviews; refusals were sent a letter explaining the purpose of the study 

and an incentive. Data were obtained from telephone households and are 

weighted by the number of household telephone numbers. 

As with all sample surveys, this survey is subject to both sampling and 

nonsampling errors. The effect of sampling errors due to the selection of a 

sample from a larger population can be expressed as a confidence interval 

based on statistical theory. The effects of nonsampling errors, such as 

nonresponse and errors in measurement, may be of greater or lesser 

significance but cannot be quantified on the basis of available data. 

Sampling errors arise because of the use of a sample of individuals to draw 

conclusions about a much larger population. The study’s sample of 

telephone numbers is based on a probability selection procedure. As a 

result, the sample was only one of a large number of samples that might 

have been drawn from the total telephone exchanges from throughout the 

country. If a different sample had been taken, the results might have been 

different. To recognize the possibility that other samples might have 

yielded other results, we express our confidence in the precision of our 

particular sample’s results as a 95 percent confidence interval. We are 95 

percent confident that when only sampling errors are considered each of 

the confidence intervals in this report will include the true values in the 

study population. All percentage estimates from the survey have margins 

of error of plus or minus 6 percentage points or less, unless otherwise 

noted. 

Appendix I: Methodology for Use of Survey 

Data Regarding Television Viewing 
Page 19 GAO-05-258T 

In addition to the reported sampling errors, the practical difficulties of 

conducting any survey introduce other types of errors, commonly referred 

to as nonsampling errors. For example, questions may be misinterpreted, 

some types of people may be more likely to be excluded from the study, 

errors could be made in recording the questionnaire responses into the 

computer-assisted telephone interview software, and the respondents’ 

answers may differ from those who did not respond. Knowledge Networks 

has been fielding versions of this survey for over 20 years. In addition, to 

reduce measurement error, Knowledge Networks employs interviewer 

training, supervision, and monitoring, as well as computer-assisted 

interviewing to reduce error in following skip patterns. 

For this survey, the 47 percent response rate is a potential source of 

nonsampling error; we do not know if the respondents’ answers are 

different from the 53 percent who did not respond. Knowledge Networks 

took steps to maximize the response rate—the questionnaire was carefully 

designed and tested through deployments over many years, at least five 

telephone calls were made at varied time periods to try to contact each 

telephone number, the interview period extended over about 8 weeks, and 

attempts were made to contact refusals and convert them into interviews. 

Because we did not have information on those contacted who chose not to 

participate in the survey, we could not estimate the impact of the 

nonresponse on our results. Our findings will be biased to the extent that 

the people at the 53 percent of the telephone numbers that did not yield an 

interview have different experiences with television service or equipment 

than did the 47 percent of our sample who responded. However, 

distributions of selected household characteristics (including presence of 

children, race, and household income) for the sample and the U.S. Census 

estimate of households show a similar pattern. 

To assess the reliability of these survey data, we reviewed documentation 

of survey procedures provided by Knowledge Networks, interviewed 

knowledgeable officials about the survey process and resulting data, and 

performed electronic testing of the data elements used in the report. We 

determined that the data were sufficiently reliable for the purposes of this 

report. 

Due to limitations in the data collected, we made several assumptions in 

the analysis. Number of televisions and number of people in the household 

were reported up to five; households exceeding four for either variable 

were all included in the category of five or more. For the purposes of our 

analyses, we assumed that households had no more than five televisions 
Page 20 GAO-05-258T 

that would need to be transitioned and no more than five people. Number 

of people in the household was only used in calculating poverty, but may 

result in an underestimate of those households in poverty. 

Calculations of poverty were based on the 2004 Poverty Guidelines for the 

48 contiguous states and the District of Columbia, published by the 

Department of Health and Human Services. We determined whether or not 

each responding household would be considered poor at roughly 200 

percent and 300 percent of the poverty guidelines. Income data were 

reported in categories so the determination of whether or not a household 

met the 200 percent or 300 percent threshold required approximation, and 

for some cases this approximation may have resulted in an overestimate of 

the number of poor households. In addition, income data were missing for 

24 percent of the respondents. To conduct the analyses involving poverty, 

we assumed that the distribution of those in varying poverty status was the 

same for those reporting and not reporting income data. Comparisons of 

those reporting and not reporting income data show some possible 

differences on variables examined for this report; however, the income 

distribution is very close to the 2003 income estimates published by the 

U.S. Census Bureau. 

To determine total numbers of U.S. households affected by the transition 

and total cost estimates for various transition scenarios, we used the U.S. 

Census Bureau’s Current Population Survey estimate of the total number 

of households in the United States as of March 2004. To derive the total 

number of households covered by the various scenarios, we multiplied this 

estimate by the proportions of households covered by the scenarios 

derived from the survey data. The standard error for the total number of 

U.S. households was provided by the Census Bureau, and the standard 

errors of the total number of households covered by the scenarios take 

into account the variances of both the proportions from the survey data 

and the total household estimate. All cost estimates based on the survey 

data have margins of error of plus or minus 16 percent or less. 

In addition, we contracted with Knowledge Networks to recontact a 

sample of their original 2004 survey respondents in October 2004. 

Households were randomly selected from each of three groups: broadcastonly television reception, cable television service without a set-top box, 

and satellite television service. For each group, 102 interviews were 

completed, yielding 306 total respondents (for a 63 percent response rate). 

To reduce measurement error, the survey was pretested with nine 

respondents, and Knowledge Networks employed interviewer training, 

supervision, and monitoring, as well as computer-assisted interviewing, to 
Page 21 GAO-05-258T 

reduce error in following skip patterns. Due to the small sample size, the 

findings of these questions are not generalizable to a larger population. 

(543118) 
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