Telecommunications: German DTV Transition Differs from U.S. Transition in Many Respects, but Certain Key Challenges Are Similar
Published: 2004-07-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In Berlin, Germany, the transition from analog to digital television (DTV), the DTV transition, culminated in the shutoff of analog television signals in August 2003. As GAO previously reported, the December 2006 deadline for the culmination of the DTV transition in the United States seems unlikely to be met. Failure to meet this deadline will delay the return of valuable spectrum for public safety and other commercial purposes. Thus, the rapid completion of the DTV transition in Berlin has sparked interest among policymakers and industry participants in the United States. At the request of the Subcommittee on Telecommunications and the Internet, House Committee on Energy and Commerce, GAO examined (1) the structure and regulation of the German television market, (2) how the Berlin DTV transition was achieved, and (3) whether there are critical components of how the DTV transition was achieved in Berlin and other areas of Germany that have relevance to the ongoing DTV transition in the United States.
section_title: What GAO Found
paragraphs: The German television market is characterized by a central role of public broadcasting and is regulated largely at the state level. Although the federal government establishes general objectives for the telecommunications sector and manages allocations of the German radiofrequency spectrum, 15 media authorities organize and regulate broadcasting services within their areas of authority. The two public broadcasters are largely financed through a mandatory radio and television license fee of 16 Euro ($19.68) per household, per month, or about 6 billion Euro ($7.38 billion) in aggregate per year. Today, only 5 to 7 percent of German households rely on terrestrial television. Most households receive television through cable service, which typically costs less than 15 Euro ($18.45) per month, or satellite service, which is free once the household installs the necessary satellite equipment. Berlin officials and industry participants engaged in extensive planning for the rapid DTV transition in the Berlin test market. In Germany, government officials and industry participants are implementing the DTV transition largely for the purpose of improving the viability of terrestrial television; officials do not expect to recapture radio spectrum after the transition. Several elements of the DTV transition apply throughout Germany. For example, Germany is implementing the transition within specified "islands," which are typically larger metropolitan areas, because officials thought that a nationwide DTV transition would be too big to manage at one time. Also, the German DTV transition focuses exclusively on terrestrial television, not cable and satellite television. The Media Authority in Berlin specified other components of the DTV transition for the Berlin area, including a short (10 month) simulcast period, financial and nonfinancial support provided to private broadcasters, subsidies provided to low-income households, and an extensive consumer education effort. Certain aspects of the DTV transition in Berlin and other regions of Germany are relevant to the ongoing transition in the United States because, even though the television market and the transition are structured differently in the two countries, government officials face similar key challenges. We found that much of the focus of government officials leading up to and during the brief simulcast in Berlin was on ensuring households who rely on terrestrial television received the necessary consumer equipment. In the United States, most television stations are providing a digital signal--that is, the United States is in the simulcast phase. Thus, the challenge facing the Congress and the Federal Communications Commission, as was the case in Berlin, is encouraging households to purchase set-top boxes or digital televisions. The key components of the Berlin DTV transition that enabled the rapid deployment of set-top boxes included (1) implementing an extensive consumer education effort; (2) providing subsidies to low-income households for set-top boxes; and (3) setting a relatively near-term, date certain that all stakeholders understood would be the shutoff date for analog television.

section_title: Letter
paragraphs: I am pleased to be here today to report on our ongoing work on the  transition from analog to digital television, commonly referred to as the  digital television (DTV) transition. The DTV transition offers the promise  of more programming options, interactive services, and high-definition  television (HDTV). To facilitate the transition, the Congress and the  Federal Communications Commission (FCC) temporarily provided  television stations nationwide with additional spectrum to simultaneously  broadcast both an analog and a digital signal. This simulcast is mandated  to end in December 2006, or when 85 percent of American households can  receive digital broadcast signals, whichever is later. At that time, television  stations will return valuable radio spectrum for public safety and other  commercial services; however, as we reported in 2002, that deadline  seems unlikely to be met.
In Berlin, Germany, a DTV transition—referred to in that country as the  DVB-T switchover—culminated in the shutoff of analog broadcast  television signals in August 2003. The rapid completion of the DTV  transition in Berlin has sparked interest among policymakers and industry  participants in the United States. At the request of this subcommittee, we  have examined (1) the structure and regulation of the German television  market, (2) how the Berlin DTV transition was achieved, and (3) whether  there are critical components of how the DTV transition was achieved in  Berlin and other areas of Germany that have relevance to the ongoing DTV  transition in the United States. In addition to information provided in this  testimony, we are conducting additional work on the ongoing DTV  transition in the United States and will provide a more detailed study for  this committee in early 2005.
To address these issues, we conducted a site visit in Germany and  interviewed a variety of government, industry, and consumer  representatives. In particular, we met with  two federal government agencies with responsibilities related to the DTV  transition; two Media Authorities that are overseeing the DTV transition in their  respective areas; the Berlin Social Welfare Office, which assisted in providing subsidies for  set-top boxes during the transition; the two major public broadcasting station groups; the two primary commercial station groups;    a cable television provider and a cable television association;    Deutsche Telekom, which is a primary owner of broadcast towers    an official who works for association of electrical and electronic  equipment manufacturers and is also the director of Deutsche TV- Plattform, an organization of government and industry participants in the  DTV transition; and   a German association of consumer groups.
In addition to the meetings we conducted in Germany, we spoke by  telephone with a German expert on digital television issues and  representatives of a European satellite provider. We also met with officials  at the German Embassy in Washington, D.C. The information that we  gathered was sufficiently reliable for the purposes of our review. We  conducted our work from April 2004 to June 2004 in accordance with  generally accepted government auditing standards.
We provided a draft of this testimony to FCC and the Department of State  (State) for their review and comment. Staff from FCC and State provided  technical comments that we incorporated as appropriate.
My statement will make the following points:    The German television market is characterized by a central role of public  broadcasting and is regulated largely at the state level. Although the  federal government establishes general objectives for the  telecommunications sector and manages allocations of the German  radiofrequency spectrum, 15 media authorities organize and regulate  broadcasting services within their areas of authority. Broadcasting in  Germany is commonly characterized as a “dual system” in which public  and private broadcasting coexist, with each market segment consisting of  two dominant broadcasting entities. The two public broadcasters are  largely financed through a mandatory radio and television license fee of 16  Euro ($19.68) per household per month, which amounts to about 6 billion  Euro ($7.38 billion) per year. Although terrestrial broadcasting—the  transmission of television signals from towers to homes through the  radiofrequency spectrum—was once the only means by which German  households received television program signals, today only 5 to 7 percent  of German households rely exclusively on terrestrial broadcasting. The  remaining households obtain either cable service—which typically costs  less than 15 Euro ($18.45) per month—or satellite service, which is free  once the household has installed the satellite receiving dish and receivers.
Berlin officials and industry participants engaged in extensive planning for  the rapid DTV transition in the Berlin test market. In particular, digital  terrestrial transmissions were initiated in November 2002 and all analog  signals were shut off in August 2003. In Germany, government officials and  industry participants are implementing the DTV transition largely for the  purposes of improving the viability of terrestrial television. Government  officials do not expect spectrum to be returned after the transition. Several  elements of the DTV transition were decided by federal authorities and  will thus apply throughout Germany. For example, Germany is  implementing the transition within specified “islands,” with each island  defined as a specific metropolitan area. Additionally, the DTV transition  focused exclusively on terrestrial television, and households that rely on  cable and satellite service did not need to purchase equipment to continue  to receive television service. The Media Authority in Berlin specified other  components of the transition, such as the short simulcast period, the  financial and nonfinancial support provided to private broadcasters, the  subsidies provided to certain low-income households, and an extensive  consumer education effort. While the Berlin DTV transition is generally  viewed as successful, it is unclear whether a full DTV transition will occur  throughout Germany.
Certain aspects of the DTV transition in Berlin and other regions of  Germany are relevant to the ongoing transition in the United States  because, even though the television market and the transition are  structured differently in the two countries, government officials in both  countries face similar key challenges for completing the transition. In  particular, we found that much of the focus of government officials  leading up to and during the brief simulcast in Berlin was on ensuring that  terrestrial households received the necessary consumer equipment to  support the switchover to digital. In the United States, most broadcast  television stations are now providing a digital signal—that is, we are  already within the simulcast phase. The concern today in the Congress and  at FCC is how to coax consumers to purchase set-top boxes or digital  televisions—the same objective of Berlin officials. The key components of  the Berlin transition that enabled a rapid deployment of set-top boxes to  terrestrial consumers and thereby enabled the switchover to DTV were (1)  an extensive public information campaign; (2) subsidies for needy  households to defray the set-top box costs; and (3) the setting of a near- term, date certain for the cessation of analog broadcasts that all  stakeholders understood must be met.
subsections: section_title: Background
paragraphs: Terrestrial television service—also known as over-the-air broadcast  television—is transmitted from television towers through the  radiofrequency spectrum to rooftop antennas or antennas attached  directly to television sets inside of homes. With traditional analog  technology, pictures and sounds are converted into “waveform” electrical  signals for transmission, while digital technology converts these pictures  and sounds into a stream of digits consisting of zeros and ones. Digital  transmission of television signals provides several advantages compared  with analog transmission, by enabling better quality picture and sound  reception as well as other new services. In addition, digital transmission  uses the radiofrequency spectrum more efficiently than analog  transmission. This increased efficiency makes multicasting, where several  digital television signals are transmitted in the same amount of spectrum  as one analog television signal, and HDTV services possible. But, to  implement digital transmission, upgrades to transmission facilities, such as  television towers, are necessary, and consumers must purchase a digital  television or a set-top box that will convert digital signals into an analog  form for viewing on existing analog televisions.
Both the United States and Germany have programs in place to complete  the transition from analog to digital television. In the United States, the  Congress and FCC provided television stations with additional spectrum  to transmit both an analog and digital signal, and set a deadline for the  shutoff of the analog signal at the end of 2006, or when 85 percent of  households can receive the digital signal, whichever is later. In Germany,  the federal government set a deadline of 2010 for the shutoff of analog  signals and did not provide spectrum for an extended simulcast period.  Each Media Authority (there are a total of 15 throughout Germany)  decides on the specific timing of the terrestrial transition. The city of  Berlin, Germany, and its surrounding metropolitan area initiated digital  terrestrial transmissions in November 2002 and shut-off all analog signals  in August 2003.
section_title: German Television Market Is Characterized by Central Role of Public Broadcasting and Is Regulated Largely at the State Level
paragraphs: We were told that regulation of the German television market is primarily  the responsibility of state government, with the federal government  exercising only limited authority to regulate this market. Television  broadcasting in Germany is commonly characterized as a “dual system” in  which public and private broadcasting coexist, with each market segment  consisting of two dominant broadcasting entities. Both segments are  subject to the broadcasting laws passed by the respective German states.  Although terrestrial broadcasting was once the only means by which  German households received television program signals, today only 5 to 7  percent of these households rely on terrestrial broadcasting, with the  remainder using cable or satellite service for the reception of television  signals.
subsections: section_title: Federal and State Government Agencies Have Important Roles in Television Regulation
paragraphs: The federal government exercises important but limited authority in  regulating television broadcasting, leaving the state (called Länder)  governments with the primary responsibility for broadcasting regulation.  At the federal government level, the Ministry of Economics and Labour is  responsible for establishing and advancing general objectives in the  telecommunications sector, such as the promotion of new technologies  and innovation, and ensuring competition among providers of  telecommunications services. In the context of the DTV transition, the  Ministry led the effort in Germany to develop and recommend a strategy  for the transition from analog to digital radio and television broadcasting.  A separate federal entity, the Regulatory Authority for  Telecommunications and Posts (RegTP), established in 1998, is  responsible for technical aspects in the provision of telecommunications  services, including management of Germany’s radiofrequency spectrum  allocations, the development of standards for the distribution and use of  telecommunications systems, and testing of electronics equipment. RegTP  is playing a key role in the DTV transition in Germany by establishing  procedures for and assigning frequency allocations to roll out digital video  broadcasting service.
Federal and state government officials told us that the authority to directly  organize and regulate broadcasting services rests with each of the regional  governments as part of their jurisdiction over educational and cultural  matters. In each of the German states, a “Media Authority” serves as the  primary regulatory authority over radio and television broadcasting  services. Charged with implementation of their respective state-enacted  broadcasting laws, the 15 Media Authorities are independent agencies and  are not considered to be part of the state government administrations.  Among the most important functions of the Media Authorities is the  establishment of procedures for assigning broadcast frequencies allocated  by RegTP to public and private broadcasters. The Media Authorities also  have a significant role in overseeing the transition to digital television.
Broadcasting laws and regulations in Germany are affected to some extent  by actions of the European Union (EU). Although Germany and other EU- member states manage their own broadcasting policies, rules and  guidelines are set at the EU level on matters that involve common  interests, such as open borders, fair competition, and a commitment to  public broadcasting. In the EU’s Action Plan to stimulate advanced  services, applications, and content, EU member states are encouraged to  have a strategy for the DTV transition with an assessment of market  conditions, a date for the switchoff of analog terrestrial broadcasting, and  a platform-neutral approach that takes into account the competing cable,  satellite, and terrestrial delivery platforms.
section_title: German Television Market Dominated by Two Public Stations Groups and Two Commercial Stations Groups
paragraphs: Terrestrial, or over-the-air, television in German is commonly  characterized as a “dual system” in which public and private broadcasting  coexist, with each market segment consisting of two dominant  broadcasting entities. Public broadcasting corporations are the creation of  the states, but operate largely as self-regulated entities. At the regional  level, the German states have formed regional public broadcasters that  operate their own television channels with regional-specific programming.  The regional public broadcasters also formed a national network in 1950  known as ARD. ARD provides a nationwide broadcast channel (Channel  1), with some of its programming supplied by these regional broadcasters.  A second nationwide public broadcasting channel, ZDF, was formed  directly by the German states in 1961 as an independent, nonprofit  corporation. In addition to their own channels, ARD and ZDF jointly  operate four additional public television channels that are broadcast in  various parts of Germany. We were told that approximately 40 percent of  television viewing in Germany is of the various public channels provided  by ARD and ZDF.
The public broadcasters are given one frequency each by the Media  Authorities for the terrestrial broadcast of their programming channel.  Their primary source of revenue derives from a compulsory monthly fee  paid by owners of radios and television sets. The amount of the fee is set  jointly by the states, based on a recommendation of an independent panel,  and is set at 16 Euro ($19.68) per month for each household. We were told  that this amounts to about 6 billion Euro ($7.38 billion) annually. ARD  receives slightly less than two-thirds of the fee revenues and allocates  shares among its regional broadcasters, while ZDF receives about one- third of the total fee revenues. Two percent of the total fee revenue is  distributed to the 15 Media Authorities. ARD and ZDF generate additional  revenues from limited on-air advertisements. However, they are restricted  to a maximum of 20 minutes of advertising per day before 8:00 p.m. and  are precluded from any advertising on Sundays and holidays.
The introduction of private television broadcasting in Germany is a  relatively recent development. In the early 1980s, additional spectrum  frequencies were made available for the opening of private television  broadcasting. Today, two broadcasting groups—RTL Group and  ProSiebenSat.1 Media—dominate this segment of the television  broadcasting market, each operating multiple channels. Unlike their public  broadcasting counterparts, private broadcasters must obtain licenses from  relevant Media Authorities. Because frequencies are limited, not all private  broadcasters operate nationally, and with the growth of cable and satellite  systems, some have chosen not to renew terrestrial licenses in all  locations. In particular, private broadcasters often do not provide  terrestrial service in rural areas. Private broadcasters generate all of their  revenues from advertising and receive no payments from the fees paid by  owners of radios and television sets.
section_title: German Television Is Available on Three Platforms: Terrestrial, Cable, and Satellite
paragraphs: Although terrestrial broadcasting as described above was once the only  means by which German households could receive television program  signals, there are currently three methods for television delivery— terrestrial broadcasting, cable television service, and satellite service.  Terrestrial broadcasting, in fact, is now the method least relied upon by  German television households for receiving program signals—only about 5  to 7 percent of German households rely exclusively on terrestrial  television. Some German households that receive their primary television  signals by satellite or cable may have a second or third set in the  household that is used only for terrestrial reception. Households relying  on analog terrestrial broadcasting receive between 3 to 12 channels, with  an average of 5 to 6 channels. The primary transmitter networks that  transmit television broadcast signals from various towers throughout the  country are owned and operated by Deutsche Telekom. Broadcast stations  pay Deutsche Telekom to transmit their terrestrial signals. ARD also owns  a network of terrestrial broadcast towers for its own operations.
Introduced in the early 1980s, cable television service is now the dominant  method for the delivery of television programming in Germany: about 60  percent of the households subscribe to a cable system. Like terrestrial  broadcasting in Germany, the 15 Media Authorities regulate cable  television service in their respective areas. The state media laws set forth  the must-carry requirements in each region, which specify the broadcast  stations that cable providers are required to carry on their systems. We  were told that these regulations vary considerably by region, with some  areas requiring cable systems to carry nearly all public and private  stations, and other areas imposing significantly fewer must-carry  responsibilities on cable systems. To be carried by a cable operator,  however, public and private broadcasters must pay a carriage fee to the  cable operator, which is negotiated directly between the parties. Typical  cable systems in Germany were constructed for the provision of analog  service, provide about 30 to 33 channels of analog programming, and cost  subscribers less than 15 Euro ($18.45) per month. It is often the case that  this fee is included in the household’s rent.
The third method of distribution of television programming is through  satellite service, which today is received by an estimated 35 percent of  German television households. According to RegTP, to provide satellite  television service in Germany, a license to use the necessary spectrum is  required by the agency. Also, any broadcast station that wants to be  carried on a satellite system must obtain authorization to do so from one  of the Media Authorities. The predominant provider of satellite television  service in Germany is ASTRA, a Luxembourg-based company that  provides satellite service throughout Europe. In order for a broadcast  channel—whether a public station or a private station—to be carried by a  satellite provider, a contractual agreement is reached between the  broadcaster and the satellite provider that gives the right to the satellite  provider to rebroadcast the signal, but requires the broadcast station to  pay a fee for that carriage. For viewers, satellite service is available free of  charge; however, viewers must purchase the equipment needed in order to  receive programming. In addition, they must be able to situate the satellite  dish toward the southern sky to receive the transmission signal from the  geostationary satellite. The costs for a satellite dish and related equipment  are estimated at less than 200 Euro ($246.04). Satellite television service  provides viewers in Germany with approximately 125 channels, about 60  of which are in German.
section_title: Berlin Officials and Industry Participants Engaged in Extensive Planning for the Rapid DTV Transition in the Berlin Test Market
paragraphs: In Germany, government officials and industry participants are  implementing the DTV transition to improve the viability of terrestrial  television in the face of a low and declining share of households that rely  solely on terrestrial television. Several elements of the DTV transition will  apply throughout Germany, including an island based approach, where the  DTV transition will occur separately in different metropolitan areas, and  the adoption of standard-definition digital television. In Berlin, extensive  planning facilitated the rapid DTV transition. Important elements of the  Berlin DTV transition included a short simulcast period, financial and  nonfinancial support provided to private broadcasters, subsidies provided  to eligible low-income households for set-top boxes, and an extensive  consumer education effort. While the Berlin DTV transition is generally  viewed as successful, it is unclear whether a full DTV transition will occur  throughout Germany.
subsections: section_title: German DTV Transition Was Largely Designed to Preserve Terrestrial Television
paragraphs: A primary rationale for the German DTV transition was to preserve  terrestrial television in the face of a low and declining share of households  that rely solely on this method of television reception. As mentioned  previously, fewer than 10 percent of German households rely solely on  terrestrial television, and the share has been rapidly declining in recent  years. Since broadcasters reach over 90 percent of German households  through cable and satellite service, concerns arose about the continued  costs associated with the transmission of terrestrial television relative to  the number of viewers. By increasing the number of television channels  delivered terrestrially, the DTV transition was seen as a means to improve  the viability of terrestrial television. Because there was concern that  terrestrial viewership would continue to decline, German regulators  decided that any DTV transition would need to occur relatively quickly.
Some industry participants in Germany suggested that a switch-off of  terrestrial television might be the better course. These parties argued that  terrestrial television is costly and that German households have both cable  and satellite as alternatives. Further, cable service is offered at reasonably  low prices and satellite service is completely free of charge once the  satellite dish and receiver have been installed. Ultimately, however,  German regulators decided to proceed with a DTV transition.
The transition provided benefits for both consumers and broadcasters. For  consumers, the presence of digital terrestrial television ensures that  consumers maintain a choice of three mechanisms to receive television  service. We were told that this choice is important in cities such as Berlin,  where many people cannot receive satellite service and, without terrestrial  television, would be dependent on cable service. Further, one consumer  group noted that digital terrestrial television allows consumers to avoid  paying a fee for cable service while receiving a similar number of channels  as they would with cable service. For broadcasters, the presence of  terrestrial television provides a third mechanism for the transmission of  their signals. We were told that this helps keep the fees that broadcasters  must pay to cable companies to carry their signals lower than would be  the case if broadcasters were reliant solely on cable and satellite for the  transmission of their signals.
section_title: Certain Decisions about the DTV Transition Will Apply Throughout Germany
paragraphs: In Germany, the Digital Broadcasting Initiative (the Initiative) establishes a  nationwide framework for digital broadcasting. The federal government  established the Initiative in 1997, and the federal Ministry of Economics  and Labour and the Länder (or states) chair and deputy chair, respectively,  the Initiative. Other members of the Initiative include representatives of  the federal and state governments; public and private broadcasters;  content providers; cable, satellite, and terrestrial operators; equipment  manufacturers; and consumer groups. The Initiative develops strategies  for digital broadcasting, including terrestrial television and radio, cable,  and satellite service. The Initiative set a deadline for the DTV transition of  2010; this date is a strategy or recommendation, and not set forth in  German law.
The Initiative developed different strategies for television and radio, cable,  and satellite service, and the DTV transition occurring throughout  Germany at this time only focuses on terrestrial television. Thus, only  households that rely solely on terrestrial television—about 160,000 in  Berlin—were required to purchase equipment in order be able to continue  to receive terrestrial television service on their existing analog televisions.  Households that rely on cable or satellite service were unaffected by the  DTV transition because cable and satellite providers converted the signals  to ensure that households receiving their service could continue to view  the signals without any additional equipment. Although, households that  receive cable or satellite service would require equipment for televisions  in their homes that are not connected to the cable or satellite service.
The Initiative determined that the German DTV transition would occur  through an island-based approach, in which each island will transition  independently to digital terrestrial television. Each island is a major  metropolitan area, such as Berlin or Munich. Figure 1 illustrates the  various islands in Germany and the actual or planned year for the DTV  transition. We were told that Germany adopted this approach because the  DTV transition could not be achieved throughout the entire country  simultaneously; officials thought that a nationwide DTV transition would  be too big to manage at one time. Additionally, by adopting the island  approach, German officials gained experience with the DTV transition, and  thereby were able to assess whether the public would accept terrestrial  digital television. Several officials told us that the islands will eventually  grow together, and the DTV transition will encompass the entire country.  However, we were also told that had the Berlin DTV transition not been a  success, the transition in other areas may have been reevaluated and may  not have gone forward.
In addition to the island-based approach, Germany decided to adopt  standard-definition digital television, instead of high-definition digital  television. The government and industry officials with whom we spoke  cited several advantages of standard-definition digital versus high- definition digital for Germany. First, the equipment that consumers must  purchase for standard-definition digital is generally less expensive than the  equipment necessary for high-definition digital. Second, with high- definition digital, broadcasters must install more costly equipment and  incur higher transmission costs than would be the case with standard- definition digital. Finally, German officials believe that terrestrial  television with a standard-definition digital signal is more competitive with  cable and satellite than it would be with a high-definition digital signal.  These officials noted that the increase in competitiveness of terrestrial  television derives from its mobility and the increased channels available  with standard definition digital. In particular, officials we spoke with  noted that standard-definition digital technology allows multiple channels  to be shown with the same amount of spectrum that was previously used  to transmit one analog terrestrial channel. Thus, terrestrial television in  Berlin now offers nearly as many channels to viewers as they receive on  their cable systems. This greater number of channels combined with the  mobility of terrestrial television—a feature not available with cable or  satellite that enables consumers to take their television to their boats and  garden homes—was seen as a factor that would make terrestrial television  more attractive relative to cable or satellite service.
Finally, German officials did not plan for the return of spectrum following  the DTV transition. Germany has allocated a limited amount of spectrum  for terrestrial television, and all the analog frequencies have been  dedicated to digital television. As previously mentioned, broadcasters  intend to use the spectrum for multiplexing—providing four digital  channels in the same amount of spectrum that they previously provided  one analog channel. However, if all multiplexes are not used, some  spectrum could be returned to the government. But, it is not clear that this  spectrum could or would be assigned to a different use, such as mobile  telephone or Internet access.
section_title: mabb and Industry Participants Engaged in Extensive Planning for the Berlin DTV Transition
paragraphs: mabb, the Media Authority that regulates radio and television in the states  of Berlin and Brandenburg, made several key decisions about how the  DTV transition would occur in the area under its authority.
When to undertake the DTV transition. Each of the 15 Media Authorities  throughout Germany made decisions about when to undertake the DTV  transition within their region. Berlin was the first of Germany’s islands to  undertake the DTV transition. We were told that Berlin had several  characteristics that made it favorable to serve as a test market for the DTV  transition. First, the percent of households that rely solely on terrestrial  television is relatively low in Berlin. Since the DTV transition in Germany  requires only equipment modifications for terrestrial televisions, the  number of households affected was relatively small—only about 160,000  households—and the transition more manageable. Second, Berlin had  more spectrum dedicated to television because spectrum that had been  used by both East and West Berlin was all still allocated to terrestrial  television use. Third, because Berlin is not near other major cities, no  signal interference concerns arose in the area, as they might for cities such  as Bonn or Cologne, which are near other cities and the German border  with other countries. Finally, Berlin also has fairly simple topography—it  is basically flat—enabling easier transmission of television signals.
Length of Simulcast. mabb and industry participants implemented the  DTV transition in the Berlin area with a short simulcast period. The DTV  transition agreement negotiated between mabb and the broadcasters  specified a three-phase simulcast process:    On November 1, 2002, the simulcast period commenced as digital signals  for some of the stations of both public and commercial broadcasters  began to be transmitted. Berlin officials dedicated two additional channels  for the simulcast, with each of these channels carrying four multicast  digital stations. Thus, eight of Berlin’s eleven analog stations were initially  simulcast.
On February 28, 2003, five previously analog channels were converted to  digital channels, with each channel carrying multiple stations. Thus, the  digital signals of more stations were turned on, including stations that  were not previously available terrestrially in Berlin. The analog  transmission of all national private broadcasters stopped, and public  broadcasters transitioned their analog signals to lower-power analog  frequencies.
On August 8, 2003, all analog transmission stopped.
The government and industry officials with whom we spoke with cited  several reasons for the short simulcast period. First, Germany does not  have enough spectrum dedicated to television service to implement a long  simulcast period while also providing additional stations; the spectrum  used for analog transmission is the same spectrum that will be used for  digital transmission. Second, an extended simulcast period is costly for  broadcasters, who, as mentioned earlier, must pay for terrestrial  transmission. Third, a quick and certain shutoff date provides an incentive  for households to purchase the necessary set-top boxes. German federal  officials and other Media Authorities are generally encouraged by the  success of the short simulcast period in Berlin. In the state of North-Rhine  Westphalia, the Media Authority intends to implement a 6-month simulcast  period for public broadcasters, with no simulcast period for private  broadcasters, in the state’s two islands.
Private broadcaster support. mabb made the decision to provide financial  and nonfinancial support to private broadcasters. Public broadcasters  were able to finance their transition costs through the radio and television  license fee they receive. Private broadcasters, on the other hand, do not  receive license fees, but were viewed as important participants in the DTV  transition. Therefore, mabb decided to provide support to private stations,  which consisted of three elements. First, for 5 years, mabb will pay the  broadcasters’ incremental costs associated with digital transmission (i.e.,  mabb will pay the difference between the broadcasters’ former analog  transmission costs and their digital transmission costs). In return, the  private broadcasters agreed to provide digital terrestrial television for at  least 5 years. Second, as incumbent broadcasters, the private broadcasters  received authority to provide multiplexed service. That is, the private  broadcasters were allowed to increase the number of terrestrial channels  they provide in Berlin using the spectrum they were already assigned.  Third, one broadcaster told us that in return for participating in the DTV  transition in the Berlin island, it received favorable must-carry status  throughout the region that mabb regulates—that is, mabb will require that  its stations be carried on cable systems in the region. At this time, it is not  clear whether and to what extent the other Media Authorities plan to  provide similar support for private broadcasters’ DTV transition in other  regions. One private broadcaster told us that it would be unwilling to  participate in the DTV transition in other islands if it does not receive the  multicast authority.
Subsidy of set-top box for needy households. In addition to supporting  private broadcasters, mabb provided support to certain households for the  purchase of set-top boxes. According to mabb, the overriding principle  was that households must pay for the set-top boxes necessary to watch  terrestrial digital broadcast signals. However, mabb made contingencies  for low-income households. Households that were entitled to government  aid could apply to the Social Welfare Office for assistance. If the  household met the income eligibility criteria and relied solely on terrestrial  television (i.e., the household did not receive cable or satellite service), the  household received a voucher for a free set-top box. Qualifying  households received their set-top box either from specified retailers, or  the box was delivered to their home, whichever means was least costly.  During the DTV transition period, mabb paid 75 percent of the subsidy  cost and the Social Welfare Office paid the remaining 25 percent of the  subsidy cost. mabb funded its share of the subsidy through the portion of  the radio and television license fee that it receives, while the Social  Welfare Office funded its share of the subsidy through its regular budget.  Following the transition period, the Social Welfare Office began paying the  entire cost of the subsidy, up to 129 Euro ($158.70). According to mabb, a  total of 6,000 set-top boxes were provided to needy households with a  total cost of 500,000 Euro ($615,100).
Extensive consumer education. mabb and industry participants  conducted an extensive consumer education effort. One official told us  that a primary concern with the DTV transition is making sure that  households that rely solely on terrestrial television understand that they  must do something to be able to continue receiving television. In Berlin,  two important consumer education mechanisms were messages on  terrestrial-only television signals and information sessions with retailers.  On television signals received by terrestrial television, households saw a  rolling scroll that informed them about the DTV transition. Deutsche TV- Plattform and the Berlin Chamber of Commerce also held information  sessions with retailers. Other consumer education mechanisms included a  direct mailing to every household, a consumer hotline, flyers and  newsletters, an Internet Web site, and advertisements on buses and  subways. One primary concern with the consumer education effort was  to avoid confusing cable and satellite subscribers. Because the DTV  transition only affected households relying solely on terrestrial television,  the consumer education effort focused on means that would target only  these households, and not households subscribing to cable and satellite  service. We were also told that a short consumer education period was  best for informing households about the DTV transition; in Berlin, the  consumer education effort lasted approximately 4 weeks and cost  approximately 800,000 Euro ($984,160).
section_title: The Berlin DTV Transition Is Generally Viewed as Successful, but Full DTV Transition May Not Occur in Rural Areas
paragraphs: Relatively few consumer complaints and problems arose during the Berlin  DTV transition. For example, a consumer organization that we spoke with  told us that there were very few complaints, and that most complaints that  did arise concerned the cost of the set-top box, which they said was  approximately 100 to 125 Euro ($123.02 to $153.78). We were also told  that there were minor technical problems and few reception problems. An  mabb official with whom we spoke thought that reception had improved  following the DTV transition, because the agency ensured a strong digital  signal and because digital transmission is superior to analog transmission.  The technical and reception problems that did arise included difficulties  installing and using the set-top box; reception problems in some multiple- dwelling units, particularly ground-floor units and buildings with rooftop  antennas and boosters; and interference problems for some cable  subscribers because of the strength of the digital signal.
During the Berlin DTV transition, some households changed the  mechanism through which they receive television service. We were told  that between one-third and one-half of households that previously relied  solely on terrestrial television switched to either cable or satellite service,  rather than purchase the set-top box. An official with mabb told us that the  percent of households switching from terrestrial television to cable and  satellite was less than they had expected. On the other hand, more set-top  boxes—over 200,000—were sold than the number of former terrestrial- only households, indicating that some households purchased multiple  boxes, and that some cable and satellite households also purchased set- top boxes for a second or third television that only received terrestrial  service. We were also told that relatively few cable subscribers switched  to terrestrial television following the DTV transition. As previously  mentioned, cable payments are often included in the household’s rent  payment and some cable contracts are long-term in nature, thereby  reducing the incentive and flexibility that some households have to switch  away from cable service. Some industry officials told us, however, that  they expect some cable subscribers to switch to terrestrial service in the  longer term.
The government, industry, and consumer representatives with whom we  spoke mentioned several factors as contributing to the success of the  Berlin DTV transition. These factors include the following:    The DTV transition provided enhanced consumer value for Berlin  households. The number of channels available through terrestrial  television increased from approximately 11 to 27 and included an  electronic program guide.
The government and broadcasters did not have to finance the new  programs. The new channels available through terrestrial television  following the DTV transition already existed on cable and satellite  systems.
There was good cooperation between the government officials and  broadcasters, which helped ensure that consumers received additional  channels.
The transition affected a relatively small percentage of Berlin households;  only households that relied solely on terrestrial television—less than 10  percent of Berlin households—had to take action to avoid losing their  television service.
The set-top boxes were relatively inexpensive, and the price fell  throughout the transition period.
There was a scheduled time line for the DTV transition and a firm shutoff  date.
There was good communication to consumers about the DTV transition.
While the Berlin DTV transition appears successful, a full DTV transition  might not extend throughout Germany. Government and industry officials  with whom we spoke said that private broadcasters will most likely not  provide digital service in rural areas outside the islands, but that public  broadcasters will provide digital service in these areas. This is not entirely  different than the current situation with analog television, where the  private broadcasters do not provide terrestrial television in all areas of the  country. However, it does raise the possibility that a full DTV transition,  including the digital terrestrial transmission of both public and private  broadcasters, might not occur throughout Germany.
Finally, some groups we spoke with identified problems with the Berlin  DTV transition. The cable television industry in Germany mentioned  several problems. Cable industry officials with whom we spoke objected  to the use of the radio and television license fee for the DTV transition.  These officials told us that all German households pay the license fee, but  only terrestrial households in the islands benefit from the DTV transition.  In fact, the cable industry has petitioned the European Commission about  the use of the license fee for the DTV transition. Other problems noted by  the cable industry officials with whom we spoke include cable subscribers  purchasing set-top boxes by mistake and the expense and problems cable  operators incurred to upgrade their headend facilities to receive the digital  signal. Regarding the set-top box subsidy, the Social Welfare Office  thought that the process could have been handled a little better. In  particular, it found that approximately 20 percent of the applications for  subsidies were not handled adequately, most often because they were  incomplete or missing signatures.
section_title: Need for Set-Top Box Deployment Is Key Challenge in Germany and in the United States
paragraphs: Based on our examination of the DTV transition in Berlin and other areas  of Germany, it is clear that the manner in which DTV is to be rolled out is  considerably different than in the United States. Nevertheless, we found  that much of the focus in Berlin leading up to and during the simulcast  period was on making sure that consumers who receive television solely  through terrestrial means obtain the necessary set-top boxes so that they  would be able to view DTV signals once the analog signals were turned off.  Since the DTV transition in the United States is already in a simulcast  phase—that is, most digital broadcast television signals are already being  transmitted—the phase of encouraging consumers to adopt DTV  equipment is upon us. FCC has yet to fully determine how cable and  satellite households will count toward the 85 percent threshold.  Ultimately, the Congress and FCC will need to turn their attention to  providing information, incentives, and possibly assistance to those who  need to purchase equipment in order for the transition—and the return of  valuable spectrum—to be completed. Ensuring that consumers  understand the transition, how they will be affected by it, and what steps  they need to take is critical not only for ensuring the transition moves  forward, but for ensuring that consumers do not unexpectedly lose  television reception or incur costs beyond what is necessary to  successfully transition to digital television.
The Berlin experience highlights a few factors, which relate to consumers’  purchase of set-top boxes, that were very important for the success of the  DTV transition in that city:  Information provided focused a great deal on need for set-top box and  benefits of completing the transition. The Berlin authorities and  broadcasters provided extensive information to the public, the media, and  retailers about what the transition would entail, what consumers needed  to do, how they would benefit by transitioning to digital television, and  where to get assistance if there was confusion about what equipment was  necessary or if there were problems with equipment or reception. This  effort was planned and coordinated among many parties, adequate  resources were dedicated to the information campaign, and nearly  everyone we spoke with told us it a critical factor to the success of the  rapid DTV transition in Berlin.
Set-top boxes were subsidized for needy households. Subsidies were  provided to certain households that might have had difficulties affording  the necessary set-top boxes. In particular, low-income households that  rely on terrestrial television could apply for financial assistance for the  purchase of a set-top box. Because of the low penetration of terrestrial  television, only about 6,000 households required this subsidy at a cost of  about half a million Euro ($615,100). Nevertheless, this may have helped in  the management of the transition by ensuring that the transition would not  be an undue burden for lower-income households.
Near-term date certain for transition deadline made clear when set-top  boxes would need to be in place. Finally, the Media Authority in Berlin set  a date certain for the transition that required consumers to make decisions  quickly about how they would adapt to the transition. This enabled all  stakeholders to know what they needed to work toward: when set-top  boxes needed to be available in the market; when education of consumers,  hotlines, and TV scroll information would be required; and the date by  which consumers needed to decide how to transition or lose their  television service.
To summarize my statement, Mr. Chairman, although the context of the  transition differs considerably in Germany as compared with the United  States, there may be interesting and helpful lessons for the Congress and  FCC from the DTV transition in Berlin and other areas of Germany. This  concludes my prepared statement. I would be happy to respond to any  questions that you or other Members of the Subcommittee may have at  this time.
section_title: GAO Contacts and Staff Acknowledgments
paragraphs: For questions regarding this testimony, please contact Mark L. Goldstein  on (202) 512-2834 or goldsteinm@gao.gov. Individuals making key  contributions to this testimony included Amy Abramowitz, Dennis Amari,  and Michael Clements.
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