Digital Broadcast Television Transition: Estimated Cost of Supporting Set-Top Boxes to Help Advance the DTV Transition
Published: 2005-02-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: I am pleased to be here today to report on our work on the potential cost  of providing a subsidy to consumers for the purchase of set-top boxes in  order to accelerate the transition from analog to digital broadcast  television. This transition—known as the DTV transition—offers the  promise of more programming options, interactive services, and high- definition television (HDTV). Moreover, the return of radiofrequency  spectrum used for analog broadcast television at the end of the transition  will provide many benefits to society, such as easing the spectrum scarcity  facing public safety first responders, engendering economic growth and  consumer value from spectrum redeployed to wireless services, and  affording the federal government revenues from the proceeds of a  spectrum auction. To facilitate the transition, the Congress and the  Federal Communications Commission (FCC) temporarily provided  television stations nationwide with additional spectrum so that stations  could simultaneously broadcast both an analog and a digital signal.  Stations’ analog licenses are mandated to terminate in December 2006, or  when 85 percent of households in each market can receive digital  broadcast signals, whichever is later. While the purchase of digital  televisions is steadily increasing, it nevertheless appears unlikely that a  sufficient proportion of households will have digital television equipment  in place by the end of 2006.
In order to spur households’ adoption of the digital equipment necessary  for the transition, some have suggested that the government provide a  subsidy to certain households to purchase a device, known as a set-top  box, that can receive digital broadcast television signals and convert them  into analog signals so that they can be displayed on existing television  sets. This device would enable the household to view digital broadcast  signals without purchasing a digital television set; such sets currently sell  at considerably higher prices than traditional analog television sets. Aiding  in the deployment of set-top boxes may enable the transition to end  sooner than it might otherwise by increasing the number of households  that can view digital broadcast signals.
At the request of this subcommittee, we have examined (1) the current  distribution of American households by television viewing methods and  whether there are demographic differences among these groups; (2) the  equipment required for households to receive digital broadcast signals;  and (3) the estimated cost to the federal government, under various  scenarios, of providing a subsidy for set-top boxes that would enable  households to view digital broadcast signals. In addition to information  provided in this testimony, we are conducting additional work on the DTV  transition, subsidy options, and administrative approaches for  implementing a subsidy program, and will provide a more detailed study  for the Committee and the Subcommittee later this year.
While a subsidy for set-top boxes may be one policy option to spur the  transition, there are other policies that might do so as well. In our  statement today, we provide cost estimates for a possible subsidy program  under various scenarios. We note, however, that in providing these cost  estimates, GAO is taking no position on this policy option. We are merely  providing, as requested by the Committee and the Subcommittee, cost  estimates for such a program.
To address the issues we will discuss today, we purchased data from  Knowledge Networks, a survey research firm that had conducted a  consumer survey on household television characteristics. The survey  provided the responses of 2,471 randomly selected American households  and covers such topics as the method each household uses to view  television (e.g., cable, over the air), how many television sets they have,  and whether they have set-top boxes for digital cable service. The survey  also provides information on an array of demographic characteristics for  each household. These data were collected between February and April  2004. The response rate for Knowledge Network’s survey was 47 percent.  The relevance of the response rate for the study’s findings is discussed in  appendix I. Using a 95 percent confidence interval, all percentage  estimates from the survey have margins of error of plus or minus 6  percentage points or less, and all cost estimates based on the survey data  have margins of error of plus or minus 16 percent or less. To assess the  reliability of these survey data, we reviewed documentation of survey  procedures provided by Knowledge Networks and questioned  knowledgeable officials about the survey process and resulting data. We  determined that the data were sufficiently reliable for the purposes of this  testimony. We also contracted with Knowledge Networks to recontact  some of respondents to its survey to ask additional questions that GAO  developed.  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.
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. 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.  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, roughly 29 percent of both cable  and satellite homes had household incomes less than or equal to that level.  Also, only 6 percent of over-the-air households had incomes over $100,000,  while about 13 percent of cable and satellite households had incomes  exceeding $100,000. Additionally, non-white and Hispanic households are  more likely to rely on over-the-air television than are white and non- Hispanic households.
The specific equipment needs for each household to transition to DTV— that is, to be able to view broadcast digital signals—depends on certain  key factors. First, the method through which a household watches  television and whether it has already upgraded its television equipment to  be compatible with digital television, will factor into the equipment needs  of the household. Additionally, certain regulatory decisions yet to be made  by FCC will play a role in determining some consumers’ equipment needs.  We examined two key cases regarding the regulatory decisions.
In case one, we assume that cable and DBS providers would continue  providing broadcasters’ signals as they currently do, thus eliminating  any need for their subscribers to acquire new equipment. That is, cable  providers would initially “downconvert” broadcasters’ high-definition  digital signals to an analog format before they are transmitted to their  subscribers. Similarly, DBS providers would initially downconvert  broadcasters’ high-definition digital signals to a standard-definition  digital format before they are transmitted to their subscribers. This  enables the signals to be viewed on subscribers’ existing televisions  sets. In this case, only households viewing television using only an  over-the-air antenna must take action to be able to view broadcasters’  digital signals.
In case two, we assume that cable and DBS providers would be  required to provide broadcasters’ digital signals to subscribers in  substantially the same format as broadcasters transmitted those  signals. Because some of the broadcasters’ digital transmissions are in  a high-definition digital format, the second case would require cable  and DBS providers to transmit the signals in this format to their  subscribers. To be able to view these signals, cable and DBS  subscribers would need to have equipment in place, or to acquire new  equipment, that can receive their providers’ high-definition digital  signals. The second case would also require, as does case one, all over- the-air households to acquire new equipment.
If a subsidy for set-top boxes were needed only for over-the-air  households, we estimate that its cost could range from about $460 million  to about $2 billion. The subsidy cost varies depending on the price of the  set-top boxes and whether a means test—which would limit eligibility for  the subsidy to only those households with incomes lower than some  specified limit—were employed. However, if cable and satellite  subscribers also needed new equipment and the subsidy provides some  support for these households as well, the overall cost of the program  would grow. We estimate that in this case, the cost of providing the  subsidy could range from about $1.8 billion to over $10 billion, depending,  again, on the price of the set-top boxes and whether a means test were  employed.
subsections: section_title: Background
paragraphs: The United States is currently undergoing a transition from analog to  digital broadcast television. With traditional analog technology, pictures  and sounds are converted into “waveform” electrical signals for  transmission through the radiofrequency spectrum, while digital  technology converts these pictures and sounds into a stream of digits  consisting of zeros and ones for transmission. Digital transmission of  television signals provides several advantages compared to analog  transmission, such as enabling better quality picture and sound reception  as well as using the radiofrequency spectrum more efficiently than analog  transmission. This increased efficiency makes multicasting—where  several digital television signals are transmitted in the same amount of  spectrum necessary for one analog television signal—and HDTV 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.
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.
section_title: Americans Watch Television through Three Primary Modes
paragraphs: 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. Cable operators provide their subscribers with, on  average, approximately 73 analog television channels and 150 digital  television channels. In 1994, a third primary means of providing television  emerged: direct broadcast satellite (DBS). Subscribers to DBS service use  small reception dishes that can be mounted on rooftops or windowsills to  receive television programming beamed down from satellites that orbit  over the equator. Like cable, DBS service is a subscription television  service that provides consumers with many channels of programming.  When the Congress enacted the Satellite Home Viewer Improvement Act  of 1999, it allowed DBS carriers to provide local broadcast signals—such  as the local affiliate of ABC or NBC—which they had previously not  generally been able to provide.
Over-the-Air Households. We found that 19 percent, or 20.8 million  American households, rely exclusively on over-the-air transmissions for  their television viewing. We recognize that others have estimated a lower  value for the percent of households relying on over the air television. Our  results were derived from a survey of over 2,400 households, from which  we estimated with 95 percent certainty that between 17 and 21 percent of  households rely on over the air television. Compared to households that  purchase a subscription to cable or DBS service, we found that exclusive  over-the-air viewers are somewhat different demographically. Overall,  over-the-air households are more likely to have lower incomes than cable  or satellite households. Approximately 48 percent of exclusive over-the-air  viewers have household incomes less than $30,000, and 6 percent have  household incomes over $100,000. Additionally, nonwhite and Hispanic  households are more likely to rely on over-the-air television than are white  and non-Hispanic households; over 23 percent of non-white households  rely on over-the-air television compared to less than 16 percent of white  households, and about 28 percent of Hispanic households rely on over-the- air television compared to about 17 percent of non-Hispanic households.  Finally, we found that, on average, exclusive over-the-air households have  2.1 televisions, which is lower than the average for cable and satellite  households.
We asked the survey research firm to recontact approximately 100 of the  respondents who exclusively watch television through over-the-air  transmission to ask additional questions, including the primary reason the  household does not purchase a subscription video service. Forty-one of  these respondents said that it was too costly for them to purchase a  subscription video service, and 44 said that they do not watch enough  television to warrant paying for television service. Most of the recontacted  households seemed unlikely to purchase a subscription service in the near  future. Only 18 of the recontacted households said that they would be  likely to purchase a subscription video service in the near future, and  another 10 said that they might do so.
Cable Households. We found that 57 percent, or 63.7 million American  households, view television through a cable service. On average, cable  households have 2.7 television sets. Sixteen percent of cable households  have at least one television set in the home that is not connected to cable  but instead receives only over-the-air television signals. Of the cable  households surveyed, roughly 29 percent had household incomes of less  than or equal to $30,000, and about 13 percent had incomes exceeding  $100,000. We also found that 44 percent of the cable homes have at least  one set-top box. Of those cable subscribers with a set-top box, about 67  percent reported that their box is capable of viewing channels the cable  system sells on “digital cable tiers,” meaning that the channels are  transmitted by their cable provider in a digital format. A subset of these  “digital cable” customers have a special set-top box capable of receiving  their providers’ transmission of high-definition digital signals.
Because the existence of a set-top box in the home may be relevant for  determining what equipment households would need to view broadcast  digital television signals, we asked the survey research firm to recontact  approximately 100 cable households that do not have a set-top box to ask  questions about their likely purchase of digital cable tiers—which require  a set-top box—in the near future. 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. Although the DBS providers have been  rolling out local broadcast stations in many markets around the country in  the past few years, not all markets are served. DBS subscribers in markets  without local broadcast signals available through their DBS provider  usually obtain their local broadcast signals through an over-the-air  antenna, or through a cable connection. This is important to the DTV  transition because how households with DBS service view their local  broadcast channels will play into the determination of their requirements  to transition to broadcast DTV. We therefore requested that the survey  research firm recontact approximately 100 DBS customers to ask how  they receive their local broadcast channels. 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.
section_title: 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
paragraphs: The specific equipment needs for each household to transition to DTV— that is, to be able to view broadcast digital signals—depends on certain  key factors: the method through which a household watches television,  the television equipment the household currently has, and certain critical  regulatory decisions yet to be made. In this section we discuss two cases  regarding a key regulatory decision that will need to be made and the  implications that decision will have on households’ DTV equipment needs.
Before turning to the two cases, a key assumption underlying this analysis  must be discussed. Currently, broadcasters have a right to insist that cable  providers carry their analog television signals. This is known as the “must  carry” rule, and dates to the Cable Television Consumer Protection and  Competition Act of 1992. FCC made a determination that these must carry  rules will apply to the digital local broadcast signals once a station is no  longer transmitting an analog signal. In our analysis, we assume that the  must carry right applies to broadcasters’ digital signals, and as such, cable  providers are generally carrying those signals. DBS providers face some  must carry rules as well, although they are different in some key respects  from the requirements that apply to cable providers. For the purposes of  this analysis, we assume that to the extent that DBS providers face must  carry requirements, those requirements apply to the digital broadcast  signals.
For nearly all cable subscribers, and more than half of the DBS  subscribers, local broadcast analog signals are provided by their  subscription television provider. This means that these providers capture  the broadcasters’ signals through an antenna or a wire and retransmit  those signals by cable or DBS to subscribers. We make two disparate  assumptions, which we call case one and case two, about how cable and  DBS providers might provide digital broadcast signals to subscribers. We  do not suggest that these are the only two possibilities regarding how the  requirements for carriage of broadcast signals might ultimately be  decided—these are simply two possible scenarios.
Case One. In this case, we assume that cable and DBS providers will  continue providing broadcasters’ signals as they currently do. This  assumption would be realized if cable and DBS providers initially  downconvert broadcasters’ digital signals at the providers’ facilities,  which may require legislative or regulatory action. That is, cable providers  would initially downconvert broadcasters’ high-definition digital signals to  an analog format before they are transmitted to their subscribers.  Similarly, DBS providers would initially downconvert broadcasters’ high- definition digital signals to a standard-definition digital format before they  are transmitted to their subscribers. In this case, there would be no need  for cable and DBS subscribers to acquire new equipment; only households  viewing television using only an over-the-air antenna must take action to  be able to view broadcasters’ digital signals. This case shares many  attributes with the recently-completed DTV transition in Berlin, Germany.
All over-the-air households—which account for approximately 21 million  households in the United States—must do one of two things to be able to  view digital broadcast signals. First, they could purchase a digital  television set that includes a tuner capable of receiving, processing, and  displaying a digital signal. The survey data we used indicated that only  about 1 percent of over-the-air viewers have, as of now, purchased a  digital television that contains a tuner. However, some large televisions  sold today are required to include such a tuner and by July 2007, all  television sets larger than 13 inches are required to include a tuner. After  that time, consumers who purchase new television sets will automatically  have the capability of viewing digital signals. Approximately 25 to 30  million new television sets are purchased each year in the United States.  The second option available to over-the-air households is to purchase a  digital-to-analog set-top box. That is, for those households that have not  purchased a new television set, the set-top box will convert the digital  broadcast signals to analog so that they can be viewed on an existing  analog television set. Viewers with digital-to-analog set-top boxes would  not actually see the broadcast digital signal in a digital format, but would  be viewing that signal after it has been downconverted, by the set-top box,  to be compatible with their existing analog television set. Currently,  simple set-top boxes that only have the function of downconverting digital  signals to analog are not on the market. More complex boxes that include  a variety of functions and features, including digital to analog  downconversion, are available, but at a substantial cost. However,  manufacturers told us that simple, and less expensive, set-top boxes would  come to the market when a demand for them develops.
Case Two. In the second case, we assume that cable and DBS companies  would be required to provide the broadcasters’ signals to their subscribers  in substantially the same format as it was received from the broadcasters.  Because some of the broadcasters’ signals are in a high-definition digital  format, cable and DBS subscribers—just like over-the-air households— would need to have the equipment in place to be able to receive high- definition digital signals. There are several ways these subscribers could  view these signals:    Cable or DBS subscribers would be able to view digital broadcast  television if they have purchased a digital television set with an over-the- air digital tuner. They would then have the capability of viewing local  digital broadcast stations through a traditional television antenna—just  like an over-the-air viewer. However, many cable and DBS households  may want to continue to view broadcast television signals through their  cable or DBS provider.
Cable or DBS subscribers could purchase a digital television with a “cable  card” slot. By inserting a “card” provided by the cable company into such a  television, subscribers can receive and display the digital content  transmitted by the cable provider. Only very recently, however, have  cable-ready digital television sets—which allow cable subscribers to  receive their providers’ digital signals directly into the television set— come to the market. Similar televisions sets with built-in tuners for  satellite digital signals are not currently on the market.
To view the high-definition signals transmitted by their subscription  provider, the other possibility for cable and DBS households would be to  have a set-top box that downconverts the signals so that they can be  displayed on their existing analog television sets. That is, any  downconversion in this scenario takes place at the subscribers’ household,  as opposed to the subscription television providers’ facilities, as in case  one. While all DBS subscribers and about a third of cable subscribers have  set-top boxes that enable a digital signal from their provider to be  converted to an analog signal for display on existing television sets, few of  these set-top boxes are designed for handling high-definition digital  signals. As such, if broadcasters’ signals are transmitted by cable and DBS  providers in a high-definition format, not all cable and satellite subscribers  would need new equipment, although most would. In case two, as in case  one, all exclusively over-the-air households need a digital television set or  a set-top box.
section_title: Cost of Federal Subsidy for Set-Top Boxes Varies Considerably, Depending on Several Factors
paragraphs: 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.
Means test. Imposing a means test would limit the subsidy to only those  households determined to be in financial need of a subsidy. A means test  would limit eligibility for the subsidy to only those households with  incomes lower than some specified limit. We employed two different  levels of means tests. The scenarios with means tests are roughly based on  200 percent and 300 percent of the poverty level as the income threshold  under which a household’s income must lie to be eligible for the subsidy.  The poverty level is determined based on both income and the number of  persons living in the household; for a family of four the official federal  poverty level in 2004 was $18,850.
Set-top boxes. We provide estimates based on two possible price levels  for the boxes: $50 and $100. This range is based on conversations we had  with consumer electronics manufacturers who will likely produce set-top  boxes in the future. Set-top boxes for cable and DBS are often rented by  subscribers, rather than purchased. Nevertheless, in cases where cable  and DBS subscribers need new equipment, we assume that the financial  support provided to them would be equivalent to that provided to over-the- air households.
Table 1 provides the cost of a subsidy program under the assumption that  cable and DBS providers downconvert broadcasters’ signals at their  facilities in a manner that enables them to continue to transmit those  signals to subscribers as they currently transmit broadcasters’ signals. In  this case, cable or DBS subscribers do not require any new equipment, so  only over-the-air households—approximately 21 million American  households—would need new equipment. As shown in table 1, there is  considerable variation in the cost of the subsidy program depending on the  level of a means test and the price of the set-top box.
Table 2 provides the cost of a subsidy program under the assumption that  cable and DBS providers are required to transmit broadcasters’ digital  signals in the same format as they are received. Under this scenario, nearly  all over-the-air households and most cable and DBS subscribers will not  have the equipment in place to view high-definition digital broadcast  signals. Although subscribers typically rent, rather than purchase, set-top  boxes, we assume that the same level of subsidy is provided to these  households as is provided to over-the-air households to defray the cost of  having to obtain a new or upgraded set-top box from their provider.
There are two issues that stand as important caveats to the analyses we  have presented on estimated set-top box subsidy costs. The first is that we  based the majority of the analyses on survey results that provide  information on the status of American television households as of early  2004. Over the next several years, new households will be established,  some households might change the means through which they watch  television, televisions sets with integrated digital over-the-air tuners as  well as digital cable compatibility will be purchased, and some cable and  DBS households will have obtained set-top boxes capable of receiving  high-definition digital signals from their providers. Households’ purchase  of certain new equipment could obviate the need for a subsidy for new  television equipment. For example, some households may purchase a  digital television set with an over-the-air tuner and begin to view digital  broadcast signals in this manner; some large televisions sold today are  required to include such a tuner and by July 2007, all television sets larger  than 13 inches are required to include a tuner. In time, these factors could  have the effect of reducing the cost of a set-top box subsidy because fewer  households would need to be subsidized.
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.
section_title: Contact and 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,  Michael Clements, Andy Clinton, Michele Fejfar, Simon Galed, Eric  Hudson, Catherine Hurley, Bert Japikse, Sally Moino, Karen O’Conor, and  Madhav Panwar.
section_title: Appendix I: Methodology for Use of Survey Data Regarding Television Viewing
paragraphs: To obtain information on the types of television service and equipment  used by U.S. households, we purchased existing survey data from  Knowledge Networks Statistical Research. Their survey was completed  with 2,375 of the estimated 5,075 eligible sampled individuals for a  response rate of 47 percent; partial interviews were conducted with an  additional 96 people, for a total of 2,471 individuals completing some of  the survey questions. The survey was conducted between February 23 and  April 25, 2004.
The study procedures yielded a sample of members of telephone  households in the continental United States using a national random-digit  dialing method. Survey Sampling Inc. (SSI) provided the sample of  telephone numbers, which included both listed and unlisted numbers and  excluded blocks of telephone numbers determined to be nonworking or  business-only. At least five calls were made to each telephone number in  the sample to attempt to interview a responsible person in the household.  Special attempts were made to contact refusals and convert them into  interviews; refusals were sent a letter explaining the purpose of the study  and an incentive. Data were obtained from telephone households and are  weighted by the number of household telephone numbers.
As with all sample surveys, this survey is subject to both sampling and  nonsampling errors. The effect of sampling errors due to the selection of a  sample from a larger population can be expressed as a confidence interval  based on statistical theory. The effects of nonsampling errors, such as  nonresponse and errors in measurement, may be of greater or lesser  significance but cannot be quantified on the basis of available data.
Sampling errors arise because of the use of a sample of individuals to draw  conclusions about a much larger population. The study’s sample of  telephone numbers is based on a probability selection procedure. As a  result, the sample was only one of a large number of samples that might  have been drawn from the total telephone exchanges from throughout the  country. If a different sample had been taken, the results might have been  different. To recognize the possibility that other samples might have  yielded other results, we express our confidence in the precision of our  particular sample’s results as a 95 percent confidence interval. We are 95  percent confident that when only sampling errors are considered each of  the confidence intervals in this report will include the true values in the  study population. All percentage estimates from the survey have margins  of error of plus or minus 6 percentage points or less, unless otherwise  noted.
In addition to the reported sampling errors, the practical difficulties of  conducting any survey introduce other types of errors, commonly referred  to as nonsampling errors. For example, questions may be misinterpreted,  some types of people may be more likely to be excluded from the study,  errors could be made in recording the questionnaire responses into the  computer-assisted telephone interview software, and the respondents’  answers may differ from those who did not respond. Knowledge Networks  has been fielding versions of this survey for over 20 years. In addition, to  reduce measurement error, Knowledge Networks employs interviewer  training, supervision, and monitoring, as well as computer-assisted  interviewing to reduce error in following skip patterns.
For this survey, the 47 percent response rate is a potential source of  nonsampling error; we do not know if the respondents’ answers are  different from the 53 percent who did not respond. Knowledge Networks  took steps to maximize the response rate—the questionnaire was carefully  designed and tested through deployments over many years, at least five  telephone calls were made at varied time periods to try to contact each  telephone number, the interview period extended over about 8 weeks, and  attempts were made to contact refusals and convert them into interviews.
Because we did not have information on those contacted who chose not to  participate in the survey, we could not estimate the impact of the  nonresponse on our results. Our findings will be biased to the extent that  the people at the 53 percent of the telephone numbers that did not yield an  interview have different experiences with television service or equipment  than did the 47 percent of our sample who responded. However,  distributions of selected household characteristics (including presence of  children, race, and household income) for the sample and the U.S. Census  estimate of households show a similar pattern.
To assess the reliability of these survey data, we reviewed documentation  of survey procedures provided by Knowledge Networks, interviewed  knowledgeable officials about the survey process and resulting data, and  performed electronic testing of the data elements used in the report. We  determined that the data were sufficiently reliable for the purposes of this  report.
Due to limitations in the data collected, we made several assumptions in  the analysis. Number of televisions and number of people in the household  were reported up to five; households exceeding four for either variable  were all included in the category of five or more. For the purposes of our  analyses, we assumed that households had no more than five televisions  that would need to be transitioned and no more than five people. Number  of people in the household was only used in calculating poverty, but may  result in an underestimate of those households in poverty.
Calculations of poverty were based on the 2004 Poverty Guidelines for the  48 contiguous states and the District of Columbia, published by the  Department of Health and Human Services. We determined whether or not  each responding household would be considered poor at roughly 200  percent and 300 percent of the poverty guidelines. Income data were  reported in categories so the determination of whether or not a household  met the 200 percent or 300 percent threshold required approximation, and  for some cases this approximation may have resulted in an overestimate of  the number of poor households. In addition, income data were missing for  24 percent of the respondents. To conduct the analyses involving poverty,  we assumed that the distribution of those in varying poverty status was the  same for those reporting and not reporting income data. Comparisons of  those reporting and not reporting income data show some possible  differences on variables examined for this report; however, the income  distribution is very close to the 2003 income estimates published by the  U.S. Census Bureau.
To determine total numbers of U.S. households affected by the transition  and total cost estimates for various transition scenarios, we used the U.S.  Census Bureau’s Current Population Survey estimate of the total number  of households in the United States as of March 2004. To derive the total  number of households covered by the various scenarios, we multiplied this  estimate by the proportions of households covered by the scenarios  derived from the survey data. The standard error for the total number of  U.S. households was provided by the Census Bureau, and the standard  errors of the total number of households covered by the scenarios take  into account the variances of both the proportions from the survey data  and the total household estimate. All cost estimates based on the survey  data have margins of error of plus or minus 16 percent or less.
In addition, we contracted with Knowledge Networks to recontact a  sample of their original 2004 survey respondents in October 2004.  Households were randomly selected from each of three groups: broadcast- only television reception, cable television service without a set-top box,  and satellite television service. For each group, 102 interviews were  completed, yielding 306 total respondents (for a 63 percent response rate).  To reduce measurement error, the survey was pretested with nine  respondents, and Knowledge Networks employed interviewer training,  supervision, and monitoring, as well as computer-assisted interviewing, to  reduce error in following skip patterns. Due to the small sample size, the  findings of these questions are not generalizable to a larger population.
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