Digital Television Transition: Information on the Implementation of the Converter Box Subsidy Program and Consumer Participation in the Program
Published: 2008-09-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Digital Television Transition and Public Safety Act of 2005 requires all full-power television stations in the United States to cease analog broadcasting after February 17, 2009, known as the digital television (DTV) transition. The National Telecommunications and Information Administration (NTIA) is responsible for implementing a subsidy program to provide households with up to two $40 coupons toward the purchase of converter boxes. In this testimony, which is principally based on a report being issued today, GAO examines (1) what consumer education efforts have been undertaken by private and federal stakeholders and (2) how effective NTIA has been in implementing the converter box subsidy program, and to what extent consumers are participating in the program. To address these issues, GAO analyzed data from NTIA and reviewed legal, agency, and industry documents. Also, GAO interviewed a variety of stakeholders involved with the DTV transition.
section_title: What GAO Found
paragraphs: Private sector and federal stakeholders have undertaken various consumer education efforts to raise awareness about the DTV transition. For example, the National Association of Broadcasters and the National Cable and Telecommunications Association have committed over $1.4 billion to educate consumers about the transition. This funding has supported the development of public service announcements, education programs for broadcast, Web sites, and other activities. The Federal Communications Commission (FCC) and NTIA have consumer education plans that target those populations most likely to be affected by the DTV transition. Specifically, they identified 45 areas of the country as high risk that included areas with at least 1 of the following population groups: (1) more than 150,000 over-the-air households, (2) more than 20 percent of all households relying on over-the-air broadcasts, or (3) a top 10 city of residence for the largest target demographic groups. The target demographic groups include seniors, low-income, minority and non-English speaking, rural households, and persons with disabilities. In addition to targeting these 45 areas of the country, FCC and NTIA developed partnerships with organizations that serve these hard-to-reach populations. NTIA is effectively implementing the converter box subsidy program, but its plans to address the likely increase in coupon demand as the transition nears remain unclear. As of August 31, 2008, NTIA had issued almost 24 million coupons and as of that date approximately 13 percent of U.S. households had requested coupons. As found in GAO's recent consumer survey, up to 35 percent of U.S. households could be affected by the transition because they have at least one television not connected to a subscription service, such as cable or satellite. In U.S. households relying solely on over-the-air broadcasts (approximately 15 percent), of those who intend to purchase a converter box, 100 percent of survey respondents said they were likely to request a coupon. With a spike in demand likely as the transition date nears, NTIA has no specific plans to address an increase in demand; therefore, consumers might incur significant wait time to receive their coupons and might lose television service if their wait time lasts beyond February 17, 2009. In terms of participation in the converter box subsidy program, GAO analyzed coupon data in areas of the country comprising predominantly minority and senior populations and found that households in both predominantly black and Hispanic or Latino areas were less likely to redeem their coupons compared with households outside these areas. Additionally, GAO analyzed participation in the converter box subsidy program in the 45 areas of the country on which NTIA and FCC focused their consumer education efforts and found coupon requests to be roughly the same for zip codes within the 45 targeted areas compared with areas that were not targeted. Retailers play an integral role in the converter box subsidy program by selling the converter boxes and helping to inform their customers about the DTV transition. GAO visited 132 randomly selected retail stores in 12 cities. Store representatives at a majority of the retailers GAO visited were able to correctly state that the DTV transition would occur in February 2009 and how to apply for a converter box coupon.

section_title: Letter
paragraphs: I am pleased to be here today to discuss our report being issued today on  the National Telecommunications and Information Administration’s  (NTIA) implementation of the mandated converter box subsidy program.
Federal law requires all full power television stations in the United States  to cease analog broadcasting and broadcast digital-only transmissions  after February 17, 2009—often referred to as the digital television (DTV)  transition. Currently, most television broadcasters transmit over-the-air  signals in both an analog and digital format to television households. After  the transition, consumers who rely exclusively on over-the-air television  signals viewed on analog sets will not be able to view broadcast  programming, which could include important news information or  emergency alerts, unless they take action. In particular, these consumers  could (1) purchase a television capable of processing digital signals, (2)  purchase a digital-to-analog converter box that converts the digital signals  to analog signals and enables their display on an analog set, or (3)  subscribe to cable, satellite, or other service.
The federal government and the private sector have taken several steps to  prepare for the DTV transition. NTIA, a bureau within the U.S. Department  of Commerce, created and implemented a digital-to-analog converter box  subsidy program to provide households with up to two $40 coupons  toward the purchase of converter boxes that allow consumers to continue  viewing over-the-air signals on analog television sets. Additionally, the  government, television broadcast industry, cable and satellite providers,  and other carriers of broadcast signals have established several  educational efforts informing consumers about the DTV transition and the  subsidy program. However, the success of the DTV transition and the  subsidy program requires consumers’ understanding about the transition  and the steps needed to continue receiving a television signal. In addition,  consumers will rely on retailers to provide information, as well as supply  eligible converter boxes, for the subsidy program.
In my testimony today, I will discuss (1) what consumer education efforts  have been undertaken by private and federal stakeholders and (2) how  effective NTIA has been in implementing the converter box subsidy  program and to what extent consumers are participating in the program.
To meet these objectives, we interviewed agency officials from the Federal  Communications Commission (FCC) and NTIA and reviewed their  consumer education documents, orders, rules and proposed rules. We also  interviewed private sector stakeholders representing the broadcasting,  retailer, manufacturing, and cable industries and reviewed publicly  available information on their consumer education planning. Further, we  discussed the effectiveness of consumer education efforts with various  advocacy groups identified as NTIA partners that represent hard-to-reach  populations. We also analyzed date-specific data from NTIA on coupon  requests, issuance, redemptions, and expirations, and examined NTIA  timeliness in issuing coupons from the beginning of the converter box  subsidy program in January through August 2008. Due to report processing  constraints the report this testimony is primarily based on only analyzed  data from January through June 2008. We conducted data reliability testing  and determined that the data used in this report were sufficiently reliable  for our purposes. We conducted a “mystery shopper” study—i.e.,  discussing the transition with randomly selected retailers without  identifying ourselves as government employees—to determine retailer  preparedness for the converter box subsidy program including the level of  retailer knowledge about the program and availability of converter boxes.  The study, in which we visited 132 store locations in 12 cities, was  conducted from April to early May 2008. We performed our review from  February to September 2008 in accordance with generally accepted  government auditing standards. Those standards require that we plan and  perform the audit to obtain sufficient, appropriate evidence to provide a  reasonable basis for our findings and conclusions based on our review  objectives. We believe that the evidence obtained provides a reasonable  basis for our findings and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The DTV transition will require citizens to understand the transition and  the actions that some might have to take to maintain television service.  For those households with subscription video service on all televisions or  with all televisions capable of processing a digital signal, no action is  required. However, households with analog televisions that rely solely on  over-the-air television signals received through rooftop or indoor antennas  must take action to be able to view digital broadcast signals after analog  broadcasting ceases. The Digital Television Transition and Public Safety  Act of 2005 addresses the responsibilities of two federal agencies—FCC  and NTIA—related to the DTV transition. The act directs FCC to require  full-power television stations to cease analog broadcasting by February 17,  2009. The act also directed NTIA to establish a $1.5 billion subsidy  program through which households can obtain coupons towards the  purchase of digital-to-analog converter boxes. In August 2007, NTIA  selected International Business Machines Corporation (IBM) as the  contractor to provide certain services for the program. On January 1, 2008,  NTIA, in conjunction with IBM and in accordance with the act, began  accepting applications for up to two $40 coupons per household that can  apply toward the purchase of eligible digital-to-analog converter boxes  and, in mid-February 2008, began mailing the coupons. Initially, during the  first phase of the program any household is eligible to request and receive  the coupons, but once $890 million worth of coupons has been redeemed,  and issued but not expired, NTIA must certify to Congress that the  program’s initial allocation of funds is insufficient to fulfill coupon  requests. NTIA will then receive $510 million in additional program funds,  but households requesting coupons during this second phase must certify  that they do not receive cable, satellite, or any other pay television service.  As of June 24, 2008, in response to NTIA’s statement certifying that the  initial allocation of funds would be insufficient, all appropriated coupon  funds were made available to the program. Consumers can request  coupons up to March 31, 2009, and coupons can be redeemed through July  9, 2009. As required by law, all coupons expire 90 days after issuance. As  unredeemed coupons expire, the funds obligated for those coupons are  returned to the converter box subsidy program.
Retailer participation in the converter box subsidy program is voluntary,  but participating retailers are required to follow specific program rules to  ensure the proper use and processing of converter box coupons. Retailers  are obligated to, among other things, establish systems capable of  electronically processing coupons for redemption and payment and  tracking transactions. Retailers must also train their employees on the  purpose and operation of the subsidy program. According to NTIA  officials, NTIA initially explored the idea of setting requirements for  training content, but decided to allow retailers the flexibility of developing  their own training programs and provided retailers with sample training  materials. Certification requires retailers to have completed an application  form by March 31, 2008, and to attest that they have been engaged in the  consumer electronics retail business for at least 1 year. Retailers must also  register in the government’s Central Contractor Registration database,  have systems or procedures that can be easily audited and that can  provide adequate data to minimize fraud and abuse, agree to be audited at  any time, and provide data tracking each coupon with a corresponding  converter box purchase. NTIA may revoke retailers’ certification if they  fail to comply with these regulations or if any of their actions are deemed  inconsistent with the subsidy program. Converter boxes can also be  purchased by telephone or online and be shipped directly to a customer’s  home from participating retailers. At the time of our review, 29 online  retailers were participating in the converter box subsidy program.  Additionally, 13 telephone retailers were listed as participating in the  program, 2 of which are associated with national retailers.
section_title: Private and Federal Stakeholders Have Undertaken a Myriad of Activities Aimed at Increasing the Public’s Awareness of the Transition
paragraphs: Private sector stakeholders, such as broadcasters and cable providers,  have undertaken various education efforts to increase public awareness  about the DTV transition. The NAB and the National Cable and  Telecommunications Association initiated DTV transition consumer  education campaigns in late 2007 at an estimated value of $1.4 billion  combined. NAB has produced six versions of a public service  announcement, including 15-second and 30-second versions in both  English and Spanish and close-captioned versions. Private sector  stakeholders have also produced DTV transition educational programs for  broadcast and distribution, developed Web sites that provide information  on the transition, and engaged in various other forms of outreach to raise  awareness. Additionally, most of the national retailers participating in the  NTIA converter box subsidy program are providing materials to help  inform their customers of the DTV transition and the subsidy program.  Examples of these materials include informational brochures in English  and Spanish, educational videos and in-store displays in English and  Spanish, informational content on retailer Web sites, and information  provided in retailer advertising in Sunday circulars.
FCC and NTIA also have ongoing DTV consumer education efforts, which  target populations most likely to be affected by the DTV transition.  Specifically, they focused their efforts on 45 areas of the country that have  at least 1 of the following population groups: (1) more than 150,000 over- the-air households, (2) more than 20 percent of all households relying on  over-the-air broadcasts, or (3) a top 10 city of residence for the largest  target demographic groups. The target demographic groups include  seniors, low-income, minority and non-English speaking, rural households,  and persons with disabilities. According to NTIA, its consumer education  efforts will specifically target these 45 areas by leveraging partnerships  and earned media spots (such as news stories or opinion editorials) to  better reach the targeted populations. FCC indicated that while its  outreach efforts focus on the targeted hard-to-reach populations, the only  effort specifically targeting the 45 locations has been to place billboards in  these communities. According to FCC, contracts exist for billboards in 26  of the 45 markets, and it is working to place billboards in the other 19  markets. Furthermore, FCC and NTIA have developed partnerships with  some federal, state, and local organizations that serve the targeted hard-to- reach populations.
section_title: NTIA is Effectively Implementing the Converter Box Subsidy Program, But Concerns Exist about NTIA’s Ability to Manage a Potential Spike in Demand
paragraphs: NTIA has processed and issued coupons to millions of consumers, but a  sharp increase in demand might affect NTIA’s ability to respond to coupon  requests in a timely manner. NTIA and its contractors have implemented  systems (1) to process coupon applications, (2) to produce and distribute  coupons to consumers, and (3) for retailers to process coupons and  receive reimbursement for the coupons from the government. Millions of  consumers have requested converter box coupons and most of the  requested coupons have been issued. Through August 2008, households  had requested approximately 26 million coupons. NTIA had issued over 94  percent of all coupon requests, for more than 24million coupons. Of those  coupons issued, about 9.5 million (39 percent) had been redeemed and 31  percent had expired. After an initial spike at the beginning of the program,  coupon requests have remained steady and have averaged over 105,000  requests per day. Coupon redemptions, since coupons were first issued in  February 2008, have averaged over 48,000 per day.
In our consumer survey, we found that 35 percent of U.S. households are  at risk of losing some television service because they have at least one  television not connected to a subscription service, such as cable or  satellite. However, through August 2008, only 13 percent of U.S.  households had requested converter box coupons, and less than 5 percent  had redeemed these coupons. As the transition date nears, there is the  potential that many affected households that have not taken action might  begin requesting coupons. Our consumer survey found that of those at risk  of losing some television service and intending to purchase a converter  box, most will likely request a coupon. In fact, in households relying solely  on over-the-air broadcasts (approximately 15 percent), of those who  intend to purchase a converter box, 100 percent of survey respondents  said they were likely to request a coupon.
Consumers have incurred significant wait times in the processing of their  coupon requests, but the processing time from receiving requests to  issuing coupons is improving. NTIA requires that 98 percent of all coupon  requests be issued within 10 days, and the remainder be issued within 15  days. From February 17 through August 31, 2008, our analysis shows that  the average duration between coupon request and issuance was over 16  days. In aggregate, 53 percent of all coupon requests had been issued  within 10 days, and 39 percent of all coupon requests had been issued  more than 15 days after being requested. From May 1 through August 31,  2008, the average processing time from coupon request to issuance was 9  days.
Given the processing time required in issuing coupons, NTIA’s  preparedness to handle volatility in coupon demand is unclear.  Fluctuation in coupon requests, including the potential for a spike in  requests as the transition date approaches, could adversely affect  consumers. When NTIA faced a deluge of coupon requests in the early  days of the converter box subsidy program, it took weeks to bring down  the deficit of coupons issued to coupons requested. According to NTIA, it  expects a similar increase in requests around the transition date, and such  an increase may cause a delay in issuing coupons. As a result, consumers  might incur significant wait time before they receive their coupons and  might lose television service during the time they are waiting for the  coupons. While NTIA and its contractors have demonstrated the capacity  to process and issue large numbers of coupon requests over short periods,  they have yet to establish specific plans to manage a potential spike or a  sustained increase in demand leading up to the transition.
We analyzed data to compare areas of the country that comprise  predominantly minority and elderly populations with the rest of the U.S.  population and found some differences in the coupon request, redemption,  and expiration rates for Hispanic, black, and senior households compared  with the rest of the U.S. population. For example, zip codes with a high  concentration of Latino or Hispanic households had noticeably higher  request rates (28 percent) when compared with non-Latino or non- Hispanic zip codes (12 percent). However, households in predominantly  black and Latino or Hispanic zip codes were less likely, compared with  households outside these areas, to redeem their coupons once they  received them. As shown in table 1, the overall rate of redemption for the  converter box subsidy program is 39 percent. Approximately 37 percent of  coupons have been redeemed in predominantly Latino or Hispanic areas.  In predominantly black areas, 32 percent of coupons have been redeemed.  We found that in areas of the country with a high concentration of seniors,  fewer coupons were requested (9 percent) compared with areas of the  country that did not have a high concentration of seniors (13 percent).  Redemption rates for the senior population were lower than the  redemption rates in the rest of the country. Regarding coupon expirations,  we found that the areas comprising Latino or Hispanic households allowed  27 percent of their coupons to expire, while areas with predominantly  senior populations allowed 43 percent of their coupons to expire.
To determine participation in the converter box subsidy program in the 45  areas of the country receiving targeted outreach by NTIA and FCC, we  analyzed NTIA coupon data (including requests, redemptions, and  expirations) in the 45 areas compared to the rest of the country not  targeted by NTIA and FCC. We found participation levels were about the  same in the targeted areas when compared to the rest of the country. For  example, we found in the 45 targeted areas, 12.2 percent of households  have requested coupons compared with 12.8 percent for the rest of the  country not targeted by NTIA and FCC. According to NTIA, similarities in  request, redemption, and expiration rates between the 45 targeted areas  and the rest of the country is viewed as a success.
As the sellers of the converter boxes, retailers play a crucial role in the  converter box subsidy program and are counted on to inform consumers  about it. At the time of our review, seven national retailers were certified  to participate in the subsidy program. Participating retailers are obligated  to, among other things, train employees on the purpose and operation of  the subsidy program. All of the retailers with whom we spoke told us they  were training employees on the DTV transition and the subsidy program,  although the retailers varied in which staff must complete training.
As part of our work, we conducted a “mystery shopper” study by visiting  132 randomly selected retail locations in 12 cities across the United States  that were listed as participating in the converter box subsidy program. We  did not alert retailers that we were visiting their stores or identify  ourselves as government employees. During our visits, we engaged the  retailers in conversation about the DTV transition and the subsidy  program to determine whether the information they were providing to  customers was accurate and whether individual stores had coupon-eligible  converter boxes available. While not required to do so, some stores we  visited had informational material available and others had signs  describing the DTV transition and the subsidy program. We also  determined whether the information that retailers were providing to  customers was accurate and whether individual stores had coupon-eligible  converter boxes available. At most retailers (118) we visited, a  representative was able to correctly identify that the DTV transition would  occur in February 2009. Additionally, nearly all (126) retailers identified a  coupon-eligible converter box as an option available to consumers to  continue watching television after the transition. Besides coupon eligible  converter boxes, representatives identified other options to continue  viewing television after the transition, including purchasing a digital  television (67) or subscribing to cable or satellite service (77). However, in  rare instances, we heard erroneous information from the retailers,  including one representative who told us that an option for continuing to  watch television after the transition was to obtain a “cable converter box”  from a cable company and another representative who recommended  buying an “HD tuner.” Since participating retailers are obligated to train  their employees on the purpose and operation of the subsidy program, we  observed whether the representative was able to explain various aspects  about the subsidy program. A vast majority of the representatives were  able to explain how to receive or apply for a coupon and the value of the  coupon.
Although we could obtain information from the majority of the stores that  we visited and that were listed as participating in the subsidy program, in a  few instances, we were not able to ask questions and observe whether the  information provided was accurate. In two instances, there was no retailer  at the store location listed as a participating retailer on NTIA’s Web site  (https://www.dtv2009.gov/VendorSearch.aspx). In another instance, the  location listed was under construction and had not yet opened. In two  additional instances, the locations listed were private residences—one  was an in-home electronics store, and the other was a satellite television  installer working from a house. We asked NTIA how it ensured the  accuracy of the list of participating retailers on its Web site, and according  to NTIA, ensuring the accuracy of the list is the responsibility of the  retailers. NTIA said it provides a list of locations to each retailer prior to  placing the list on the Web site, and retailers can update addresses or add  new listings as warranted.
section_title: Conclusions and Recommendation
paragraphs: NTIA estimates that it will see a large increase in the number of coupon  requests in the first quarter of 2009 and our analysis confirms that, as the  transition nears, a spike in coupon requests is likely. However, NTIA has  not developed a plan for managing that potential spike or sustained  increase in coupon demand. The time required for processing coupons has  improved since consumers incurred significant wait times to receive their  coupons at the beginning of the program, but until recently NTIA fell short  of its requirement for processing coupons within 10 to 15 days. Given the  relatively low participation rates to date and the amount of time it took to  process the spike in coupon requests in the early days of the program,  NTIA’s ability to handle volatility in coupon demand without a plan is  uncertain. Consequently, consumers face potential risks that they might  not receive their coupons before the transition and might lose their  television service.
To help NTIA prepare for a potential increase in demand for converter box  coupons and so that consumers are not left waiting a lengthy amount of  time for requested coupons, the report we are releasing today  recommends that the Secretary of Commerce direct the Administrator of  the NTIA to develop a plan to manage volatility in coupon requests so that  coupons will be processed and mailed within 10-15 days from the day the  coupon applications are approved, per NTIA’s stated requirement.
In reviewing a draft of the report, the Department of Commerce (which  contains NTIA) did not state whether it agreed or disagreed with our  recommendation, but did say the Department shares our concern about an  increase in coupon demand as the transition nears. Further, its letter  stated it is committed to doing all that it can within its statutory authority  and existing resources to ensure that all Americans are ready for the DTV  transition. In its letter, FCC noted consumer outreach efforts it has taken  related to the DTV transition.
Mr. Chairman, this concludes my prepared statement. I would be happy to  respond to any questions you or other Members of the Subcommittee may  have at this time.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: For further information about this testimony, please contact Mark L.  Goldstein at (202) 512-2834. Individuals making key contributions to this  testimony included Colin Fallon, Simon Galed, Eric Hudson, Bert Japikse,  Aaron Kaminsky, Sally Moino, Michael Pose, and Andrew Stavisky.
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