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. 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. 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. 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. 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.