The nation is currently undergoing a transition from analog to digital television broadcasting. Traditional analog broadcasting uses the radiofrequency spectrum to transmit analog signals—that is, signals in which motion pictures and sounds have been converted into a “wave form” electrical signal. With digital technology, the analog wave form is converted into a stream of digits consisting of zeros and ones. For digital television service, like analog service, broadcast stations have been allotted 6 MHz of radiofrequency spectrum for each television channel. However, because digital video signals can be compressed, the spectrum can be used more efficiently, allowing much more information to be broadcast using the same amount of spectrum. As a result, digital broadcasting provides greater flexibility in terms of the type of television content that can be provided. Most notably, digital broadcasting makes it easier to offer high definition (HD) television. HD television provides roughly twice as many lines of resolution, creating a television picture that is much sharper than traditional analog television pictures. HD television can also provide CD-quality sound and is in “widescreen” format, with display screen ratios similar to a movie theater. With digital broadcasting, 6 MHz of spectrum can be used for at least one channel of HD programming, or it can be subdivided to allow the simultaneous transmission of as many as six separate TV programs of lower quality standard definition television, a concept known as “multicasting.” A broadcast station can also provide “datacasting”—using digital signals to transmit text or data, such as stock quotes or electronic newspapers. “Broadcast stations,” also known as “broadcasters,” are local operations that transmit signals over the air from the station’s transmission tower to the antennas of television sets. Broadcast stations may get their programming content through an affiliation with a “broadcast network” (such as ABC, NBC, or PBS) or a station may be an independent broadcaster. Most stations also produce some of their own content, such as local news programming. More than four-fifths of American households do not receive their primary television service over the air via their television set’s antenna. Instead, they pay a fee to a subscription television service, such as a cable or satellite service. A “cable system” is a company that runs a localized network of cable lines to deliver television signals to subscribers. Some cable systems are individually owned, while others are owned by companies that own and operate more than one cable system. Direct broadcast satellite is a nationally distributed service that transmits programming from orbiting satellites to a customer’s satellite dish. Cable systems carry all of their markets’ local analog broadcast stations, while satellite services carry local broadcast stations in select markets. “Cable networks” (such as CNN or MTV) produce or acquire television programming that is delivered to cable systems and satellite operators. Like broadcasters, cable television systems are also transitioning to digital, although they are under no government mandate to do so. Many cable operators have added “digital tiers” to their programming offerings. Satellite systems have always transmitted their signals in digital. Both cable and satellite systems primarily use digital technology as a way of increasing the number of channels they can offer. References in this report to the “DTV transition” refer to the transition by local broadcast stations to the use of digital broadcast signals; it does not refer to the way that cable or satellite systems transmit their signals. For the DTV transition to be completed, and analog broadcasting to end, two major things need to happen: (1) television stations must broadcast a digital signal and (2) consumers must be able to view that signal. By May 1, 2002, all full-power commercial television stations across America were to have begun airing a DTV signal. As of October 17, 2002, however, only about 43 percent of these stations were broadcasting digitally; the remainder had filed for extensions with FCC. By May 1, 2003, all public broadcast stations also are to be broadcasting a DTV signal. For a household to see local digital broadcast signals via cable or satellite service, the household must have the necessary equipment, and its cable or satellite service must also carry local digital signals. For consumers to see the digital signal over the air via an antenna, they must either have a digital-to-analog converter box that will allow them to watch digital signals on their existing analog set, or they must own a digital television set that includes a tuner capable of receiving and processing a digital signal. To speed the DTV transition, FCC adopted in August 2002 a requirement that most new television sets must include an over-the-air tuner that receives digital broadcast signals. FCC set various deadlines for manufacturers to include DTV tuners in new television sets, with all sets over 13 inches required to include the tuners by July 1, 2007. One important goal of the DTV transition is to recapture portions of the radiofrequency spectrum currently used for analog broadcasting so this spectrum can be used for public safety needs and auctioned to private companies. Under the law, the spectrum is due to be reclaimed by December 2006, but this date can be extended if less than 85 percent of households in a given market can receive the DTV signal. FCC is still in the process of determining how to interpret the statutory provisions concerning when the 85 percent threshold has been met. Even when 85 percent of households can receive DTV, concerns remain about the impact on the remaining 15 percent of the population, who would not be able to access some or all broadcast channels until they purchased new equipment. An important motivation for completing the DTV transition is to recapture parts of the broadcast spectrum. One goal is to free up portions of the broadcast spectrum that have been reallocated for public safety needs, such as communications by local police and fire departments. The Public Safety Wireless Advisory Committee, in a 1996 report to the FCC, said that an additional 97.5 MHz of spectrum would be needed for public safety communications uses by 2010. In the Balanced Budget Act of 1997, the Congress directed FCC to reallocate 24 MHz of the spectrum to be reclaimed from broadcasters to public safety uses. After the terrorist attacks of September 11, 2001, the Chairman of FCC said that freeing up spectrum for public safety uses has become an even higher priority. In addition, the vast expansion of wireless technologies in recent years by mobile telephone, broadband Internet, and wireless companies, has greatly increased these industries’ demand for portions of the radiofrequency spectrum currently used for television broadcasting. This demand arises not only because of the general scarcity of spectrum, but also because the spectrum used for broadcasting has qualities that make it ideal for the provision of many wireless mobile services. The Balanced Budget Act of 1997 directed FCC to auction certain portions of the spectrum freed up by the DTV transition according to certain timelines. The Congressional Budget Office has raised concerns that early auction timing could devalue the spectrum because bidders would have to wait years before being able to use the spectrum. The Auction Reform Act of 2002 modified the statutory deadlines set by the Balanced Budget Act and gave FCC increased flexibility in determining when to complete auctions for the remainder of the spectrum. The Auction Reform Act noted that delay in the return of portions of the spectrum used for broadcasting reduces both the amount of money that auctions are likely to produce and the probability that the spectrum will be purchased by the entities that will put it to its most productive use. FCC established 2006 as the target date for completing the DTV transition, and this was later codified by Congress in the Balanced Budget Act of 1997. By December 31, 2006, the goal is for broadcasters no longer to broadcast the analog television signal, and for the spectrum that they vacate to be returned so that it can be made fully available for other uses. However, because the Congress was concerned about leaving substantial numbers of households without the ability to access broadcast television signals, the law specifically provided for extensions in certain circumstances. Under the statute, FCC must grant extensions to requesting stations in a television market where it finds that one of the following three conditions exists: 1. at least one television station affiliated with the four largest national networks (ABC, CBS, Fox, or NBC) is not broadcasting a DTV signal; 2. the technology to convert a digital signal for use on an analog television set is not generally available; or 3. fewer than 85 percent of television households in the television market has the ability to receive DTV—a television household would not count as receiving DTV if it (a) did not subscribe to a “multichannel video programming distributor” (such as a cable or satellite service) that carries a digital broadcast channel from each broadcaster in that market and (b) did not have a television receiver or a digital-to-analog converter capable of receiving digital broadcast signals. How FCC interprets the third provision—sometimes referred to as the “85 percent rule”—has important implications for when the broadcast spectrum can be returned. Several aspects of this provision are still to be determined. For example: Defining a “market”: It has not yet been established what constitutes a television market under the statute. FCC officials told us that they have not yet determined what market definition to use, and that this would likely be established in a formal proceeding. Counting cable subscribers: For a household to count as receiving DTV via cable, its cable service must carry at least one digital programming channel from each broadcaster in its market. But it is not yet clear whether a household subscribing to such a service counts if it does not have the equipment necessary to actually view that programming (i.e., it does not have a digital television set or set-top converter box). Method of measurement: It is not yet clear what method would be used to actually measure how many households in a market can receive DTV signals. Some information may be available from cable and satellite providers, but it is uncertain how FCC will determine how many households in a market have the equipment to receive DTV over the air.