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Digital Television: A Private Sector Perspective on the Transition
Subcommittee on Telecommunications and the Internet
Mr. Ronald Parrish
Mr. Chairman and Members of the Subcommittee, my name is Ron Parrish, Vice President of Industry and Government Affairs at RadioShack. I would like to thank you for inviting me to appear before the Subcommittee. RadioShack is one of the largest retailers of consumer electronics products in the country. There are 7,100 RadioShack stores throughout the United States - 94% of people in the United States live or work within a five minute commute of a RadioShack store. RadioShack and the RadioShack stores currently employ 36,000 people and our retail sales were $4.8 billion in 2000. RadioShack is pleased that the Subcommittee is holding this first in a series of oversight hearings on digital television. We are deeply concerned that the parties involved have not fulfilled their promise of a vibrant and open market for both digital televisions and set top boxes - which should someday serve as the primary devices to provide digital home entertainment and Internet access for the mass market. The first vision of a flat screen digital television I ever witnessed was in the movie Roller Ball with Clint Eastwood. That was 1975. In 1975, most people had never heard of the Internet, electronic mail or even personal computers. Today the Internet is present in half of American homes and is the engine that drives information access. It is curious and troubling that video networks have not developed at an equivalent pace. As a representative of the retail industry, I would like to share with you our perspective on two matters. First, the current status of the rollout of high definition television service and second, the current status of the availability of set top boxes. As a retailer, RadioShack is very sensitive to the needs and desires of consumers of electronics equipment and services. RadioShack has day-to-day experience with the products and services that consumers wish to buy and RadioShack knows that it can be successful only when the performance and price of the products it has to sell meet the expectations of consumers. Today in the digital television and set top box markets, those expectations cannot be fully met and thus both markets are developing slowly. RadioShack has a significant interest in the timely roll out of high definition television. Offering consumers products that provide cutting edge performance is a priority of RadioShack's, as it is for other retailers of consumer electronics products. Parties involved in the introduction of digital television have identified a variety of reasons for the current pace of the DTV roll out: the absence of must-carry provisions, concerns over copyright protection, interoperability problems between cable and the necessary consumer electronics products, and even the fact that retailers are not ordering, stocking, and selling the necessary equipment. Retailers of course are eager to stock products that sell but it is not realistic to expect retailers will be able to sell products before consumers are prepared to buy them. There is significant consumer confusion regarding the definition of digital television and HDTV. In addition, there remains a significant price-point differential with the genuine HDTV sets available at this time. Not only does the new technology cost more, but manufacturers are only including the technology in their higher-end, feature laden television models, resulting in prices much higher than those for feature rich analog sets. Finally, perhaps the most important reason why digital televisions are not a substantial portion of market sales is that consumers are aware that there is not yet much digital programming to watch. Simply stated, the average consumer has decided against making the significant investment in digital television at this time. The competitive market for set top boxes is developing slowly as well. I would like to focus the remainder of my testimony on the sale of set top boxes and their role in the transition to digital. With more than two-thirds of American homes receiving television through cable systems, the cable industry plays a central role in the transition to DTV. As this transition takes place, Congress and the Federal Communications Commission have simultaneously taken steps to foster the competitive availability of navigation devices used on cable systems. A competitive market for navigation devices would bring to the consumer a host of new devices and capabilities that provide not only a higher quality viewing experience, but access to new services as well. These devices include not only digital set top boxes but also integrated devices, which combine the set top box functionality, a DVD player and other capabilities like Internet access into the digital television itself. In other words, the set top box will ultimately be the consumer's tool for access not just to digital television, but potentially to his or her entire electronic entertainment and information world. Like any new product or technology, competition in the marketplace is essential in order for set top boxes to reach their maximum capabilities. Congress took steps to ensure such competition in the 1996 Act when it included a provision requiring the FCC to assure the competitive availability of navigation devices. The FCC is still working to implement this provision, and the cable industry continues to control the distribution of set top boxes to the consumer. In 75 years of retailing, RadioShack has learned a few things about what makes a successful consumer electronics market. As I mentioned at the outset of my testimony, RadioShack's success, and the success of the set top box retail market generally, must depend on making sure consumer expectations are met with regard to the quality and availability of the product. There will be no competitive market for set top boxes until these basic consumer expectations are met. The Consumer has the right to own rather than rent a set top box. Set top boxes equal in quality to those leased by the cable companies are not available. The set top boxes leased by the cable industry to their subscribers support interactivity. Set top boxes supporting interactivity are not available to retailers. The cable industry uses technical capabilities and specifications for its own MSO-provided devices that are different from the specifications provided to competitive manufacturers of the OpenCable devices. The result is that there is little incentive for the consumer to consider purchasing a set top box that has inferior capabilities. In addition, subsidy arrangements destroy the normal financial incentive for a consumer to purchase a set top box. Section 629(a) of the 1996 Act explicitly barred cable operators from subsidizing set top box rentals with cable service revenues. While the Commission has permitted cable operators to "pool" set top box revenues, it appears that the cable industry is recovering the cost of the new digital set top boxes from subscribers who do not lease these boxes. A digital set top box costs approximately $400 to manufacture, but the cable companies are leasing them to subscribers for only $3-4 dollars per month. It appears the industry is spreading the digital set top box cost between all of their subscribers, even those who lease an old analog box. As Congress recognized in 1996, retailers simply can not compete for consumers or meet their expectations in a subsidized environment. The Consumer has the right to purchase a set top box, take his box with him if he moves, and plug it in and have access to all of the capabilities available. In its initial Navigation Devices Order, the Commission recognized that true competition for navigation devices would not result without portability, by stating, "[a]ny significant disparity among cable operations ... undermines the commercial availability of equipment. Subscribers are more likely to purchase, and not lease from a provider, if they can use the navigation device when they move to an area served by a different operator. Geographic portability will enhance the commercial availability of navigation devices and should result in wider choice and lower prices to consumers."[1] Although the Commission did not adopt specific requirements regarding portability, it did set general parameters and stated that if the industry does not take steps to achieve portability, further Commission action may be necessary.[2] Consumers today remain unable to purchase a set top box with an expectation that they would be able to use it if they moved to an area with a different cable operator. Competition in the market for set top boxes should follow the pattern of competition in the market for telephone sets. Competition was possible in the telephone set market because consumers knew that they could buy a telephone in one part of the country and use it anywhere else when they moved. The same must be true with set top boxes. The Consumer has the right to record music or programming for his own personal use at the quality he expects from the equipment he owns. Manufacturers of set top boxes, are required to obtain a license to provide copyright protection against unlawful copying of content. RadioShack does not question the need for copyright protection against unlawful copying and distribution of copyrighted works. However, consumers are accustomed to recording programs for personal use today and they expect to be able to continue to do so if they upgrade to digital televisions and set top boxes. The cable industry and content providers have proposed a draft copyright license, however, that would withhold content from cable systems unless set top boxes and other consumer electronics equipment have the capability to allow them to impose severe restrictions on recording. The draft license would also require manufacturers to reduce the quality of the programming for copying purposes by cutting off or degrading the HDTV signals to DTV-ready receivers - thereby reducing the quality of the consumers' viewing to analog quality. This clearly compromises the effort to meet consumer expectations for digital products. Finally, the Consumer has the right to expect an open and competitive market where he may shop for equipment and services which suit his interests and pocketbook, from a wide array of equipment producers and service providers and vendors he trusts. All of the issues affecting the delay of digital television work in tandem. As important as the broadcasters' ability and willingness to provide significant digital content is to the roll out of digital television, maximum potential will still not be met without simultaneously meeting consumer expectations regarding competitive marketplace for digital televisions, navigation devices and set top boxes in particular. Thank you for the opportunity to address your subcommittee. [1] Navigation Devices Order, 13 FCC Rcd at ¶61. See also Response of the Consumer Electronics Retailers Coalition to the July 7, 2000 Cable Industry Status Report, at 7-8. [2] Navigation Devices Order, 13 FCC Rcd at ¶132.
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