Digital Television: A Private Sector Perspective on the Transition

Subcommittee on Telecommunications and the Internet
March 15, 2001
10:00 AM
2123 Rayburn House Office Building 

Mr. Steve Weed
President
Millenium Digital Media
3633 136 Place, SE #107
Bellevue, WA, 98006

INTRODUCTION

Thank you, Mr. Chairman.

My name is Steven B. Weed, and I am the president of the northwest region for Millennium Digital Media, an independent cable business serving 175,000 subscribers in several _____ states, including the state of Michigan.

I also serve as the chairman of the American Cable Association, which is an association that represents more than 900 independent cable businesses serving more than 7.5 million subscribers primarily in smaller markets and rural areas across the United States. In fact, our American Cable Association members serve customers every state and every U.S. territory and also in nearly every congressional district represented by the members of this committee.

Unlike some larger companies you hear about, ACA members are not affiliated with program suppliers, big telephone companies, major ISPs or other media conglomerates. We focus on smaller market cable and communications services, often in markets that the bigger companies choose not to serve.

Like other ACA members, my company, Millennium Digital Media, specializes in serving customers in smaller markets and more rural areas. Our company today is on the forefront of providing advanced telecommunications services to customers in these markets.

I am pleased to have the opportunity to speak to you for several reasons.

First, my company and the members of the American Cable Association are rapidly deploying digital television. It is a service our customers want, and it is a service we like.

The transition to digital that is taking place in the cable industry today is a success story because cable providers and programmers have, on their own, agreed on and implemented a common standard for the deployment of digital. And as a result, cable companies nationwide are moving aggressively to launch digital in every form, without the need for government action.

In fact, within five years most, if not all, cable subscribers will be watching digital television.

We like the technology, because it is an efficient use of bandwidth. It allows us to provide a better service to our customers, and it helps us to offer a more competitive service in our marketplace.

However, unlike the success story that's taking place in the cable industry today, the transition to digital broadcast television poses many significant problems and challenges for both independent cable companies and our customers in smaller markets and rural areas.

These problems and challenges fall into three specific areas:

important technical and market issues that are not being met first before the transition to digital.

the effect of mandatory digital carriage on systems with limited bandwidth, which will result in lost capacity and lost important services that our customer want;

the substantial costs and adverse effects of paying for a forced transition to digital, which will stop or hinder the advancement of other new telecommunications services, like high-speed Internet.

As we see the situation in the markets we serve, neither the marketplace nor technology is ready for an efficient transition to digital broadcast television.

The key facts about the transition to digital broadcast carriage are these:

There is no uniform standard between broadcasters and cable providers for the carriage of digital broadcast signals. Cable has a plan and a uniform standard for the carriage of digital, but the broadcasters do not.

In fact, the broadcasters cannot even agree on what the standards for digital broadcast carriage should be for themselves, let alone for the rest of us.

Television sets with digital receivers capable of receiving cable and broadcast digital signals are not widely available and may not be for a number of years at an affordable cost to the everyday consumer.

Original digital broadcast programming does not exist on the many digital channels that broadcasters want us to carry.

Broadcasters want us in cable, particularly those of us in smaller markets and rural areas, to use the scarce bandwidth we have now to carry not only their analog broadcast signals, but also the same duplicated programming on digital. What's more, most, if not all, of our customers do not have television sets or converters that can process digital broadcast signals. These customers would simply see a blank, blue screen.

The proscribed timetable for achieving digital broadcast carriage will not be met by the market or the technology.

In our smaller markets, the transition to digital broadcast carriage cannot be accomplished until there is a widespread demand for a product that customers want at an affordable price and with technology that is readily available. None of these conditions are present today.

Furthermore neither my company nor my fellow members in the American Cable Association can achieve the transition to digital broadcast television until digital head-end equipment, digital boxes and digital television sets are widely available at an affordable price and until the bandwidth concerns of cable systems are met.

Cable has already shown that it can meet the challenges of converting to digital signals. As for digital broadcast television, we likewise would be happy to carry these signals as soon as the broadcast industry can deliver a uniform digital signal to us in a format that we can receive.

But until then, we are all in a definite dilemma between the proverbial rock and the hard place. The transition to digital broadcast television is being pushed before the marketplace, consumers, and companies like mine are ready.

Assuming that the numerous issues listed above have been completely addressed, there are nonetheless several other concerns to note. Most notably, forced digital broadcast carriage on smaller market cable systems or the mandatory transition to digital television before the markets or technology is ready would have significant negative consequences on the operation of these independent systems due to limited bandwidth.

Mandating digital carriage would cause the loss of important existing analog and digital programming, and high-speed Internet services. It would also create a significant chilling effect on the development and deployment of new advanced telecommunications services to these markets.

These new services have been essential to attracting the capital necessary to upgrade our smaller market systems in response to marketplace demand.

Mandating digital broadcast on smaller market cable systems would force other existing important services off our systems in order to accommodate digital broadcast signals, which few of our customers could watch now anyway.

An important point is often missed in this debate: the government has given broadcasters both the analog and new digital spectrum to transmit both of these signals during the transition period. But the law has not granted smaller market cable systems additional bandwidth to carry any of the additional broadcast signals.

We have to pay for our additional bandwidth through costly system upgrades. We can only pay for these upgrades by carrying services our customers will pay us for. Currently, our customers are not requesting digital broadcast signals in our markets.

As I have stated, my company and our industry have aggressively launched digital television to the point where in five years virtually all of our customers will carry it. The cost is continuing to come down on digital carriage, and even the smallest cable television systems are carrying it.

And as for the carriage of digital broadcast signals, when the broadcasters are ready we will be happy to switch their old analog signals to digital signals, but we can't carry both.

From a technical, operational, economic and practical standpoint, we simply cannot carry all of the digital and analog signals of the local broadcasters. The reason? Because we are still required to devote up to fifty percent (50%) of our channel line-ups for other mandated carriage set-asides, such as must-carry, retransmission consent, non-commercial educational programming, public, educational and governmental programming, and leased access programming, not to mention the current analog, digital and high-speed data services our customers now demand and expect.

Who will make the choice to tell my customers what they can and can no longer receive as a result of mandated digital carriage? And is this the right thing to do? I think not. But one thing is certain. My company and other ACA members like mine will get blamed for it, while those dissatisfied customers go to the dish. This result could truly threaten the viability of smaller market cable systems, which would certainly be an unintended consequence of this policy.

In smaller markets, the unintended consequences of mandated digital carriage would include lost important services now and the loss of future advanced telecommunications services because there will be no room to carry them.

What do we do in those systems where we have planned to launch high-speed data Internet services but no longer could if digital carriage is mandated? Is it appropriate for our subscribers to lose the ability now to receive high-speed data in return for the possibility of receiving a digital broadcast signal that they may not receive for years?

The High "Cost" of Converting to Digital

Right now my company is engaged in a competitive race to improve our systems through the use and deployment of available digital cable services and high-speed Internet. These services are a reality today. They are available now. They are helping us improve to our systems and provide advanced higher quality telecommunications services to our customers today.

My company is using these services to close the so-called "Digital Divide" in smaller markets now. These services and the required systems upgrades are costly. For example, on average it costs about $130,000 to install a digital cable head-end that will enable our customers to receive significantly more services that they want. But not all customers take these services right off, and the return on investment for a digital head-end like this one is lengthy. In addition, you can understand how difficult it is to economically spread that cost across a system that may only serve 500 customers.

Similarly, there is a substantial per home cost to my company and others to make available an advanced high-speed cable modem Internet service. It's expensive, and the return is a long one.

However, these services are available now. They are not on the drawing board or potentially available sometime in the future. My company is doing right now what policymakers appear to want - improving our service, enhancing competition in the marketplace, and closing the "Digital Divide" by providing advanced telecommunications services.

But what if the significant funds that it takes to launch digital cable or high-speed Internet are forced to cover the costs of mandatory digital broadcast carriage? Plainly, something would have to give.

This would be more than an unintended consequence of mandating digital carriage. It would be a direct result.

What can be done, if anything?

First, we must all work within deadlines that are reasonable in the marketplace.

The transition to digital broadcasting is actually a good thing that my company and others like mine will want to carry, but not if the marketplace, our customers and consumers, and technology are not ready for this transition.

Many of us remember listening to our favorite music on what we nostalgically refer to as "albums" or "LP's" - long-playing records. However, we all know that the outdated technology of making recordings in pressed, wax albums has given way to the superior digital, laser-embedded technology of the compact disc.

Could this universal transition have occurred before the music providers perfected their technology in a uniform way and made the product and players available in the marketplace at an affordable cost to the consumer? Of course not.

But when the market was ready, consumers embraced CD technology to the point that today albums and LP's are a thing of the past. And soon, CD's will probably give way to a newer technology - MPEG3 - when the market is ready.

The transition to digital broadcast television is not really all that different.

The providers, producers and technical people must work together to develop a uniform standard and a product that consumers will want and will be widely available at an affordable price.

Local broadcasters and local cable providers should be encouraged to seek meaningful ways that will help solve the transition to digital broadcast carriage.

On behalf of the American Cable Association, we would welcome the opportunity to participate in this discussion. It would benefit of everyone if we seek and find a workable solution that benefits all.

The transition to digital cannot occur unless smaller market cable providers receive some relief from the many carriage and bandwidth requirements that now take up precious channel space.

Our friends in the direct broadcast satellite business are pushing hard in the federal courts right now to be relieved of broadcast must-carry burdens for many of the same channel-capacity and bandwidth reasons that we are discussing today.

As competition increases between cable and satellite, perhaps the need for these previous carriage requirements no longer exists to the same degree.

To reiterate, the forced transition to digital broadcasting must address legitimate capacity and bandwidth issues. Otherwise, smaller market cable businesses and our customers will suffer because important existing and available advanced services and programming will be lost. Period.

Let's Encourage a Reasonable Transition to Digital

Broadcasters should first set reasonable goals that will work in the marketplace as they transition to digital. Many have requested or demanded that cable free up an entire six-megahertz (6 MHz) channel for the carriage of all potential digital signals transmitted by the broadcaster.

But given the legitimate bandwidth constraints of cable technology such actions will cause customers to lose important current services. No one wants that. I believe that broadcasters can and should be satisfied with the carriage of one digital signal as the market bears until such time as the marketplace, cost to consumers and available bandwidth can economically accommodate more.

Moreover, broadcasters should be prevented from using the enormous leverage they have been given through the analog retransmission consent rules to force digital broadcast carriage by holding analog retransmission consent hostage.

The forced tying of digital broadcast carriage to analog retransmission consent does not help to solve the problem, but only deepens the wedge between broadcasters and smaller market cable at a time when they ought to be working together on a new technology that one day soon will benefit everyone.

In conclusion, my company's future and our ACA members' future lies in the carriage of digital television. We have already embraced it.

However, the transition to digital broadcast television has significant challenges before it in terms of a uniform standard that companies like mine can receive, the scarcity of bandwidth on cable systems to carry both analog and digital broadcast signals, and the cost of such carriage, both in terms of money and the current important services that would be forced off of our customer's televisions and computers. Moreover, the marketplace and technology have not yet embraced the transition to digital broadcast television.

But like the evolution from LP's to CD's to MPEG3, there is no doubt that the transition to digital broadcast television will occur, and my company and the members of the American Cable Association will be there to receive it as the market and technology allows.

In the meantime, we're committed to working with the Committee and with the broadcast industry on these issues.

I would like to sincerely thank the Committee again for allowing me to speak before you today.

Mr. Weed is the President of Millennium Digital Media, Northwest Region, based in Seattle, Wash. Millennium serves 175,000 cable and advanced telecommunications subscribers in several states.

Prior to this, from 1988 to April 1999, Mr. Weed was Senior Vice President and Chief Operating Officer of Summit Communications in Seattle. He first joined the company as manager of cable operations for Summit's King County, Wash., cable systems.

Mr. Weed began his career in the cable television industry in 1980 in Seattle with Group W Cable, first as sales manager and then as marketing manager. In 1983, he joined Falcon Cable Television in Southern California where he was marketing manager. He also worked for two years as a marketing manager for a nationally broadcast cable channel based in Los Angeles.

Mr. Weed is the Chairman of the American Cable Association, a trade group representing the concerns of independent cable businesses that provide service to customers primarily in smaller markets and rural areas. The American Cable Association represents more than 900 independent companies serving more than 7.5 million subscribers in every state and U.S. territory.

Mr. Weed is also a member of the Small Operators Committee of the National Cable Television Association. He is a founding member of the Seattle Business Round Table and a member of the Pacific Northwest Chapter the Young President's Organization.

A graduate of the Harvard Business School, Mr. Weed resides with his wife and daughter in Kirkland, Wash.