The House Committee on Energy and Commerce

Mr. W. Kenneth Ferree
Chief, Media Bureau
Federal Communications Commission
445 12th Street, SW
Washington, DC, 20554

Good morning Chairman Upton, Ranking Member Markey, and members of the subcommittee.My name is Ken Ferree and I am Chief of the Media Bureau at the Federal Communications Commission.I appreciate the opportunity to testify today on bringing the digital television ("DTV") transition to a timely and successful conclusion.

It wasn't too long ago that using a phrase like "timely and successful" in connection with the DTV transition would have been considered a non sequitur.No longer.The DTV transition is beginning to gain momentum; we are witnessing one of the most dramatic marketplace shifts in recent memory.

There is plenty of credit to go around.Each of the affected industries - broadcasters, cable and satellite operators, content providers, consumer electronics manufacturers and retailers - deserve some credit for bringing us to this juncture.They are the ones who developed the business plans, put the capital at risk, and are bringing the benefits of digital television to American consumers.

Government deserves some of the credit as well.Over the past few years, both Congress and the FCC, under Chairman Powell's leadership, have created a renewed sense of urgency regarding the DTV transition, doing whatever was needed to get the transition moving.Often informal tools were used, like the industry roundtable discussions convened by this Committee that helped define and focus the issues, or the "Powell Plan" that resulted in voluntary industry commitments to advance the transition.When necessary, more formal regulatory tools were used, such as the DTV tuner mandate, rules for "plug and play" television sets, and the adoption of the "broadcast flag" system to protect digital broadcast content from widespread piracy over the Internet.

It goes without saying that our work is far from done.Indeed, we are in the midst of an incredibly busy period at the FCC on issues relating to digital television, and we hope to act on several major proceedings in the near future, including the procedures for final channel allotments and deadlines for broadcasters to operate at full power.

So why turn our attention to the end of the transition when we still have work in front of us?Because now is the time to start looking ahead and planning if we want the transition to end smoothly for the American public.Up to now, most of our efforts have been focused on getting the transition off the ground.But now that the wheels are finally lifting off the runway and the transition is pointed skyward, we can and should begin turning our attention to our destination, and how we will land this transition as quickly and as safely as possible.

Put differently, it is no longer a question of whether the transition will occur, but when - and how we can make the final digital switch-over as smooth as possible for consumers.

This emerging reality led the Media Bureau to develop a framework that would provide a soft landing for the DTV transition.The Bureau's framework is outlined below in some detail but, at this point, it is still a Bureau-level work-in-progress.No formal recommendations have been made to the full Commission, although we have discussed the framework with each of the Commissioners' offices, just as we have discussed it with Hill staff, industry, consumer groups, and others.

One of the most important and difficult issues remaining to be solved is how to address those consumers who rely on over-the-air analog television when the transition is complete.Last week, the Media Bureau issued a Public Notice to help us learn more about these consumers and to explore potential options for helping them make the transition with as little disruption as possible.

In developing our framework for completing the digital television transition, the Media Bureau had the following objectives:

A timely and predictable end date would benefit all those with a stake in the transition to digital television, including the public, broadcasters, consumer electronics manufacturers and retailers, public safety officials, as well as advanced wireless service providers and their customers.[1]Consumers would have fair warning of when analog broadcast signals will be terminated and can begin preparing themselves.Broadcasters would know precisely how long they will be required to run side-by-side analog and digital facilities and can make budget and maintenance decisions accordingly.Consumer electronics manufacturers and retailers would know when they will no longer need to produce, market, and support analog equipment.Public safety officials and advanced wireless providers waiting for broadcasters to vacate the 700 MHz band would know with certainty when they will be able to begin operations.

The spectrum that will be recovered at the end of the transition will bring tremendous benefits to consumers and the U.S. economy.[2]As an initial matter, 24 MHz of spectrum will be used to address the critical needs of first responders and other public safety needs.The remaining 84 MHz in the 700 MHz band already has been or will be auctioned for use by cutting-edge wireless services.This is "beachfront" spectrum, with propagation characteristics that make it ideal for providing wireless broadband access through foliage and building walls.Not only would the immediate revenues from an auction of this spectrum potentially be enormous (the value substantially increased by a date certain when the spectrum will become available) but, more importantly, the advanced services that will be introduced in this spectrum could provide continuing benefits many times greater in terms of the economy, jobs, and international competitiveness.The opportunity costs of keeping this spectrum "bottled up" by analog broadcasting grows higher and higher with each passing day.

Whenever the transition ends, consumers who rely on over-the-air television and do not yet have a DTV receiver will be faced with a choice:purchase a digital TV set, purchase a digital-to-analog converter, or subscribe to a multichannel video provider such as a cable or satellite operator.Our goal is to minimize the number of consumers forced to make that choice and to ensure that digital-to-analog converter equipment is affordable for the average consumer.

Today consumers have access to a growing level of compelling digital content - particularly high-definition ("HDTV") content - over the broadcast, cable and satellite television platforms.That access should be maintained and encouraged under any proposal to advance the DTV transition.

Whatever solution is decided upon must be sustainable in court.Some broadcasters have suggested, for instance, that cable television operators should be required to carry both the analog and the digital signals of every broadcast station in the market (i.e., "dual carriage") until cable systems have converted to all digital transmission.In 2001, the Commission tentatively concluded that such a requirement would be an unconstitutional abridgement of cable operators' First Amendment rights.[3]Based on the evidence submitted in the must-carry docket, the Bureau is convinced that the Commission's tentative conclusion was correct.In constitutional parlance, a dual carriage requirement clearly imposes a greater burden than necessary to further any discernible government interest at stake.Indeed, I am concerned that the imposition of a dual carriage requirement would, in the inevitable judicial review that would follow, place the whole must-carry regime at risk.

1.On a fixed date no later than [N1] January 1, 2009, broadcasters' must-carry rights on cable and satellite would switch from their analog signals to their digital signals.[4]

2.Cable operators would be required to make the digital must-carry signals available to all subscribers by either:(a) down-converting a single digital broadcast stream from digital to analog at the cable head-end so that all subscribers, including analog-only subscribers, can continue to view the programming; or (b) passing through the digital must-carry signals to subscribers' homes, where the system has converted to "all digital" transmission and all subscribers have the ability to receive and display the digital signals (either on a digital set or down-converted by a set-top box for display on an analog set).

3.Similarly, satellite operators in local-into-local markets would be required either:(a) to carry one standard-definition digital programming stream from each broadcaster in the market (down-converted from HDTV to standard-definition, if necessary); or (b) to pass through the digital broadcast signals to subscribers' homes, where all subscribers have the ability to receive and display the programming.

4.In addition to any digital streams that are down-converted to analog, broadcasters electing must-carry may negotiate for cable pass-through of their HDTV, multicasting, or other high-value digital programming.Broadcasters electing retransmission consent will continue to negotiate for cable carriage of their broadcast signals in digital and/or analog.As of March 2004, cable systems carried 382 local digital broadcast stations - 239 of which are owned by commercial entities other than one of the top four broadcast networks - all pursuant to marketplace retransmission consent agreements.[5]Nothing in this proposal would negatively affect the continued availability of this or additional HDTV programming to consumers.

5.The statutory 85 percent threshold[6] for ending the transition could be met nationwide on January 1, 2009:

6.As soon as possible after January 1, 2009, the FCC will make the appropriate findings that the 85 percent threshold is met in the relevant markets and reclaim the analog broadcast spectrum.There may be anomalous markets in which the 85 percent threshold is not met immediately, but it is expected that the proposal effectively will result in a nationwide transition on January 1, 2009.[10]

7.By January 1, 2009, the number of households that potentially could lose television service with the end of analog broadcasting should be well under the statutory maximum of 15 percent in many markets.[11]Indeed, cable penetration alone exceeds 85 percent in several markets.[12]In addition, the FCC's digital tuner and "plug and play" mandates - together with the incentives provided by a hard transition date - will ensure that a substantial number of viewers that rely on over-the-air broadcasting will have purchased digital receivers in the preceding five years.[13]

8.The digital tuner and "plug and play" mandates will drive down the cost of digital-to-analog converter equipment for those over-the-air viewers who have not invested in digital equipment by 2009.The Bureau and Commission are prepared to provide assistance to Congress in determining whether and how to assist these viewers in obtaining digital-to-analog converter boxes.Just last week, the Media Bureau issued a Public Notice seeking comment on those consumers that rely on over-the-air broadcast television service and potential options for addressing those over-the-air viewers with analog-only sets when the transition is complete.[14]

9.When a broadcaster turns off its analog signal and is broadcasting only in digital (whether because the 85 percent threshold was met and the analog spectrum was reclaimed, or voluntarily prior to that date), the broadcaster may choose to have its digital signal passed through to subscribers' homes rather than being down-converted to analog at the cable head-end.Such a selection may be made at any time with notice to the cable operator and, in such circumstances, the cable operator would be required to notify subscribers that the digital signals are available if they obtain the necessary equipment from the cable operator or at retail.The cable operator would not be required to provide the equipment for subscribers to view the digital programming.

10.If true digital must-carry meant that broadcasters were entitled to carriage of all free broadcast streams, including free broadcast HDTV and/or "multicast" programming, it would give broadcasters additional incentive to return their analog licenses in a timely manner.[15] From a policy perspective and in the context of this proposal, the Media Bureau would recommend that as part of this Bureau proposal, true digital carriage would mean carriage of all free content bits, including carriage of all multicast programming. This proposal combines moving more quickly and certainly to the end of the transition, which both hastens the broadcasters' spectrum return and provides them opportunities to offer more programming to viewers. Cable operators claim it is a burden to carry multiple broadcast streams, but we believe the net result will be less cable capacity required to be devoted to broadcasters' programming as the transition moves more rapidly to all digital cable systems. The digital carriage obligations for satellite operators will be determined in a proceeding at the FCC examining alleged capacity constraints and potential technological solutions.

As a result of the Media Bureau's proposal, the public will reclaim, on January 1, 2009, a significant amount of spectrum throughout the country that will yield great benefits to our citizens, economy and the industries involved in the digital television transition.The public interest benefits include advances in homeland security, broadband deployment, economic growth and job creation and the consumer adoption of digital television.The result of the Media Bureau's construct is that these substantial public interest benefits will be realized at minimal cost to the public and the various industry segments driving the digital transition.

As the government reclaims broadcasters' analog spectrum and reclaims it for other uses on behalf of the public, consumers will reap the rewards in several areas of national importance, including:

These substantial public interest benefits will come at little cost to the public and the industries with a stake in the digital television transition.By January 1, 2009, the actual number of consumers dependent solely on analog broadcasting may be far less than the 15 percent statutory maximum.For those remaining analog broadcast viewers, the FCC's digital tuner and "plug and play" mandates will help to drive down the costs of digital-to-analog converters.[16]

Cable and satellite television subscribers would experience a seamless transition under the Bureau's proposal.During the transition, they will continue to have access to at least one programming stream from every must-carry broadcaster.Moreover, the growing levels of HDTV and other value-added digital programming to which these subscribers have access based on voluntary agreements will not be affected.

Finally, no additional capacity burdens will be imposed on cable television systems, either during or after the transition.This is in stark contrast to the questionable constitutionality and inherent legal risk of the "dual carriage" proposal advocated by some.

After many long years of hard work by all involved, the end of the DTV transition is now in sight.I know some Subcommittee members have expressed specific concerns, particularly regarding those consumers who rely on over-the-air television service.We share those concerns and look forward to working with this Subcommittee to bring the transition to a successful conclusion that will benefit all consumers and the national economy.

Thank you for the opportunity to discuss the Media Bureau's recent work involving the DTV transition.I would be happy to respond to any questions the Subcommittee has concerning the Bureau's framework proposal or any other issues related to the DTV transition.

DA 04-1497

May 27, 2004

MB Docket No. 04-210

MEDIA BUREAU SEEKS COMMENT ON OVER-THE-AIR BROADCAST TELEVISION VIEWERS

Comment Date:July 12, 2004

Reply Comment Date:August 5, 2004

Section 309(j)(14) of the Communications Act sets forth the conditions under which analog television broadcasting will end in the United States .Those conditions could be met as early as December 31, 2006, although the statute provides for extensions of that date if certain marketplace criteria have not been satisfied.As contemplated by Section 309(j)(14), up to 15 percent of television households in a given market could lose television service altogether if they rely exclusively on over-the-air broadcasting and have analog-only sets when the transition ends. In the remaining households, analog sets that are not connected to a pay television service could lose service as well.

In this Public Notice, we seek comment on options for minimizing the disruption to consumers when the switch-over to digital broadcasting occurs.We are primarily concerned with those households that rely exclusively on over-the-air broadcasting for their television service, but we seek comment more broadly on minimizing the impact on all consumers.First, we seek comment on the identity of those consumers that rely on over-the-air television broadcasting and why they do not subscribe to a pay television service.Second, we seek comment on potential options for minimizing the impact on these and other consumers when broadcasters are operating solely in digital.

Given the statutory directives and the nature of the potential solutions, we anticipate that the data submitted will be used primarily to help formulate possible recommendations to Congress.The Commission may, however, take other steps as appropriate.

Over-the-Air Television Viewers

We seek quantitative data on consumers who watch over-the-air broadcast television, including:

(1) The number of households that rely solely on over-the-air broadcasting ("over-the-air households") for their television service;

(2) The number of households that subscribe to a multi-channel video service provider ("MVPD") and have one or more television sets that rely on over-the-air broadcast service;

(3) The number of analog-only television sets in use by the households identified in (1) and (2), above;

(4) The number of digital television receivers in use in the households identified in (1) and (2), above, that are capable of receiving over-the-air digital broadcast television signals;

(5) The demographic characteristics of over-the-air households, including age, race or ethnicity, and education and income levels;

(6) The geographic characteristics of over-the-air households, including urban/rural and regional disparities;

(7) Data on why over-the-air households do not subscribe to an MVPD service, including specific data on:(a) the number of over-the-air households that would like to subscribe but cannot afford it, (b) the number of over-the-air households that could afford to subscribe to an MVPD service but choose not to, and (c) the number of over-the-air households that would like to subscribe and could afford it but their MVPD service of choice is not available in their community (e.g., no cable system or no satellite provider with local-into-local service).

Options for Addressing Analog-Only Television Sets

We also seek comment on options for addressing the potential disruption to consumers with analog-only television sets when the transition is complete.As an initial matter, we seek comment on the extent to which market forces can be expected to deal with this problem - e.g., consumers voluntarily buying digital-to-analog converter boxes before the end of the transition, cable or satellite providers that carry all of the local digital broadcast stations connecting additional sets in subscribers' homes to their networks, and broadcasters, wireless auction winners or others voluntarily subsidizing or deploying converter boxes in order to accelerate the transition.If marketplace forces alone cannot be counted on to address this issue, can and should the affected industries be required to take steps to minimize the potential for consumer disruption?

If government action is warranted, we seek comment on the nature and scope of such involvement.Should the government subsidize consumers' purchase of digital-to-analog converter boxes, or should it procure and distribute the equipment itself?In either event, what minimum technical capabilities should the converter boxes have?What do converter boxes cost today and what are they expected to cost in the future?

If a subsidy is appropriate, we seek comment on the type and amount of subsidy that should be considered.For instance, we seek comment on whether the subsidy should be in the form of a tax credit, a refundable tax credit, or a voucher.We also seek comment on whether the subsidy should be available for consumers who wish to purchase a digital television set in lieu of a digital-to-analog converter, or for those who wish to purchase a multi-channel video service from providers that carry all the local digital broadcast signals.

We seek comment on the scope of any potential government action.Who would qualify for the government subsidy or other program?If the subsidy or other program is means-tested, what test should be used?We also seek comment on the number of devices that the government should subsidize.For instance, is one digital-to-analog converter box per household sufficient, or should the government subsidize the conversion of additional analog-only sets in consumers' homes?Should the government subsidize conversion equipment for over-the-air households that have at least one digital receiver and one or more analog-only sets?Should the government subsidize conversion equipment for MVPD subscribers who receive all the local digital broadcast signals on the television(s) hooked up to the pay service, but who have one or more analog-only sets not hooked up to the pay service?

Finally, we seek comment on how a government program would be financed and administered.For instance, in bands where we intend to auction new licenses for spectrum freed up by the digital conversion, we seek comment on whether, under Section 309 and our precedent, we could require as a condition of the license that auction winners pay for conversion of analog-only equipment as part of a mandatory band-clearing mechanism. We note that in other auctioned bands, we have required new entrants to bear the costs to retune existing equipment to new bands or replace such equipment.We also seek comment on whether a government subsidy program could be financed directly through auction revenues, spectrum license fees, or other funding mechanisms, although we note that some of these options would require legislation.

Procedural Matters

Comments should be filed on or before July 12, 2004 and reply comments should be filed by August 5, 2004.Comments and reply comments may be filed using the Commission's Electronic Filing System ("ECFS") or by filing paper copies.See Electronic Filing of Documents in Rulemaking Proceedings, 63 Fed. Reg 24121 (1998). All comments should reference MB Docket No. 04-210.

Comments filed through the ECFS can be sent as an electronic file via the Internet to <http://www.fcc.gov/e-file/ecfs.html>.Generally, only one copy of an electronic submission must be filed.In completing the transmittal screen, commenters should include their full name, U.S. Postal Service mailing address, and the applicable docket or rulemaking number.Parties may also submit an electronic comment by Internet e-mail.To get filing instructions for e-mail comments, commenters should send an e-mail to ecfs@fcc.gov, and should include the following words in the body of the message, "get form."Parties who choose to file by paper must file an original and four copies of each filing.Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail.The Commission's contractor, Natek, Inc., will receive hand-delivered or messenger-delivered paper filings for the Commission's Secretary at 236 Massachusetts Avenue, N.E., Suite 110, Washington, D.C. 20002.The filing hours at this location are 8:00 a.m. to 7:00 p.m.All hand deliveries must be held together with rubber bands or fasteners.Any envelopes must be disposed of before entering the building.Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.U.S. Postal Service first-class mail, Express Mail, and Priority Mail should be addressed to 445 12th Street, SW, Washington, D.C. 20554.All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission. In addition parties should serve a copy of each filing via e-mail or one paper copy to John Berresford, Suite 3-A662, Media Bureau, FCC, 445 12^th St., S.W., Washington, D.C. 20554.

Comments, reply comments, and other submissions will be available for public inspection during regular business hours in the FCC Reference Center, Federal Communications Commission, 445 12th Street, S.W., CY-A257, Washington, D.C. 20554.These documents also will be available electronically from the Commission's Electronic Comment Filing System.Documents are available electronically in ASCII text, Word 97, and Adobe Acrobat.Copies of filings in this proceeding may be obtained from Qualex International, Portals II, 445 12^th Street, S.W., Room, CY-B402, Washington, D.C., 20554, telephone (202) 863-2893, facsimile (202) 863-2898, or via e-mail at qualexint@aol.com.To request materials in accessible formats for people with disabilities (Braille, large print, electronic files, audio format), send an e-mail to fcc504@fcc.gov or call the Consumer and Governmental Affairs Bureau at 202-418-0531 (voice), 202-418-7365 (TTY).

For further information contact Rick Chessen, Media Bureau at (202) 418-7200.

By the Chief, Media Bureau

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- FCC -

[1] By statute, all analog broadcast licenses terminate on December 31, 2006, unless the licensee requests and the Commission grants an extension based upon the criteria in Section 309(j)(14) of the Communications Act.47 U.S.C. § 309(j)(14)(A) and (B).In the absence of significant changes in circumstances, we do not think it likely that the standard set forth in Section 309(j)(14) will be met by that date and thus expect that the majority of stations will qualify for an extension of the initial deadline.

[2] Channels 52-69 (a total of 108 MHz in the 700 MHz band) will be reclaimed from the broadcasting service for use by public safety (24 MHz) and advanced wireless services (84 MHz).In the core broadcast spectrum (channels 2-51), the channels currently devoted to analog broadcasting would be available for potential auction or use by new entrants or other broadcasters.

[3] See First Report and Order, 16 FCC Rcd 2598 (2001),¶¶ 3, 112.

[4] Every three years, broadcasters elect whether they wish to invoke their statutory must-carry rights or negotiate for retransmission consent.The next election date is October 1, 2005 for carriage beginning January 1, 2006, then October 1, 2008 for carriage beginning January 1, 2009, and so on.

[5] The current 382 local digital broadcast stations being carried on cable represents a more than four-fold increase from January 2003, when 92 local digital broadcast stations were carried.In addition to local broadcast HDTV, cable systems also carry national HDTV cable programming services such as Discovery-HD, ESPN-HD, HBO-HD and Showtime-HD.

[6] One of the criteria in Section 309(j)(14)(B) is the 85/15% test.At its most fundamental, this test asks if at least 85% of TV households in the licensee's market can continue to receive television service when the over-the-air analog signals are turned off.If 15% or more of the TV households in the market would lose service, then a licensee's analog license may be extended beyond December 31, 2006.See 47 U.S.C.§ 309(j)(14)(B)(iii).

[7] All HDTV set-top boxes deployed by DirecTV and EchoStar contain an over-the-air DTV tuner.

[8] The phase-in schedule of the DTV tuner mandate is as follows:(1) receivers with screens 36 inches and above -- 50% must include DTV tuners as of July 1, 2004; 100% must include DTV tuners as of July 1, 2005; (2) receivers with screens 25-35 inches -- 50% must include DTV tuners as of July 1, 2005; 100% must include DTV tuners as of July 1, 2006; (3) receivers with screens 13-24 inches -- 100% must include DTV tuners as of July 1, 2007; and (4) TV Interface Devices -- VCRs and DVD players/recorders, etc. that receive broadcast television signals -- 100% must include DTV tuners as of July 1, 2007.

[9] "Plug and play" sets enable cable subscribers to receive digital programming without the need for a separate set top box.Pursuant to the FCC rule, all "plug and play" sets must also include a digital over-the-air tuner.

[10] The Bureau has not yet conducted a detailed market-by-market analysis, but will do so as the process continues.

[11] Approximately 15 percent of TV households do not subscribe to a pay television service and rely on over-the-air broadcasting.

[12] E.g., cable penetration is 91% in the Hartford/New Haven Designated Market Area (DMA), 91% in the Honolulu DMA, and 87% in the Palm Springs DMA.

[13] For instance, approximately 24.7 million analog-only sets were sold in 2003.That number could decline dramatically with a 2009 end date for analog broadcasting, even before the DTV tuner mandate becomes fully effective in 2007.

[14] A copy of the Public Notice is attached.

[15] The issue of"primary video" as one stream only versus "multicasting"is on reconsideration before the FCC in the digital carriage proceeding.

[16] Manufacture of DTV tuners and plug and play sets will create economies of scale for use of the same technology, e.g., chips, to be used for the digital-to-analog converters.

Witness Testimony

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