 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
Witness Testimony
Mr. Robert Sachs
Advancing the DTV Transition: An Examination of the FCC Media Bureau Proposal
Mr. Chairman, and members of the Subcommittee, my name is Robert Sachs and I am President and CEO of the National Cable & Telecommunications Association. NCTA is the principal trade association of the cable television industry in the United States. It represents cable operators serving more than 90% of the nation's approximately 70 million cable television households and more than 200 cable program networks, as well as equipment suppliers and providers of other services to the cable industry. Thank you for providing me with the opportunity to testify this morning. Introduction This Subcommittee has played a pivotal role in promoting the transition from analog to digital television and I commend you for your ongoing commitment to seeing the process through to completion. Your leadership has been important to encouraging increased cooperation and inter-industry negotiations between the cable, consumer electronics, broadcast and content industries. For cable's part, I am pleased to report that our industry has made major progress in delivering HDTV and other digital products to our customers and is continuing its efforts to advance the DTV transition on various fronts. As I discuss the specifics of our efforts, it's important to point out that the cable industry's leadership in the digital revolution is largely attributable to a regulatory environment which has allowed companies to invest, take risks and compete in the video marketplace. Cable's own transition from analog to digital technology has been spurred by competitive market forces. The technological advances which have transformed our business and benefited consumers have resulted from cable entrepreneurs risking private capital without any government guarantees or subsidies. Starting with an eight-year capital investment of nearly $85 billion, or nearly $1,200 per customer, that began with the passage of the 1996 Telecommunications Act, the cable industry has built a robust, multi-functional and highly versatile infrastructure. This has not only enhanced our delivery of traditional cable services to tens of millions of basic cable customers, but provided the platform for the cable industry to provide broadband services to 23 million digital cable, 17 million high-speed Internet, and two-and-a-half million digital phone customers. This broadband platform has enabled cable companies to greatly increase the quality and expand the variety of video programming and other services available over their systems. Today cable offers high definition television, personal video recording capability, video-on-demand and other interactive services that were not available in the market at the time of the '96 Act. Consumers are becoming more and more aware of what digital technology offers and are buying digital products in record numbers. More than 30% of cable customers already subscribe to digital cable services. And as consumer awareness grows, so are consumer expectations about viewing options, convenience and control. The cable industry's incentive to bring the digital transition to full fruition is about serving these growing needs and interests in a highly competitive video marketplace. When Michael Willner, President and CEO of Insight Communications, testified almost two years ago before this Committee about the nation's transition from analog to digital broadcasting, he reported that cable had fully embraced digital technology in an effort to offer consumers new competitive services and that the industry was committed to help expedite the DTV transition. Over the past two years, the cable industry's unwavering commitment to the digital transition has been marked by the rapid rollout of high definition services, the development of new and exciting HDTV content, and the completion of a major stage of negotiations with the consumer electronics industry on national standards for digital television products. Competition from an aggressive, well-financed direct broadcast satellite (DBS) industry has played no small part in accelerating cable's digital advances. Cable Companies Have Rolled Out HDTV Services At a Rapid Pace The full-scale deployment of HD service has been the fastest rollout of any product launched by the cable industry. Beginning in early 2003, cable companies initiated HDTV service in various markets across the country. At that time, HD content was available over cable systems to approximately 37 million US households. By the end of the first quarter of this year, that figure has more than doubled with 84 million American households able to receive high quality HDTV programming from their local cable operator. The availability of high definition services to cable subscribers jumped 125 percent from January 2003 through March 2004. HDTV is now available from at least one cable system in 99 of the top 100 markets. HD over cable is by no means limited to large urban areas. Cable operators in a variety of mid-sized to smaller markets are providing the service to their customers too. An additional 56 markets beyond the top 100 have a package of HDTV channels being offered over cable, bringing the total number of markets where cable systems are offering HDTV to 155 nationwide. Cable companies are now offering packages that include a full mix of broadcast, basic and premium networks featuring HD content. Here in Washington, for example, Comcast provides 11 channels of HDTV programming, including five broadcast stations. Time Warner Cable has entered into carriage agreements with all of the major commercial broadcast networks for the HD programming carried by the stations they own, and in testimony two weeks ago before this Subcommittee said that by year-end, its systems will offer an average of 15 HD channels each. Cox Communications recently announced an agreement with the Public Broadcasting Service (PBS) and Association of Public Television Stations (APTS) to carry the digital signals, including high definition programming, of 70 PBS stations on its systems. Public broadcasters have similar company-wide deals with Time Warner Cable and Insight Communications, as well as market-specific carriage agreements with Comcast, Adelphia, Cablevision, Bright House and other cable operators. Overall, cable systems are currently carrying nearly 400 broadcast stations offering HDTV or other compelling digital content -- a more than four-fold increase just since January 2003, when 92 local broadcast stations' HD programming was being carried. This remarkable growth demonstrates that market forces are working, and working well. And it confirms what the cable industry has said since the outset of the DTV transition -- that when local broadcasters offer HDTV and other compelling digital content, and make it freely available to cable, cable companies want to carry it, and are doing so. It also reminds us that consumer demand is at the core of the digital transition and that marketplace solutions usually produce better results than government mandates. Cable Networks Are Leaders in Providing HDTV Content In addition to cable systems carrying broadcast HD programming, cable systems are carrying HD programming from cable networks who have catapulted over their broadcast counterparts in creating HD content. Today, 15 different cable networks are producing HD programming in popular genres, such as movies and sports, and a wide array of original and general interest programming. Pay TV pioneers HBO and Showtime were the first to offer HDTV programming, including original movies. Other premium channels, such as Cinemax HDTV, The Movie Channel HD, Starz HD! and INHD have now joined their ranks offering first-run and recent movies and other HD programming, commercial-free 24-hours a day. Unlike many broadcast stations which just offer HD programming a few hours a day, most cable networks that offer HD do so on a 24-hour or nearly full-time basis. Discovery launched its 24-hour-a-day HD Theater two years ago. It recently announced plans to spend $65 million over the next five years on Atlas HD, a series of 30 two-hour, high definition documentary specials on countries around the world. Bravo HD now offers symphonic concerts, ballet, theater, and opera in high definition. TNT-HD, which launched just last week, will feature original dramatic series, sporting events and other HD programming. Mark Cuban's HDNet produces and televises sports, news and entertainment programming in high definition 24 hours a day. The network includes NHL games, Major League Soccer games, horse and auto racing, and NCAA football and basketball games. Regional sports networks, MSG Network, Comcast SportsNet and Fox Sports Net NY, are also major providers of HD programming. And NBA-TV provides exclusive live National Basketball Association games in high definition. For its outstanding leadership in advancing the digital television transition through innovative HDTV programming, ESPN HD was recently honored by the Consumer Electronics Association. This month the network will debut the ESPN Digital Center, a state-of-the-art facility, that will telecast the network's signature sports news and information program, SportsCenter, and offer over 3000 hours of originally produced high definition studio programming a year. Marketplace Forces Are Working The rapid rollout of HDTV over cable would not have occurred but for compelling HD content and the enhanced viewing and listening experience that HD offers to consumers. According to Kagan Research LLC ("Kagan"), a leading industry analyst, more than eight million DTV's were purchased by consumers through the end of last year and an additional six million are expected to be purchased in 2004, bringing total U.S. DTV sales to nearly 15 million by the end of this year. (In view of the fact that some of these sales represent multiple purchases by the same TV household, Kagan estimates that approximately 12 million TV households ("TVHH") or 10.7 % of total TVHH's will own DTVs by the end of this year.) Clearly, there is something of a "chicken and egg" phenomenon when it comes to HDTV programming and equipment. But as equipment prices drop, more and more American consumers will be able to avail themselves of the crystal clear pictures and Dolby surround sound that HD uniquely provides. According to Kagan, total numbers of DTV sales and households are likely to reach 35 million (sales) and 27 million (23.9% TV HH) by year end 2006 and 89 million (sales) and 64 million (55.1% TVHH) by year end 2008. So, even though less than 10% of TV households own DTVs today, these growth projections may help to explain why cable operators and programmers have so strongly embraced HDTV. DBS Competition Sparked Strong Growth in Cable Delivery of HDTV The growth in cable delivery of HDTV is also stark evidence of the fierce competition between cable and DBS. The battle between these two industries to attract and retain customers is a major driver of HD. As the FCC recognized this year in its 10th Annual Video Competition Report, cable operators face vigorous competition from an ever-stronger DBS industry serving nearly one out of four multi-channel video households. DirecTV and Dish Network are now the second and fourth largest providers of multi-channel video services in the US. In the first quarter of 2004 alone, DBS added 820,000 new customers, bringing its total subscriber base to 22.4 million. Competition is a very powerful motivator and cable companies are continually seeking new sources of high quality digital content to maintain their competitive edge. National Digital TV Technical Standards Are Helping to Speed the Transition Along with creating and carrying compelling digital programming, the cable industry has joined with the consumer electronics industry and various standards-setting organizations to establish digital standards. In December 2002, the cable and consumer electronics industries entered into a landmark agreement that set the stage for a national "plug and play" standard between digital television products and digital cable systems. As a result of this agreement, cable customers can buy unidirectional DTVs and other devices that connect to digital cable systems without a set-top box, and enjoy easy access to HDTV and other services offered by cable providers. The agreement ensures that the next generation of digital television sets will receive one-way cable services without the need for set top converter boxes; enable consumers to receive HDTV signals with full image quality and easily record digital content; allow for an array of new devices easily to be connected to the new HDTV sets; permit access to cable's two-way services through digital connectors on high definition digital sets; and encourage manufacturers to speed the production of new sets and services for delivery to market. The FCC adopted implementing rules in September 2003. These rules track the voluntary agreements between the cable and consumer electronics industries and impose legal obligations on cable operators to facilitate the commercial availability of "digital cable ready" equipment. The FCC also required that these "cable-ready" DTV sets include over-the-air digital tuners, a requirement the cable industry supported. The FCC's rules assure consumers that cable operators will provide them with Point of Deployment or POD separate security modules, now called CableCARDs, that will work in their CableCARD-enabled equipment purchased at retail. Motorola and Scientific-Atlanta have shipped CableCARDs to MSOs. Under the rules, all digital cable systems are required to maintain an adequate supply of CableCARDs and ensure convenient access to these devices for their customers. In addition, all digital cable systems must conform to technical standards governing digital interfaces and the CableCARD copy protection system. Most large cable systems already comply with these standards and other operators are implementing them at their head-ends and in their networks in the near term. As cable operators implement the "plug and play" agreement, unidirectional digital cable ready products are well on their way into the market, as evidenced by the presence of products from a number of manufacturers at the January 2004 Consumer Electronics Show in Las Vegas and last month's NCTA Show in New Orleans. I am also pleased to report that the cable and consumer electronics industry discussions on two-way digital cable ready products are well underway. This process includes many other interested industries and companies. The CE and cable industries - individually and jointly - have reached out to third parties, including representatives of the information technology and content communities, and the broadcast and satellite industries, to get their views on the key components of a two-way digital cable ready framework. NCTA will continue to collaborate with other industries and the FCC to implement the unidirectional "plug and play" agreement and to expeditiously reach agreement on "two-way" digital cable ready products. Meanwhile, CableLabs, the cable industry's research and development consortium, is continuing to work with manufacturers in testing products that are built to conform to CableLabs' OpenCable specifications as well as the FCC rules for unidirectional "plug and play" digital cable products. On the consumer side of the equation, cable companies recognize the importance of minimizing the potential for confusion regarding the capabilities of "digital cable ready" devices. To avoid such confusion, the cable industry has partnered with the CE industry to develop logos to make consumers aware of "Digital Cable Ready" and "Interactive Digital Cable Ready" devices. The FCC Media Bureau Proposal to Accelerate the DTV Transition As you have heard this morning, the Media Bureau of the FCC has initiated an important discussion about how the government can accelerate return of the spectrum loaned to television broadcasters to transition to digital broadcasting. We commend Bureau Chief Ken Ferree and the Bureau for thinking creatively about how to end the transition in order to reclaim valuable public spectrum for public safety and wireless needs while, at the same time, minimizing disruption to consumers. We think all those affected by the transition are benefited by a Bureau proposal to interpret existing law to provide some certainty as to the transition's end date - either December 31, 2008 or at some later date, depending on the immediacy of the government's needs for reclaiming the analog spectrum. And we think it's vitally important that any policies adopted minimize disruption to consumers. Given the evolving nature of the Bureau's plan and the fact that we have only just recently seen it described in writing, it is difficult to offer definitive comments about it. However, we are able to offer some preliminary observations. First, clearly the biggest challenge posed by the DTV transition is to ensure that television viewing enjoyed by some 15 million broadcast-only TV households and tens of millions of cable and satellite households where multiple TV sets may not be hooked up to cable or DBS is not disrupted. At a minimum, marketplace availability of low-cost digital-to-analog converter devices is essential to ensure that massive disruption of consumers who rely solely on broadcast TV does not occur. In this regard, the FCC recently issued an NOI seeking public comment on how this problem can be addressed. We commend the Commission for recognizing the critical importance of having consumer solutions in place well in advance of the date by which broadcasters must return the analog spectrum to the government. Second, it must be recognized that the broadcasters transition to a digital-only broadcast system under the Bureau's transition plan will occur long before a substantial number of cable customers have migrated from analog to digital viewing. As I mentioned earlier, 23 million or more than 30% of cable customers subscribe to digital cable today. While only a small percentage of these consumers own DTVs, enabling them to receive programs in HDTV or standard definition TV, digital cable set-top-boxes still allow them to enjoy digital cable channels, video-on-demand and other interactive programs in analog on existing TV sets. By the end of 2008, Kagan Research LLC projects that nearly 41 million cable subscribers will be digital cable subscribers. If these projections are correct, it means that nearly 30 million cable customers will still be analog-only as of December 31, 2008. Kagan also estimates that digital cable homes will contain an average of 1.9 digital set top boxes versus an average of 2.6 TV sets. This means that an additional 30 million TV sets in digital cable households will not be able to receive digital broadcast signals without a digital-to-analog cable converter device. As shown in the following chart, a total of 106 million analog TV sets (30 million analog cable customers x 2.6 TV sets (78 million TV sets) plus 40 million digital cable customers x .7 TV sets (28 million TV sets) will be in cable households:
Cable operators have a very strong interest in ensuring that these 106 million analog TV sets continue to work in their customers' homes. For this reason, we think the Bureau plan has it right where it recognizes that down-conversion of a digital broadcast signal to analog at the cable system's head-end would be the most cost-efficient way to continue to serve these millions of sets. Unlike over-the-air viewing, for which digital-to-analog converter devices will be the only way that broadcast viewers can continue to watch television on their analog sets, cable operators must have the option of down-conversion for its customers to achieve this same goal. Where we take issue with the Bureau's plan is its proposal that a must carry broadcaster should be able to determine when and whether a cable operator can down-convert its digital signal to analog at the head-end. We believe it would make more sense and be more appropriate to allow cable operators to decide how best to deliver digital must carry broadcast signals to cable customers until a cable system has totally converted to digital, or at least until 85 percent of its customers have "plug and play" DTV sets or digital-to-analog converter devices. Giving broadcasters control would limit cable operators' ability to serve cable customers in the least disruptive manner or effectively impose a dual must carry regime on cable operators. In an earlier version of its plan, the Bureau proposed that cable carriage of broadcasters' digital signals in digital would be subject to the above conditions. We believe that the Bureau's earlier plan would prove much less disruptive for cable consumers. Second, the DTV transition plan should not provide must carry broadcasters with expanded must carry rights. The FCC in 2001 already ruled that a cable operator is not required under the Cable Act to carry more than a single digital program stream, plus program-related material. The Commission concluded that "based on the plain words of the [Cable] Act . . . to the extent a television station is broadcasting more than a single video stream at a time, only one of such streof each television station is considered 'primary'" and therefore entitled to mandatory carriage. In the FCC's digital must carry proceeding, CS Docket No. 98-120, NCTA and others have commented extensively on the substantial legal and policy reasons why that is the right decision. As we have made clear in those filings, imposing multicast carriage requirements would do nothing to advance the digital transition. Most obviously, a multicast must carry rule, were it legal, would, under the Bureau's plan, take effect only after the broadcaster has returned its analog spectrum. By counting a broadcaster's single down-converted signal carried by cable towards the 85 percent test, the Bureau's plan already would achieve the goal of expediting the transition's end. Secondly, there is no reason to believe that standard definition multicast digital signals would cause consumers to purchase HDTV sets. Indeed, multicast rights for must carry stations after the transition adds nothing to the objectives sought by the Bureau's plan. As importantly, government-required cable carriage of multicast digital broadcast signals would be harmful to other programmers, consumers and public policy goals of promoting programming diversity. Multicast must carry would harm the public interest by greatly expanding the number of channels that the government would compel cable operators to carry from broadcasters that already have a voice on the cable system. Under current technology, six standard definition digital video channels can be compressed within a 19.4 megabits stream. If under the FCC's new media ownership rules a broadcaster were to own two or three TV stations in some markets, the Bureau plan would require cable operators to carry as many as a dozen or 18 digital video channels from a single broadcast source in those markets. How is that possibly fair to other programmers who must compete for carriage on the basis of program quality and consumer demand? The Bureau plan sweeps aside these clear legal, practical and public policy reasons for maintaining the Commission's existing decision against mandatory multicast carriage. It instead raises the prospect of government-mandated multicast carriage after the transition as an "additional incentive" for broadcasters to "return their analog licenses in a timely manner." But broadcasters should need no added inducement to return this valuable government-owned property, which the government loaned them to transition to digital television by 2006. Moreover, broadcasters should not be rewarded for doing what the law requires them to do at the expense of cable operators, programmers and consumers. We appreciate the Bureau's continued efforts to seek input as it develops its DTV transition plan. We look forward to working with the Bureau, the Commission and Congress as this plan continues to evolve. Conclusion Mr. Chairman, in summary, the cable industry has advanced the digital transition by undertaking a massive, multi-year upgrade of its plant and facilities, spurred by intense competition from DBS and fueled by a private capital investment of over $85 billion since 1996. The resulting digital broadband platform has positioned the industry to continue to be a leader in the provision of home entertainment, information, and other services to the American public. The benefits of cable's investment in digital technology and infrastructure improvements is shown in the dramatic growth in cable's delivery of HDTV services to consumers from both broadcast stations and cable networks, the creation of new and exciting HDTV content, and the emphasis on resolving standards issues for new digital television products. It also shows that the marketplace is working well and that consumer demand will further drive the digital transition. The government's need for the return of the analog spectrum for important public safety and wireless purposes provides further impetus for expediting the digital transition. But as the FCC Media Bureau plan properly recognizes, the transition must be accomplished with a minimum of consumer disruption. The cable industry stands ready to work with the Subcommittee in its efforts to advance the DTV transition for the benefit of American consumers. Related Documents |
|||||||||||
|
