Good morning, Mr. Chairman and members of the Committee. Thank you for the
opportunity to
testify today. The National Telecommunications and Information Administration, (NTIA),
which is part of the Department of Commerce, is the principal adviser to the President on
domestic and international telecommunications issues. I am pleased to be here today as the head
of NTIA to present the views of the Administration on the matters before this Committee.
The focus of my testimony today will be the conversion from analog television to
advanced
television (ATV) and the preferable way of meeting the twin goals of ensuring that the American
people receive the benefits of digital television as well as fair value for use of a scarce valuable
national resource.
The transition to a digital television system is unlike anything previously attempted in
American
mass media. Because ATV is a digitally-based system that cannot be received by currently-used
television receivers, simply turning off the analog signal and turning on the digital signal would
disenfranchise the nation's millions of television viewers. In addition, and incomplete or partial
transition could result in a fragmented television market operating in two different incompatible
transmission standards. A successful transition will require acceptance of -- and investment in --
new technology by consumers, programmers, and broadcasters and other video program
distributors. If accomplished completely and quickly, the transition to digital television will
provide unique and historic opportunities for the American people.
We believe that these goals can best be met by loaning existing broadcasters for the
transition
period the spectrum they need to upgrade to the new digital technology and then reclaiming the
spectrum for licensing at auction. This proposal would permit a rapid and orderly transition to
digital television while creating a minimum of uncertainty, confusion, and possibly wasted
expenditures for consumers and broadcasters. It would also permit the FCC following the
transition period to reorganize the television spectrum to optimize the amount and value of
spectrum available for auction. While the Administration realizes that certain details of this
proposal could undoubtedly be improved, we believe that, when measured against competing
alternatives, it best balances sound public policies associated with a smooth transition to ATV
with important budget objectives.
Before proceeding, I'd like to clarify one aspect of this
discussion. Although returned spectrum is sometimes referred to
as "analog" spectrum and the new ATV channels as "digital"
spectrum, it should be noted that these are merely short-hand
ways of referring to different methods of transmission over the
electromagnetic spectrum rather than different types of spectrum.
I. Why Advanced Television is Important
Advanced television represents the next stage of development
for America's free broadcast television system. Despite the
proliferation over the past several decades of different methods
of video programming distribution, broadcast television remains
the primary means of disseminating and receiving information and
entertainment in the nation. Unlike cable television and other
subscription media, broadcast television is available to
virtually the entire U.S. population, has no monthly fee, and
requires no special equipment beyond a standard television set.
In addition, only broadcast licensees are subject to
Federal Communication Commission (FCC) public interest
requirements to serve the interests and needs of their community
through locally-oriented news and programming. This system of
free locally-based broadcast television has worked well for half
a century and is widely regarded as the most successful broadcast
system in the world. The localism, universal service, and
diversity of this system should be maintained as television
advances into the next generation.
The shift to digital television is particularly important
because the technical constraints imposed by the existing analog
transmission standard have until now made it impossible to
upgrade television to permit use of more sophisticated
technology. Even when the United States adopted a color
television process in the 1950s, we perpetuated the spectrally
inefficient features of the NTSC system to avoid making existing
black and white receivers obsolete. Broadcasters have long
advocated the importance of converting from analog to digital
television. Now we have the opportunity not only for dramatic
television improvements but also to make the nation's broadcast
television system more spectrum-efficient and to free up
substantial amounts of spectrum to auction for new uses.
Digital technology can dramatically improve television and
bring important benefits to millions of Americans in at least
three areas -- better quality pictures and more viewing choices,
advancement of American technological strength, and the more
efficient use of the radio frequency spectrum. Advanced television could give viewers dramatic,
new entertainment and
educational experiences. And, if digital broadcasters choose to
provide multiple channels using a digital signal, ATV would also
provide 4 to 6 channels for every channel provided today. By
using a digital medium, broadcasters will also have the
flexibility to offer a variety of other "ancillary and
supplementary" services to consumers.
ATV's technological benefits are already being seen in the
medical and research fields. For example, telemedicine
applications are now available that allow doctors to "examine"
patients in remote locations. The flexibility and versatility of
this new medium will undoubtedly stimulate myriad new
applications in fields such as teaching, manufacturing, and
science that cannot even be dreamed about today.
Finally, ATV technology uses radio frequency spectrum
more efficiently than the current system. As a result of ATV
technology, broadcast television's current requirement for 402
MHz of spectrum could be reduced significantly to 252 MHz, saving
up to 150 MHz of prime spectrum for other uses. More
importantly, although today's broadcasters must be reassigned to
a new channel for that service, the channel it vacates may be
even more valuable after the FCC has repacked the spectrum and
allocated it for new uses.
II. The ATV Transition Process
In the mid-1980s, when the potential for advanced television
first burst upon the American scene, it appeared as if America
had already lost the race to develop the new technology. The
development of digital broadcasting in 1990 by U.S. companies and
researchers, however, propelled America to the lead. After many
years of hard work through the FCC's Advisory Committee on
Advanced Television Service, four competing companies reached a
pact to combine their systems, resulting in the formation of the
HDTV Grand Alliance in 1993. The Grand Alliance proposed a
transmission standard that sought to accommodate the competing
needs of the television, cable, and computer industries.
For nearly a decade, the FCC has been wrestling with the
question of how best to convert the nation's television system from the current NTSC format to
this next generation of
technology without disenfranchising the nations's television
viewers. With the development of a workable digital system by
the Grand Alliance, the debate has narrowed over the past several
years as attention has focused on a few specific transition
alternatives.
Under the scenario outlined by the Commission in several
1992 releases, each existing broadcast licensee would be loaned
additional spectrum in the form of a new paired ATV "transition"
channel, which would be used in part for simulcasting during the
conversion to digital television. After a period of 15 years,
broadcasters would be required to cease analog broadcasting and
to return the analog channel to the government for reallocation
to other uses. It should be noted that this plan represents only
a tentative proposal by the FCC, and the Commission has not yet
made a formal decision on the best way to proceed. Continuing
technological advances suggest the transition will be more rapid
than previously expected.
A second proposal, which is supported by the Administration,
adheres to many of the FCC's tentative conclusions but provides
for a more rapid transition to digital and requires the licensing
of the returned "analog" spectrum through auctions. Existing
licensees would be loaned a second channel for a transition
period and would be required to cease analog broadcasting and
return their original channel to the government no later than
2005. The FCC would reorganize or "repack" the spectrum to
maximize both the amount and desirability of spectrum available
to be auctioned for other services. Returned spectrum would then
be licensed at auction for other uses.
Under a third proposal, the new ATV channels would not be
assigned to existing broadcasters but would instead be licensed
at auction to the highest bidders. This proposal would allow
entities other than current television licensees to compete in
the broadcasting business and would allow auctions for the new
spectrum to be held relatively quickly. Under this plan, analog
and digital licensees would both broadcast in different
transmission standards for an indefinite period, since analog
licensees would continue broadcasting in NTSC format (although
they could potentially switch to digital at a future, though
indeterminate, date).
III. "Analog" Auctions Balance Sound Public Policy and
Budget Objectives
Because of the importance of the Nation's broadcast
television system, it is essential to devise a transition
mechanism that is least disruptive to viewers and ensures that
both broadcasters and viewers are able to make the transition
from analog to digital television. Loaning existing broadcast
licensees for a limited time the spectrum needed to make possible
a transition to digital television -- and licensing the returned
spectrum at auction following conversion -- is the best means for
achieving this conversion for several important reasons. We
believe this approach would benefit the viewing public and
broadcasters as well as meet the Government's budget objectives.
A. "Analog" Auctions Would Ensure a Orderly Transition for
the Nation's Television Viewers and Broadcasters
The plan to auction returned "analog" spectrum would, as did
the FCC plan on which it is based, allow a transition to digital
television that would protect the nation's television viewers.
Under the plan, they would be able to continue to use their
current televisions since broadcasters would be required to
broadcast in both analog and digital formats during the
transition period. Thus, an orderly transition to digital
television as envisioned in the FCC's proposal would be ensured.
While some have claimed that under this proposal
broadcasters would receive a windfall in the form of free access
to a valuable resource, in fact, broadcasters would be loaned an
additional channel for a finite period to ensure a smooth
transition to digital television. On a date certain,
broadcasters would be required to cease analog broadcasting (and
return the analog channel), thereby ensuring that digital
television becomes the national television standard.
Loaning transition spectrum to existing broadcast licensees
would also make full use of the broadcasters' base of knowledge,
experience, and investment in this highly specialized and complex
business. Whereas a new entrant into the market might be
required to build facilities from scratch, existing licensees
would need only to upgrade existing facilities, thus expediting
the conversion to digital.
On the other hand, "digital" auctions may result in a less
orderly and complete transition to digital broadcasting. If we
do not develop procedures now to provide incentives for today's
broadcasters to migrate to new channels for digital operations,
we may find ourselves with a fragmented television system for an
extended period of time.
B. Licensing the Returned Spectrum at Auction Would Allow
the American Taxpayer to Recover the Full Value of the
Spectrum
The accelerated time frame for transition would also
help achieve the important goal of achieving a balanced budget by
2002 and allow the American taxpayer to recover the full value of
this prime spectrum. The Administration estimates that an
auction of the returned spectrum would yield at least $17 billion
for the U.S. Treasury. This estimate is based on the FCC's range
of $20 to $132 billion in revenues from auctioning the "analog"
spectrum. Since the auctions of returned spectrum will actually
take place in 2002, the most conservative FCC estimate was
reduced to allow for the three-year delay in companies' actually
being able to deploy services. Based on the phenomenal success
of the FCC auctions to date, the Administration is confident that
$17 billion will be the minimum that will be raised through
auctioning the "analog" spectrum. To ensure that this minimal
value is received from auctions, however, the Administration has
developed a contingency mechanism that would permit assessment of
a fee on recipients of ATV licenses in the event of a shortfall
in auction receipts.
1. The Need for Spectrum will Continue to Grow
While some entities have opined that the demand for spectrum
will not be as strong when the "analog" spectrum is returned by
the ATV licensees, most experts in the telecommunications field
believe that demand for spectrum will continue to soar in the
coming years as wireless services become more ubiquitous.
Experts anticipate that spectrum-hungry wireless applications
will continue to multiply at a rapid pace, including land mobile
applications, PCS, wireless data systems, telemedicine and
biomedical services, and wireless portions of the local telephone
loop. All of this is happening much faster than most people
anticipated. A 1983 study commissioned by AT&T forecast a total
of less than one million cellular users by the year 2000. There are presently over 30 million
cellular users in the U.S., and the
number is expected to double by 2000. Considering that the
cellular industry has created over 250,000 jobs using just 50 MHz
of spectrum, the Administration's proposal, which would free up
150 MHz of spectrum, would likely create even more jobs.
Even if these predictions somehow prove to be incorrect and
the overall demand for spectrum is not as high as we anticipate
over the next decade, the returned television frequencies will be
in prime parts of the spectrum with characteristics that make
them excellent for land mobile and other uses. Given the ever-growing demand for spectrum --
such as that located in the 40 GHz
to 200 GHz range -- that until recently was virtually unusable,
the demand for spectrum in the prime frequencies of the
television bands (54 MHz-806 MHz) will undoubtedly continue to be
strong.
2. Licensing the Returned Spectrum Would Facilitate
Repacking the Spectrum Into Contiguous Blocks and
Would Maximize Its Value
One of the major benefits of auctioning the returned
"analog" spectrum rather than the "digital" spectrum is that the
former proposal will permit the FCC more readily to "repack" the
spectrum after transition, maximizing both the amount of spectrum
available for auctioning and the value of the frequencies made
available.
Under the "analog" auction scenario, the FCC will have the
ability to "repack" the broadcast spectrum without regard to the
more demanding interference characteristics required by analog
broadcasting. Repacking will permit the FCC to locate digital
broadcasting so as to permit the most logical and efficient use
of the spectrum for modern technologies. As discussed above,
this would not be possible if the initial "digital" spectrum were
auctioned off and analog licensees continued broadcasting
indefinitely, interspersed among the digital channels.
Repacking would have several benefits. First, repacking
would maximize the amount of spectrum available for auction. The
amount of spectrum that would have to remain fallow in each
market to prevent interference would be determined by the minimal
digital separation requirements rather than those for analog television. The FCC estimates that as
much as 150 MHz of prime
spectrum would be available in each market for auction following
repacking, while less would be available to auction in most
markets in the "digital" auction scenario.
Second, the ability to repack the channels efficiently would
result in nationwide contiguous spectrum blocks that could be
divided into smaller nationwide bands devoted to specific
services such as two-way applications, point-to-multipoint
distribution services, as well as mobile services. Systems that
are designed to operate nationwide will in many cases be cheaper
to manufacture and operate, since the transmitter and receiver
equipment will not require built-in flexibility to accommodate
different operational characteristics.
Moreover, because under a "digital" auction scenario, analog
and digital broadcasters would share the television spectrum, all
frequency assignments would remain subject to the inefficiencies
of the NTSC broadcast television system, which requires many
channels to be left vacant in each community to avoid
interference. The "digital" auction proposal could potentially
double the amount of spectrum used for broadcasting, leaving a
much smaller amount of spectrum available for auction for other
uses. Auctions of digital channels would thus result in a less
efficient use of this highly valuable spectrum.
C. The Costs to Broadcasters and Consumers of a Rapid
Transition are Reasonable
1. The Costs to Consumers
Because under the Administration's proposal analog
broadcasting will cease in 2005, consumers would have to have the
ability to receive digital television signals by then. We
anticipate that the vast majority of American households will
have either a digital television set or some other way to convert
digital signals to analog signals. For example, by 2005, it is
expected that most cable television systems will either have
switched to digital signal transmission and provided their
subscribers with converter boxes to receive these signals or will
be able to convert digital signals to analog signals at the cable
facility. Currently 60-65 percent of television households
subscribe to cable. Thus, millions of consumers will be able to receive digital signals without
buying a set top converter box or
a new television.
Estimates on the total number of consumers who because they
do not subscribe to a multichannel service will need to buy a
television or a set top box to receive digital signals range from
10 to 20 percent. By 2005, some smaller percentage of consumers
still will not have purchased a digital television or a
converter. (It is worth noting, however, that because broadcast
programming will continue to be a significant portion of the
programming carried by multichannel video providers, consumers
will continue to spend a significant amount of time watching
broadcast channels, even when the vast majority of television
households subscribe to a multichannel provider.)
The Association for Maximum Service Television estimates
that by 2002 converter prices will be down to $20 to $50 per
unit. The Administration is considering a plan to help alleviate
the burden that purchasing converters will impose on some
consumers and debating whether, to alleviate the cost to
consumers, it would be appropriate to rebate to consumers 50
percent of the cost of the converter box, up to $25. At $25 per
television household, the cost to broadcasters of assisting
consumers that do not have the capability to receive digital
signals would be $25 million if one percent of television
households qualify for a converter box rebate and up to $250
million if ten percent of television households qualify. It is
important to note that, in return for the cost of buying the
converter boxes, consumers will be compensated by the ability to
receive as many as six times the current number of channels.
2. The Cost to Broadcasters
The cost to convert each analog broadcaster to digital
broadcasting vary dramatically, based on geography and station
operations. The 1992 Advisory Committee on Advanced Television
Service (ACATS) estimated the cost of conversion to digital for
broadcast stations as low as $1.3 to $1.6 million per station,
while the NAB's current estimate ranges from $1.5 to 10 million
per station. With a date certain of 2005 for spectrum reversion,
broadcasters would still have a significant amount of advance
notice that equipment had to be replaced. Since the expense of
buying new equipment would be spread over time, much of these
expenditures would be incurred through normal studio and equipment upgrades. Many stations,
especially those owned by
networks and large group owners, have already begun to incur
these costs as part of their routine upgrades and replacement
schedules. A more rapid transition could require broadcasters to
purchase equipment before the prices have significantly fallen.
On the other hand, market forces may result in prices falling
sooner than is now anticipated. The Administration is committed
to finding ways to ease the transition to digital television for
the smallest broadcasters and would like to work with Congress to
develop suitable proposals.
IV. Conclusion
In conclusion, Mr. Chairman and members of the Committee, I
want to emphasize again how important it is that we ensure a
smooth transition of our national broadcasting system from one
based on analog transmission technology to one that uses digital
technology, the best that this country has to offer. Free over-the-air television is vitally
important to the nation and must be
able to compete with other video providers, such as cable and
satellite services. The Administration proposal would ease the
transition to digital television by making each of today's
broadcasters eligible for an ATV license. At the same time, it
would also recapture for auctioning, on behalf of the American
public, a full 150 MHz of radio spectrum. While there are
alternative ways to achieve this second objective, we believe the
Administration proposal is most consistent with sound
telecommunications policy.
Mr. Chairman and members of this Committee, again, I
appreciate this opportunity to share these views with you. I am
ready to respond to any questions that you may have.
