Larry Irving Senate Testimony: NTIA Advocates Spectrum Loan and Auction Plan for Digital TV Transition

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.