Committee on Commerce, Science, and Transportation
September 17, 1997
Thank you for inviting me to come here today to testify about the implementation of digital television. This is perhaps the last time that I will appear before this distinguished body, and I want to take a moment to give my thanks to you for all the work we have done together. It has been a great honor to serve as Chairman of the Federal Communications Commission. I look back at the changes, challenges, and accomplishment of the last several years, and I'm very grateful that I was able to play a part. I believe in public service, and I feel very lucky that this chance to serve has given me an opportunity to participate in the exciting and dramatic changes in the telecommunications explosion.
As you know, the astonishing capabilities of our home-grown digital television technology permits numerous uses. That's why the term "DTV," for digital television, is the appropriate term here. DTV encompass all the possibilities that digital technology can bring. High definition TV, "HDTV," with its eye-popping clarity of picture, is just one category of possible uses. Other uses are multicasting in standard definition, or SDTV, where a broadcaster provides multiple program streams of today's quality or better, data services, radio broadcasting, and other innovative uses.
The lucky broadcasters who receive a digital second license have the cheapest known way to reach all households in an area. They have no rebuilds like cable, no overbuilds like Ameritech, none of the multi-billion-dollar cost of satellite providers face. Rather, for about a million dollars, a TV station in New York City can reach about 17.5 million viewers. Digital technology is a fantastically cheap technology.
Based on what I read, many broadcasters are uncertain about how to exploit these licenses. That's perhaps because they were not required to compete in an auction, with a fully developed business plan in hand. Because auctions get spectrum into the hands of those who value the spectrum most and who have the best plans to use it, auctions are the best way to award spectrum. The type of give-away that occurred with DTV is not to be preferred.
However, now that the spectrum is in the hands of the existing broadcasters, it is time to move on. Our goal now should be to ensure that broadcasters will either build out their digital facilities or put the licenses in the hands of someone who will. It is the use of the spectrum that counts now, not any regrets or second-guessing about the initial decision concerning an auction.
Therefore, it is essential that the deadlines for the build-out requirements are not undermined or weakened. Indeed, although the FCC's rules are reasonably demanding, I would have required an even more rapid build-out, because that is the best way to ensure a seamless and successful transition to digital. As it is, some key broadcasters must build out fairly swiftly. Affiliates of the top four networks in the top 10 markets must be on the air with a digital signal by May 1, 1999. Affiliates of the top four networks in markets 11-30 must be on the air by November 1, 1999. Furthermore, a number of broadcasters in the top ten markets have committed to begin digital operations by November 1, 1998 -- only about 13 months away now. All other commercial stations must be on the air by May 1, 2002. This build-out plan will ensure that a high percentage of viewers have a wide choice of the most popular programming available to them on DTV in a fairly short but reasonable time; the top ten markets include 30% of TV households, and the top thirty markets include 53% of TV households. As you see, this framework also takes into account the fact that stations in large, urban markets are in a position to make a swift transition than those in smaller markets. As my colleague Commissioner Susan Ness wrote when we issued the DTV order: "In short, the deployment schedule is rapid, rigorous, and yet reasonable. It is practical and achievable. It enjoys the strong support of the broadcasters and receiver manufacturers upon whom we depend to roll out service to the public."
Until systems are built to provide major markets with digital signals for the four major networks, it will be difficult to know the effect on viewers. Until that much digital programming is available over the air, there will not be enough product to drive demands for DTV. The right way to proceed is to force the build-out to continue -- or let broadcasters sell their licenses to someone who will build if they can't.
Much has been said about what broadcasters should give back in return for the digital licenses. There are two elements to a give-back that are important: quantifiable public interest benefits to the public and the return of analog spectrum so that it can be auctioned and turned to other uses. The give-back should not take the form of a spectrum tax that would be insignificant in relative terms but a threat to the critical goal of reclaiming the analog spectrum.
As for the public interest, the Commission should proceed with a public interest Notice of Inquiry to examine and explore all the issues relating to the public interest on the public's airwaves. We await with interest the guidance and conclusions of the Gore Commission. As always, Congressional input is welcome on these important matters.
Desirable public interest uses, for both digital and analog broadcasters, include the provision of free time to political candidates and educational programming for kids. The latter we now have. This is the first month in the implementation of the rules relating to children's educational programming. The rules have brought about dramatic changes in the marketplace, with the new demand that has been created for educational shows for kids. Most of the new kids' shows launched this last Saturday. Children's educational television is a great example of how broadcasters can serve the public interest, by curing a market failure that exists by providing programming for which there is great demand but insufficient marketplace support otherwise to ensure its provision.
And it's time for free time. All over our country honorable people are effectively precluded from elective office simply because they don't have close ties to Big Money or aren't willing to do what it takes to get those ties. The President, the Vice President, and over 68 Members of Congress, as well as a majority of Americans, support free time for candidates. The grant of new digital spectrum to broadcasters was made with the express statutory provision that this public property of the airwaves could be used only subject to a public interest obligation -- and that obligation should include free time. The FCC should come forward with a major new free time initiative to promote candidate access to the nation's airwaves.
There are many approaches to consider. We have on the books a lowest unit charge rule. This rule is supposed to let candidates have cheap air time. But does it work? In July 1990, the FCC audited TV and radio stations and found that 80% of TV and 40% of radio stations audited failed to give candidates the lowest available rates as required by LUC statute. The audit's "most significant finding" was that "at a majority of stations, political candidates have paid higher prices than commercial advertisers because sales techniques encouraged them to buy higher-priced classes of time."
What kind of a deal is this? Why don't we just change the lowest unit charge rule and substitute a rule requiring a much heavier discount, even to the point of free time, but say that a candidate can only get a set amount of such time? The lowest unit charge rule gives a candidate unlimited purchasing power, supposedly at low rates. Why don't we just make the rates very low, even zero, but only up to a certain amount of time?
In addition to this truly low priced or even free time, candidates could buy only what broadcasters would sell and only at prices the broadcasters choose to charge. Moreover, broadcasters could impose a surcharge above commercial rates on the additional time. This then would fund the free time.
As for the return of the analog spectrum, the absolutely critical piece is to have a firm, mandated date for the give-back. Any watering-down of that date will create an incentive for broadcasters to delay the build-out. Again, if the licenses had been distributed by auction, the build-out deadline wouldn't matter, because the licenses would be in the hands of those who had a plan to use them. Because the licenses are in the hands of current broadcasters, who don't all necessarily have a digital plan, a firm date for the return of the spectrum is critical. Furthermore, the return of the spectrum is threatened by the fact that existing broadcasters may not want to cannibalize their analog service through what they provide on digital. There is only one answer to these problems: pick a date certain.
On the issue of format -- high definition or standard definition -- I ask: what conceivable business does the government have in making that choice? Is it the business of government to micromanage picture quality? The government doesn't adjust my color or my reception now, and certainly doesn't need to do so in future. The market will figure this out; consumers will dictate whether broadcasters should broadcast one or two HDTV programs, or six or eight standard definition programs. (See Attachment, Speech of Reed E. Hundt to International Radio and Television Society, November 21, 1995).
The Commission's DTV order of this spring marked a radical departure from earlier Commission decisions that were presented to the Commission with its current membership as of 1994. In every material aspect, the plan we adopted was a significant change from earlier policies. Our order represented a move away from a command-and-control policy toward a market orientation for the business of DTV. Business, not government, determines the format of DTV. Broadcasters were given the flexibility to decide how best to use the digital spectrum. And our policy focussed on the public interest benefits that the public will receive from DTV. The public will recover spectrum that can be used for public safety and that can be turned over to new, innovative uses. The accelerated build-out that we set out will ensure that the transition to DTV occurs rapidly, allowing the analog spectrum to be recovered and freed for new uses.
Perhaps lobbyists told Congress that broadcasters needed an additional DTV channel to allow them to provide HDTV, and that the technology would only permit the transmission of a high definition program stream. But this was never true. The engineering consortium called the Grand Alliance invented something more than a prettier picture -- instead it discovered a wondrous digital genie in a bottle. This supple technology allows a broadcaster to show two HD programs if film or sitcoms are being shown; that broadcaster can certainly fit four or six or perhaps eight standard definition programs on a 6 MHz channel; and if you see a test run of high definition versus standard definition, you see that in the real world a viewer can hardly tell the difference between high and standard definition. Broadcasters can use this spectrum for radio, or for the broadcast of newspapers to personal computers. (People talk about using the DTV spectrum for paging, but this is an extremely unlikely use. There's plenty of much more suitable opportunities for paging, with equipment on the market that uses other spectrum.)
According to the September 15, 1997, New York Times, some Members of Congress are angry about some broadcasters' plan to use DTV for multicast rather than HDTV, on the grounds that the give-away of DTV spectrum was worth about $10 billion, according to the Congressional Budget Office. However, CBO's estimate that the auction of commercial DTV licenses would bring $10 billion was based on the premise that broadcasters would follow a multicasting, rather than an HDTV, model. So it turns out that the valuation of $10 billion cited by those who would punish broadcasters for not providing HDTV is a valuation that is not itself based on an HDTV plan. CBO itself deemed the HDTV model "unprofitable" and "not promising." CBO, "Where Do We Go From Here? The FCC Auctions and the Future of Radio Spectrum Management," at 62 (April 1997).
It is reasonable to require that viewers continue to receive one free continuous program on DTV; and in our order this requirement will, near the end of the transition, match up with simulcast of the analog program in order to facilitate the return of the analog spectrum. But that requirement is in place because free, over-the-air television is a public good, like a public park, and might not exist otherwise.
Other than that reasonable, limited requirement, we should not otherwise restrict the choices that broadcasters make about how best to use the spectrum. The jawboning that broadcasters might have to pay additional taxes on DTV if they choose not to provide HDTV should stop. The power to tax is the power to destroy, and the last thing we should do is impede the growth of DTV by imposing a high tax that will discourage experimentation and stifle growth. Why should a broadcaster who wants to send out six different programs instead of offering one, very clear program be punished or limited by the government?
There are First Amendment values at stake here. Letting broadcasters multicast several programs instead of just one HDTV program will permit them to provide a far greater amount of programming to viewers, from sports and entertainment to political programming and children's educational TV. The values of the First Amendment direct us to choose the route that delivers the greatest amount of speech to the American people. Why would we want a result that requires less speech, rather than more?
Government should not seek to force broadcasters into reducing the total number of programming services they provide so that they provide HDTV. We should resist the impulse to micromanage the use of the DTV spectrum, and instead permit the marketplace to be the judge.
That's the right answer for American viewers, because it will result in the most efficient use of the spectrum, a rapid built-out, a swift recovery of the analog spectrum, and the services that the public wants.