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Testimony: 

Before the Subcommittee on Telecommunications and the Internet, 
Committee on Energy and Commerce, House of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10: 00 a.m. EDT: 

Wednesday, July 21, 2004: 

Telecommunications: 

German DTV Transition Differs from U.S. Transition in Many Respects, 
but Certain Key Challenges Are Similar: 

Statement of Mark L. Goldstein, Director, Physical Infrastructure 
Issues: 

GAO-04-926T: 

GAO Highlights: 

Highlights of GAO-04-926T, a testimony before the Subcommittee on 
Telecommunications and the Internet, Committee on Energy and Commerce, 
House of Representatives 

Why GAO Did This Study: 

In Berlin, Germany, the transition from analog to digital television 
(DTV), the DTV transition, culminated in the shutoff of analog 
television signals in August 2003. As GAO previously reported, the 
December 2006 deadline for the culmination of the DTV transition in the 
United States seems unlikely to be met. Failure to meet this deadline 
will delay the return of valuable spectrum for public safety and other 
commercial purposes. Thus, the rapid completion of the DTV transition 
in Berlin has sparked interest among policymakers and industry 
participants in the United States.

At the request of this subcommittee, GAO examined (1) the structure and 
regulation of the German television market, (2) how the Berlin DTV 
transition was achieved, and (3) whether there are critical components 
of how the DTV transition was achieved in Berlin and other areas of 
Germany that have relevance to the ongoing DTV transition in the United 
States

What GAO Found: 

The German television market is characterized by a central role of 
public broadcasting and is regulated largely at the state level. 
Although the federal government establishes general objectives for the 
telecommunications sector and manages allocations of the German 
radiofrequency spectrum, 15 media authorities organize and regulate 
broadcasting services within their areas of authority. The two public 
broadcasters are largely financed through a mandatory radio and 
television license fee of 16 Euro ($19.68) per household, per month, or 
about 6 billion Euro ($7.38 billion) in aggregate per year. Today, 
only 5 to 7 percent of German households rely on terrestrial 
television. Most households receive television through cable service, 
which typically costs less than 15 Euro ($18.45) per month, or 
satellite service, which is free once the household installs the 
necessary satellite equipment.

Berlin officials and industry participants engaged in extensive 
planning for the rapid DTV transition in the Berlin test market. In 
Germany, government officials and industry participants are 
implementing the DTV transition largely for the purpose of improving 
the viability of terrestrial television; officials do not expect to 
recapture radio spectrum after the transition. Several elements of the 
DTV transition apply throughout Germany. For example, Germany is 
implementing the transition within specified “islands,” which are 
typically larger metropolitan areas, because officials thought that a 
nationwide DTV transition would be too big to manage at one time. 
Also, the German DTV transition focuses exclusively on terrestrial 
television, not cable and satellite television. The Media Authority in 
Berlin specified other components of the DTV transition for the Berlin 
area, including a short (10 month) simulcast period, financial and 
nonfinancial support provided to private broadcasters, subsidies 
provided to low-income households, and an extensive consumer education 
effort.

Certain aspects of the DTV transition in Berlin and other regions of 
Germany are relevant to the ongoing transition in the United States 
because, even though the television market and the transition are 
structured differently in the two countries, government officials face 
similar key challenges. We found that much of the focus of government 
officials leading up to and during the brief simulcast in Berlin was on 
ensuring households who rely on terrestrial television received the 
necessary consumer equipment. In the United States, most television 
stations are providing a digital signal—that is, the United States is 
in the simulcast phase. Thus, the challenge facing the Congress and 
the Federal Communications Commission, as was the case in Berlin, is 
encouraging households to purchase set-top boxes or digital 
televisions. The key components of the Berlin DTV transition that 
enabled the rapid deployment of set-top boxes included (1) implementing 
an extensive consumer education effort; (2) providing subsidies to 
low-income households for set-top boxes; and (3) setting a relatively 
near-term, date certain that all stakeholders understood would be the 
shutoff date for analog television. 

www.gao.gov/cgi-bin/getrpt?GAO-04-926T.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Mark L. Goldstein at 
(202) 512-2834 or goldsteinm@gao.gov.

[End of section]

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to report on our ongoing work on the 
transition from analog to digital television, commonly referred to as 
the digital television (DTV) transition. The DTV transition offers the 
promise of more programming options, interactive services, and high-
definition television (HDTV). To facilitate the transition, the 
Congress and the Federal Communications Commission (FCC) temporarily 
provided television stations nationwide with additional spectrum to 
simultaneously broadcast both an analog and a digital signal. This 
simulcast is mandated to end in December 2006, or when 85 percent of 
American households can receive digital broadcast signals, whichever is 
later. At that time, television stations will return valuable radio 
spectrum for public safety and other commercial services; however, as 
we reported in 2002, that deadline seems unlikely to be met.[Footnote 
1]

In Berlin, Germany, a DTV transition--referred to in that country as 
the DVB-T switchover--culminated in the shutoff of analog broadcast 
television signals in August 2003. The rapid completion of the DTV 
transition in Berlin has sparked interest among policymakers and 
industry participants in the United States. At the request of this 
subcommittee, we have examined (1) the structure and regulation of the 
German television market, (2) how the Berlin DTV transition was 
achieved, and (3) whether there are critical components of how the DTV 
transition was achieved in Berlin and other areas of Germany that have 
relevance to the ongoing DTV transition in the United States. In 
addition to information provided in this testimony, we are conducting 
additional work on the ongoing DTV transition in the United States and 
will provide a more detailed study for this committee in early 2005.

To address these issues, we conducted a site visit in Germany and 
interviewed a variety of government, industry, and consumer 
representatives. In particular, we met with: 

* two federal government agencies with responsibilities related to the 
DTV transition;

* two Media Authorities that are overseeing the DTV transition in their 
respective areas;

* the Berlin Social Welfare Office, which assisted in providing 
subsidies for set-top boxes during the transition;

* the two major public broadcasting station groups;

* the two primary commercial station groups;

* a cable television provider and a cable television association;

* Deutsche Telekom, which is a primary owner of broadcast towers 
throughout Germany;

* an official who works for association of electrical and electronic 
equipment manufacturers and is also the director of Deutsche TV-
Plattform, an organization of government and industry participants in 
the DTV transition; and: 

* a German association of consumer groups.

In addition to the meetings we conducted in Germany, we spoke by 
telephone with a German expert on digital television issues and 
representatives of a European satellite provider. We also met with 
officials at the German Embassy in Washington, D.C. The information 
that we gathered was sufficiently reliable for the purposes of our 
review. We conducted our work from April 2004 to June 2004 in 
accordance with generally accepted government auditing standards.

We provided a draft of this testimony to FCC and the Department of 
State (State) for their review and comment. Staff from FCC and State 
provided technical comments that we incorporated as appropriate.

My statement will make the following points: 

* The German television market is characterized by a central role of 
public broadcasting and is regulated largely at the state level. 
Although the federal government establishes general objectives for the 
telecommunications sector and manages allocations of the German 
radiofrequency spectrum, 15 media authorities organize and regulate 
broadcasting services within their areas of authority. Broadcasting in 
Germany is commonly characterized as a "dual system" in which public 
and private broadcasting coexist, with each market segment consisting 
of two dominant broadcasting entities. The two public broadcasters are 
largely financed through a mandatory radio and television license fee 
of 16 Euro ($19.68)[Footnote 2] per household per month, which amounts 
to about 6 billion Euro ($7.38 billion) per year. Although terrestrial 
broadcasting--the transmission of television signals from towers to 
homes through the radiofrequency spectrum--was once the only means by 
which German households received television program signals, today only 
5 to 7 percent of German households rely exclusively on terrestrial 
broadcasting. The remaining households obtain either cable service--
which typically costs less than 15 Euro ($18.45) per month--or 
satellite service, which is free once the household has installed the 
satellite receiving dish and receivers.

* Berlin officials and industry participants engaged in extensive 
planning for the rapid DTV transition in the Berlin test market. In 
particular, digital terrestrial transmissions were initiated in 
November 2002 and all analog signals were shut off in August 2003. In 
Germany, government officials and industry participants are 
implementing the DTV transition largely for the purposes of improving 
the viability of terrestrial television. Government officials do not 
expect spectrum to be returned after the transition. Several elements 
of the DTV transition were decided by federal authorities and will thus 
apply throughout Germany. For example, Germany is implementing the 
transition within specified "islands," with each island defined as a 
specific metropolitan area. Additionally, the DTV transition focused 
exclusively on terrestrial television, and households that rely on 
cable and satellite service did not need to purchase equipment to 
continue to receive television service. The Media Authority in Berlin 
specified other components of the transition, such as the short 
simulcast period, the financial and nonfinancial support provided to 
private broadcasters, the subsidies provided to certain low-income 
households, and an extensive consumer education effort. While the 
Berlin DTV transition is generally viewed as successful, it is unclear 
whether a full DTV transition will occur throughout Germany.

* Certain aspects of the DTV transition in Berlin and other regions of 
Germany are relevant to the ongoing transition in the United States 
because, even though the television market and the transition are 
structured differently in the two countries, government officials in 
both countries face similar key challenges for completing the 
transition. In particular, we found that much of the focus of 
government officials leading up to and during the brief simulcast in 
Berlin was on ensuring that terrestrial households received the 
necessary consumer equipment to support the switchover to digital. In 
the United States, most broadcast television stations are now providing 
a digital signal--that is, we are already within the simulcast phase. 
The concern today in the Congress and at FCC is how to coax consumers 
to purchase set-top boxes or digital televisions--the same objective of 
Berlin officials. The key components of the Berlin transition that 
enabled a rapid deployment of set-top boxes to terrestrial consumers 
and thereby enabled the switchover to DTV were (1) an extensive public 
information campaign; (2) subsidies for needy households to defray the 
set-top box costs; and (3) the setting of a near-term, date certain for 
the cessation of analog broadcasts that all stakeholders understood 
must be met.

Background: 

Terrestrial television service--also known as over-the-air broadcast 
television--is transmitted from television towers through the 
radiofrequency spectrum to rooftop antennas or antennas attached 
directly to television sets inside of homes. With traditional analog 
technology, pictures and sounds are converted into "waveform" 
electrical signals for transmission, while digital technology converts 
these pictures and sounds into a stream of digits consisting of zeros 
and ones. Digital transmission of television signals provides several 
advantages compared with analog transmission, by enabling better 
quality picture and sound reception as well as other new services. In 
addition, digital transmission uses the radiofrequency spectrum more 
efficiently than analog transmission. This increased efficiency makes 
multicasting, where several digital television signals are transmitted 
in the same amount of spectrum as one analog television signal, and 
HDTV services possible. But, to implement digital transmission, 
upgrades to transmission facilities, such as television towers, are 
necessary, and consumers must purchase a digital television or a set-
top box that will convert digital signals into an analog form for 
viewing on existing analog televisions.

Both the United States and Germany have programs in place to complete 
the transition from analog to digital television. In the United States, 
the Congress and FCC provided television stations with additional 
spectrum to transmit both an analog and digital signal, and set a 
deadline for the shutoff of the analog signal at the end of 2006, or 
when 85 percent of households can receive the digital signal, whichever 
is later. In Germany, the federal government set a deadline of 2010 for 
the shutoff of analog signals and did not provide spectrum for an 
extended simulcast period. Each Media Authority (there are a total of 
15 throughout Germany) decides on the specific timing of the 
terrestrial transition. The city of Berlin, Germany, and its 
surrounding metropolitan area initiated digital terrestrial 
transmissions in November 2002 and shut-off all analog signals in 
August 2003.

German Television Market Is Characterized by Central Role of Public 
Broadcasting and Is Regulated Largely at the State Level: 

We were told that regulation of the German television market is 
primarily the responsibility of state government, with the federal 
government exercising only limited authority to regulate this market. 
Television broadcasting in Germany is commonly characterized as a "dual 
system" in which public and private broadcasting coexist, with each 
market segment consisting of two dominant broadcasting entities. Both 
segments are subject to the broadcasting laws passed by the respective 
German states. Although terrestrial broadcasting was once the only 
means by which German households received television program signals, 
today only 5 to 7 percent of these households rely on terrestrial 
broadcasting, with the remainder using cable or satellite service for 
the reception of television signals.

Federal and State Government Agencies Have Important Roles in 
Television Regulation: 

The federal government exercises important but limited authority in 
regulating television broadcasting, leaving the state (called Länder) 
governments with the primary responsibility for broadcasting 
regulation. At the federal government level, the Ministry of Economics 
and Labour is responsible for establishing and advancing general 
objectives in the telecommunications sector, such as the promotion of 
new technologies and innovation, and ensuring competition among 
providers of telecommunications services. In the context of the DTV 
transition, the Ministry led the effort in Germany to develop and 
recommend a strategy for the transition from analog to digital radio 
and television broadcasting. A separate federal entity, the Regulatory 
Authority for Telecommunications and Posts (RegTP), established in 
1998, is responsible for technical aspects in the provision of 
telecommunications services, including management of Germany's 
radiofrequency spectrum allocations, the development of standards for 
the distribution and use of telecommunications systems, and testing of 
electronics equipment. RegTP is playing a key role in the DTV 
transition in Germany by establishing procedures for and assigning 
frequency allocations to roll out digital video broadcasting service.

Federal and state government officials told us that the authority to 
directly organize and regulate broadcasting services rests with each of 
the regional governments as part of their jurisdiction over educational 
and cultural matters. In each of the German states, a "Media Authority" 
serves as the primary regulatory authority over radio and television 
broadcasting services.[Footnote 3] Charged with implementation of their 
respective state-enacted broadcasting laws, the 15 Media Authorities 
are independent agencies and are not considered to be part of the state 
government administrations. Among the most important functions of the 
Media Authorities is the establishment of procedures for assigning 
broadcast frequencies allocated by RegTP to public and private 
broadcasters.[Footnote 4] The Media Authorities also have a significant 
role in overseeing the transition to digital television.

Broadcasting laws and regulations in Germany are affected to some 
extent by actions of the European Union (EU). Although Germany and 
other EU-member states manage their own broadcasting policies, rules 
and guidelines are set at the EU level on matters that involve common 
interests, such as open borders, fair competition, and a commitment to 
public broadcasting. In the EU's Action Plan to stimulate advanced 
services, applications, and content, EU member states are encouraged to 
have a strategy for the DTV transition with an assessment of market 
conditions, a date for the switchoff of analog terrestrial 
broadcasting, and a platform-neutral approach that takes into account 
the competing cable, satellite, and terrestrial delivery platforms.

German Television Market Dominated by Two Public Stations Groups and 
Two Commercial Stations Groups: 

Terrestrial, or over-the-air, television in German is commonly 
characterized as a "dual system" in which public and private 
broadcasting coexist, with each market segment consisting of two 
dominant broadcasting entities. Public broadcasting corporations are 
the creation of the states, but operate largely as self-regulated 
entities. At the regional level, the German states have formed regional 
public broadcasters that operate their own television channels with 
regional-specific programming. The regional public broadcasters also 
formed a national network in 1950 known as ARD. ARD provides a 
nationwide broadcast channel (Channel 1), with some of its programming 
supplied by these regional broadcasters. A second nationwide public 
broadcasting channel, ZDF, was formed directly by the German states in 
1961 as an independent, nonprofit corporation. In addition to their own 
channels, ARD and ZDF jointly operate four additional public television 
channels that are broadcast in various parts of Germany. We were told 
that approximately 40 percent of television viewing in Germany is of 
the various public channels provided by ARD and ZDF.

The public broadcasters are given one frequency each by the Media 
Authorities for the terrestrial broadcast of their programming channel. 
Their primary source of revenue derives from a compulsory monthly fee 
paid by owners of radios and television sets.[Footnote 5] The amount of 
the fee is set jointly by the states, based on a recommendation of an 
independent panel, and is set at 16 Euro ($19.68) per month for each 
household.[Footnote 6] We were told that this amounts to about 6 
billion Euro ($7.38 billion) annually. ARD receives slightly less than 
two-thirds of the fee revenues and allocates shares among its regional 
broadcasters, while ZDF receives about one-third of the total fee 
revenues. Two percent of the total fee revenue is distributed to the 15 
Media Authorities. ARD and ZDF generate additional revenues from 
limited on-air advertisements. However, they are restricted to a 
maximum of 20 minutes of advertising per day before 8: 00 p.m. and are 
precluded from any advertising on Sundays and holidays.

The introduction of private television broadcasting in Germany is a 
relatively recent development. In the early 1980s, additional spectrum 
frequencies were made available for the opening of private television 
broadcasting. Today, two broadcasting groups--RTL Group and 
ProSiebenSat.1 Media--dominate this segment of the television 
broadcasting market, each operating multiple channels. Unlike their 
public broadcasting counterparts, private broadcasters must obtain 
licenses from relevant Media Authorities. Because frequencies are 
limited, not all private broadcasters operate nationally, and with the 
growth of cable and satellite systems, some have chosen not to renew 
terrestrial licenses in all locations. In particular, private 
broadcasters often do not provide terrestrial service in rural areas. 
Private broadcasters generate all of their revenues from advertising 
and receive no payments from the fees paid by owners of radios and 
television sets.

German Television Is Available on Three Platforms: Terrestrial, Cable, 
and Satellite: 

Although terrestrial broadcasting as described above was once the only 
means by which German households could receive television program 
signals, there are currently three methods for television delivery--
terrestrial broadcasting, cable television service, and satellite 
service. Terrestrial broadcasting, in fact, is now the method least 
relied upon by German television households for receiving program 
signals--only about 5 to 7 percent of German households rely 
exclusively on terrestrial television. Some German households that 
receive their primary television signals by satellite or cable may have 
a second or third set in the household that is used only for 
terrestrial reception. Households relying on analog terrestrial 
broadcasting receive between 3 to 12 channels, with an average of 5 to 
6 channels. The primary transmitter networks that transmit television 
broadcast signals from various towers throughout the country are owned 
and operated by Deutsche Telekom. Broadcast stations pay Deutsche 
Telekom to transmit their terrestrial signals. ARD also owns a network 
of terrestrial broadcast towers for its own operations.

Introduced in the early 1980s, cable television service is now the 
dominant method for the delivery of television programming in Germany: 
about 60 percent of the households subscribe to a cable system. Like 
terrestrial broadcasting in Germany, the 15 Media Authorities regulate 
cable television service in their respective areas. The state media 
laws set forth the must-carry requirements in each region, which 
specify the broadcast stations that cable providers are required to 
carry on their systems.[Footnote 7] We were told that these regulations 
vary considerably by region, with some areas requiring cable systems to 
carry nearly all public and private stations, and other areas imposing 
significantly fewer must-carry responsibilities on cable systems. To be 
carried by a cable operator, however, public and private broadcasters 
must pay a carriage fee to the cable operator, which is negotiated 
directly between the parties. Typical cable systems in Germany were 
constructed for the provision of analog service, provide about 30 to 33 
channels of analog programming, and cost subscribers less than 15 Euro 
($18.45) per month. It is often the case that this fee is included in 
the household's rent.[Footnote 8]

The third method of distribution of television programming is through 
satellite service, which today is received by an estimated 35 percent 
of German television households. According to RegTP, to provide 
satellite television service in Germany, a license to use the necessary 
spectrum is required by the agency. Also, any broadcast station that 
wants to be carried on a satellite system must obtain authorization to 
do so from one of the Media Authorities. The predominant provider of 
satellite television service in Germany is ASTRA, a Luxembourg-based 
company that provides satellite service throughout Europe. In order for 
a broadcast channel--whether a public station or a private station--to 
be carried by a satellite provider, a contractual agreement is reached 
between the broadcaster and the satellite provider that gives the right 
to the satellite provider to rebroadcast the signal, but requires the 
broadcast station to pay a fee for that carriage. For viewers, 
satellite service is available free of charge; however, viewers must 
purchase the equipment needed in order to receive programming. In 
addition, they must be able to situate the satellite dish toward the 
southern sky to receive the transmission signal from the geostationary 
satellite. The costs for a satellite dish and related equipment are 
estimated at less than 200 Euro ($246.04). Satellite television service 
provides viewers in Germany with approximately 125 channels, about 60 
of which are in German.

Berlin Officials and Industry Participants Engaged in Extensive 
Planning for the Rapid DTV Transition in the Berlin Test Market: 

In Germany, government officials and industry participants are 
implementing the DTV transition to improve the viability of terrestrial 
television in the face of a low and declining share of households that 
rely solely on terrestrial television. Several elements of the DTV 
transition will apply throughout Germany, including an island based 
approach, where the DTV transition will occur separately in different 
metropolitan areas, and the adoption of standard-definition digital 
television.[Footnote 9] In Berlin, extensive planning facilitated the 
rapid DTV transition. Important elements of the Berlin DTV transition 
included a short simulcast period, financial and nonfinancial support 
provided to private broadcasters, subsidies provided to eligible low-
income households for set-top boxes, and an extensive consumer 
education effort. While the Berlin DTV transition is generally viewed 
as successful, it is unclear whether a full DTV transition will occur 
throughout Germany.

German DTV Transition Was Largely Designed to Preserve Terrestrial 
Television: 

A primary rationale for the German DTV transition was to preserve 
terrestrial television in the face of a low and declining share of 
households that rely solely on this method of television reception. As 
mentioned previously, fewer than 10 percent of German households rely 
solely on terrestrial television, and the share has been rapidly 
declining in recent years. Since broadcasters reach over 90 percent of 
German households through cable and satellite service, concerns arose 
about the continued costs associated with the transmission of 
terrestrial television relative to the number of viewers. By increasing 
the number of television channels delivered terrestrially, the DTV 
transition was seen as a means to improve the viability of terrestrial 
television. Because there was concern that terrestrial viewership would 
continue to decline, German regulators decided that any DTV transition 
would need to occur relatively quickly.

Some industry participants in Germany suggested that a switch-off of 
terrestrial television might be the better course. These parties argued 
that terrestrial television is costly and that German households have 
both cable and satellite as alternatives. Further, cable service is 
offered at reasonably low prices and satellite service is completely 
free of charge once the satellite dish and receiver have been 
installed. Ultimately, however, German regulators decided to proceed 
with a DTV transition.

The transition provided benefits for both consumers and broadcasters. 
For consumers, the presence of digital terrestrial television ensures 
that consumers maintain a choice of three mechanisms to receive 
television service. We were told that this choice is important in 
cities such as Berlin, where many people cannot receive satellite 
service and, without terrestrial television, would be dependent on 
cable service. Further, one consumer group noted that digital 
terrestrial television allows consumers to avoid paying a fee for cable 
service while receiving a similar number of channels as they would with 
cable service. For broadcasters, the presence of terrestrial television 
provides a third mechanism for the transmission of their signals. We 
were told that this helps keep the fees that broadcasters must pay to 
cable companies to carry their signals lower than would be the case if 
broadcasters were reliant solely on cable and satellite for the 
transmission of their signals.

Certain Decisions about the DTV Transition Will Apply Throughout 
Germany: 

In Germany, the Digital Broadcasting Initiative (the Initiative) 
establishes a nationwide framework for digital broadcasting. The 
federal government established the Initiative in 1997, and the federal 
Ministry of Economics and Labour and the Länder (or states) chair and 
deputy chair, respectively, the Initiative. Other members of the 
Initiative include representatives of the federal and state 
governments; public and private broadcasters; content providers; cable, 
satellite, and terrestrial operators; equipment manufacturers; and 
consumer groups. The Initiative develops strategies for digital 
broadcasting, including terrestrial television and radio, cable, and 
satellite service. The Initiative set a deadline for the DTV transition 
of 2010; this date is a strategy or recommendation, and not set forth 
in German law.

The Initiative developed different strategies for television and radio, 
cable, and satellite service, and the DTV transition occurring 
throughout Germany at this time only focuses on terrestrial television. 
Thus, only households that rely solely on terrestrial television--about 
160,000 in Berlin--were required to purchase equipment in order be able 
to continue to receive terrestrial television service on their existing 
analog televisions. Households that rely on cable or satellite service 
were unaffected by the DTV transition because cable and satellite 
providers converted the signals to ensure that households receiving 
their service could continue to view the signals without any additional 
equipment. Although, households that receive cable or satellite service 
would require equipment for televisions in their homes that are not 
connected to the cable or satellite service.

The Initiative determined that the German DTV transition would occur 
through an island-based approach, in which each island will transition 
independently to digital terrestrial television. Each island is a major 
metropolitan area, such as Berlin or Munich. Figure 1 illustrates the 
various islands in Germany and the actual or planned year for the DTV 
transition. We were told that Germany adopted this approach because the 
DTV transition could not be achieved throughout the entire country 
simultaneously; officials thought that a nationwide DTV transition 
would be too big to manage at one time. Additionally, by adopting the 
island approach, German officials gained experience with the DTV 
transition, and thereby were able to assess whether the public would 
accept terrestrial digital television. Several officials told us that 
the islands will eventually grow together, and the DTV transition will 
encompass the entire country. However, we were also told that had the 
Berlin DTV transition not been a success, the transition in other areas 
may have been reevaluated and may not have gone forward.

Figure 1: Actual and Planned Start Date for German DTV Islands: 

[See PDF for image]

Note: Primary refers to areas with reception via room antenna, and 
secondary refers to areas with reception via outside antenna.

[End of figure]

In addition to the island-based approach, Germany decided to adopt 
standard-definition digital television, instead of high-definition 
digital television.[Footnote 10] The government and industry officials 
with whom we spoke cited several advantages of standard-definition 
digital versus high-definition digital for Germany.[Footnote 11] First, 
the equipment that consumers must purchase for standard-definition 
digital is generally less expensive than the equipment necessary for 
high-definition digital.[Footnote 12] Second, with high-definition 
digital, broadcasters must install more costly equipment and incur 
higher transmission costs than would be the case with standard-
definition digital. Finally, German officials believe that terrestrial 
television with a standard-definition digital signal is more 
competitive with cable and satellite than it would be with a high-
definition digital signal. These officials noted that the increase in 
competitiveness of terrestrial television derives from its mobility and 
the increased channels available with standard definition digital. In 
particular, officials we spoke with noted that standard-definition 
digital technology allows multiple channels to be shown with the same 
amount of spectrum that was previously used to transmit one analog 
terrestrial channel. Thus, terrestrial television in Berlin now offers 
nearly as many channels to viewers as they receive on their cable 
systems. This greater number of channels combined with the mobility of 
terrestrial television--a feature not available with cable or satellite 
that enables consumers to take their television to their boats and 
garden homes--was seen as a factor that would make terrestrial 
television more attractive relative to cable or satellite 
service.[Footnote 13]

Finally, German officials did not plan for the return of spectrum 
following the DTV transition. Germany has allocated a limited amount of 
spectrum for terrestrial television, and all the analog frequencies 
have been dedicated to digital television. As previously mentioned, 
broadcasters intend to use the spectrum for multiplexing--providing 
four digital channels in the same amount of spectrum that they 
previously provided one analog channel. However, if all multiplexes are 
not used, some spectrum could be returned to the government. But, it is 
not clear that this spectrum could or would be assigned to a different 
use, such as mobile telephone or Internet access.

mabb and Industry Participants Engaged in Extensive Planning for the 
Berlin DTV Transition: 

mabb, the Media Authority that regulates radio and television in the 
states of Berlin and Brandenburg, made several key decisions about how 
the DTV transition would occur in the area under its authority.

When to undertake the DTV transition. Each of the 15 Media Authorities 
throughout Germany made decisions about when to undertake the DTV 
transition within their region. Berlin was the first of Germany's 
islands to undertake the DTV transition.[Footnote 14] We were told that 
Berlin had several characteristics that made it favorable to serve as a 
test market for the DTV transition. First, the percent of households 
that rely solely on terrestrial television is relatively low in Berlin. 
Since the DTV transition in Germany requires only equipment 
modifications for terrestrial televisions, the number of households 
affected was relatively small--only about 160,000 households--and the 
transition more manageable. Second, Berlin had more spectrum dedicated 
to television because spectrum that had been used by both East and West 
Berlin was all still allocated to terrestrial television use. Third, 
because Berlin is not near other major cities, no signal interference 
concerns arose in the area, as they might for cities such as Bonn or 
Cologne, which are near other cities and the German border with other 
countries. Finally, Berlin also has fairly simple topography--it is 
basically flat--enabling easier transmission of television signals.

Length of Simulcast. mabb and industry participants implemented the DTV 
transition in the Berlin area with a short simulcast period. The DTV 
transition agreement negotiated between mabb and the broadcasters 
specified a three-phase simulcast process: 

* On November 1, 2002, the simulcast period commenced as digital 
signals for some of the stations of both public and commercial 
broadcasters began to be transmitted. Berlin officials dedicated two 
additional channels for the simulcast, with each of these channels 
carrying four multicast digital stations. Thus, eight of Berlin's 
eleven analog stations were initially simulcast.

* On February 28, 2003, five previously analog channels were converted 
to digital channels, with each channel carrying multiple stations. 
Thus, the digital signals of more stations were turned on, including 
stations that were not previously available terrestrially in Berlin. 
The analog transmission of all national private broadcasters stopped, 
and public broadcasters transitioned their analog signals to lower-
power analog frequencies.

* On August 8, 2003, all analog transmission stopped.

The government and industry officials with whom we spoke with cited 
several reasons for the short simulcast period. First, Germany does not 
have enough spectrum dedicated to television service to implement a 
long simulcast period while also providing additional stations; the 
spectrum used for analog transmission is the same spectrum that will be 
used for digital transmission. Second, an extended simulcast period is 
costly for broadcasters, who, as mentioned earlier, must pay for 
terrestrial transmission. Third, a quick and certain shutoff date 
provides an incentive for households to purchase the necessary set-top 
boxes. German federal officials and other Media Authorities are 
generally encouraged by the success of the short simulcast period in 
Berlin. In the state of North-Rhine Westphalia, the Media Authority 
intends to implement a 6-month simulcast period for public 
broadcasters, with no simulcast period for private broadcasters, in the 
state's two islands.

Private broadcaster support. mabb made the decision to provide 
financial and nonfinancial support to private broadcasters. Public 
broadcasters were able to finance their transition costs through the 
radio and television license fee they receive. Private broadcasters, on 
the other hand, do not receive license fees, but were viewed as 
important participants in the DTV transition. Therefore, mabb decided 
to provide support to private stations, which consisted of three 
elements. First, for 5 years, mabb will pay the broadcasters' 
incremental costs associated with digital transmission (i.e., mabb will 
pay the difference between the broadcasters' former analog transmission 
costs and their digital transmission costs). In return, the private 
broadcasters agreed to provide digital terrestrial television for at 
least 5 years. Second, as incumbent broadcasters, the private 
broadcasters received authority to provide multiplexed service. That 
is, the private broadcasters were allowed to increase the number of 
terrestrial channels they provide in Berlin using the spectrum they 
were already assigned.[Footnote 15] Third, one broadcaster told us that 
in return for participating in the DTV transition in the Berlin island, 
it received favorable must-carry status throughout the region that mabb 
regulates--that is, mabb will require that its stations be carried on 
cable systems in the region. At this time, it is not clear whether and 
to what extent the other Media Authorities plan to provide similar 
support for private broadcasters' DTV transition in other 
regions.[Footnote 16] One private broadcaster told us that it would be 
unwilling to participate in the DTV transition in other islands if it 
does not receive the multicast authority.

Subsidy of set-top box for needy households. In addition to supporting 
private broadcasters, mabb provided support to certain households for 
the purchase of set-top boxes. According to mabb, the overriding 
principle was that households must pay for the set-top boxes necessary 
to watch terrestrial digital broadcast signals. However, mabb made 
contingencies for low-income households. Households that were entitled 
to government aid could apply to the Social Welfare Office for 
assistance. If the household met the income eligibility criteria and 
relied solely on terrestrial television (i.e., the household did not 
receive cable or satellite service), the household received a voucher 
for a free set-top box. Qualifying households received their set-top 
box either from specified retailers, or the box was delivered to their 
home, whichever means was least costly. During the DTV transition 
period, mabb paid 75 percent of the subsidy cost and the Social Welfare 
Office paid the remaining 25 percent of the subsidy cost. mabb funded 
its share of the subsidy through the portion of the radio and 
television license fee that it receives, while the Social Welfare 
Office funded its share of the subsidy through its regular budget. 
Following the transition period, the Social Welfare Office began paying 
the entire cost of the subsidy, up to 129 Euro ($158.70). According to 
mabb, a total of 6,000 set-top boxes were provided to needy households 
with a total cost of 500,000 Euro ($615,100).

Extensive consumer education. mabb and industry participants conducted 
an extensive consumer education effort. One official told us that a 
primary concern with the DTV transition is making sure that households 
that rely solely on terrestrial television understand that they must do 
something to be able to continue receiving television. In Berlin, two 
important consumer education mechanisms were messages on terrestrial-
only television signals and information sessions with retailers. On 
television signals received by terrestrial television, households saw a 
rolling scroll that informed them about the DTV transition. Deutsche 
TV-Plattform and the Berlin Chamber of Commerce also held information 
sessions with retailers. Other consumer education mechanisms included a 
direct mailing to every household, a consumer hotline, flyers and 
newsletters, an Internet Web site, and advertisements on buses and 
subways.[Footnote 17] One primary concern with the consumer education 
effort was to avoid confusing cable and satellite subscribers. Because 
the DTV transition only affected households relying solely on 
terrestrial television, the consumer education effort focused on means 
that would target only these households, and not households subscribing 
to cable and satellite service. We were also told that a short consumer 
education period was best for informing households about the DTV 
transition; in Berlin, the consumer education effort lasted 
approximately 4 weeks and cost approximately 800,000 Euro 
($984,160).[Footnote 18]

The Berlin DTV Transition Is Generally Viewed as Successful, but Full 
DTV Transition May Not Occur in Rural Areas: 

Relatively few consumer complaints and problems arose during the Berlin 
DTV transition. For example, a consumer organization that we spoke with 
told us that there were very few complaints, and that most complaints 
that did arise concerned the cost of the set-top box, which they said 
was approximately 100 to 125 Euro ($123.02 to $153.78).[Footnote 19] We 
were also told that there were minor technical problems and few 
reception problems. An mabb official with whom we spoke thought that 
reception had improved following the DTV transition, because the agency 
ensured a strong digital signal and because digital transmission is 
superior to analog transmission. The technical and reception problems 
that did arise included difficulties installing and using the set-top 
box; reception problems in some multiple-dwelling units, particularly 
ground-floor units and buildings with rooftop antennas and boosters; 
and interference problems for some cable subscribers because of the 
strength of the digital signal.

During the Berlin DTV transition, some households changed the mechanism 
through which they receive television service. We were told that 
between one-third and one-half of households that previously relied 
solely on terrestrial television switched to either cable or satellite 
service, rather than purchase the set-top box. An official with mabb 
told us that the percent of households switching from terrestrial 
television to cable and satellite was less than they had expected. On 
the other hand, more set-top boxes--over 200,000--were sold than the 
number of former terrestrial-only households, indicating that some 
households purchased multiple boxes, and that some cable and satellite 
households also purchased set-top boxes for a second or third 
television that only received terrestrial service. We were also told 
that relatively few cable subscribers switched to terrestrial 
television following the DTV transition. As previously mentioned, cable 
payments are often included in the household's rent payment and some 
cable contracts are long-term in nature, thereby reducing the incentive 
and flexibility that some households have to switch away from cable 
service. Some industry officials told us, however, that they expect 
some cable subscribers to switch to terrestrial service in the longer 
term.

The government, industry, and consumer representatives with whom we 
spoke mentioned several factors as contributing to the success of the 
Berlin DTV transition. These factors include the following: 

* The DTV transition provided enhanced consumer value for Berlin 
households. The number of channels available through terrestrial 
television increased from approximately 11 to 27 and included an 
electronic program guide.

* The government and broadcasters did not have to finance the new 
programs. The new channels available through terrestrial television 
following the DTV transition already existed on cable and satellite 
systems.

* There was good cooperation between the government officials and 
broadcasters, which helped ensure that consumers received additional 
channels.

* The transition affected a relatively small percentage of Berlin 
households; only households that relied solely on terrestrial 
television--less than 10 percent of Berlin households--had to take 
action to avoid losing their television service.

* The set-top boxes were relatively inexpensive, and the price fell 
throughout the transition period.

* There was a scheduled time line for the DTV transition and a firm 
shutoff date.

* There was good communication to consumers about the DTV transition.

While the Berlin DTV transition appears successful, a full DTV 
transition might not extend throughout Germany. Government and industry 
officials with whom we spoke said that private broadcasters will most 
likely not provide digital service in rural areas outside the islands, 
but that public broadcasters will provide digital service in these 
areas. This is not entirely different than the current situation with 
analog television, where the private broadcasters do not provide 
terrestrial television in all areas of the country. However, it does 
raise the possibility that a full DTV transition, including the digital 
terrestrial transmission of both public and private broadcasters, might 
not occur throughout Germany.

Finally, some groups we spoke with identified problems with the Berlin 
DTV transition. The cable television industry in Germany mentioned 
several problems. Cable industry officials with whom we spoke objected 
to the use of the radio and television license fee for the DTV 
transition. These officials told us that all German households pay the 
license fee, but only terrestrial households in the islands benefit 
from the DTV transition. In fact, the cable industry has petitioned the 
European Commission about the use of the license fee for the DTV 
transition. Other problems noted by the cable industry officials with 
whom we spoke include cable subscribers purchasing set-top boxes by 
mistake and the expense and problems cable operators incurred to 
upgrade their headend facilities to receive the digital signal. 
Regarding the set-top box subsidy, the Social Welfare Office thought 
that the process could have been handled a little better. In 
particular, it found that approximately 20 percent of the applications 
for subsidies were not handled adequately, most often because they were 
incomplete or missing signatures.

Need for Set-Top Box Deployment Is Key Challenge in Germany and in the 
United States: 

Based on our examination of the DTV transition in Berlin and other 
areas of Germany, it is clear that the manner in which DTV is to be 
rolled out is considerably different than in the United States. 
Nevertheless, we found that much of the focus in Berlin leading up to 
and during the simulcast period was on making sure that consumers who 
receive television solely through terrestrial means obtain the 
necessary set-top boxes so that they would be able to view DTV signals 
once the analog signals were turned off. Since the DTV transition in 
the United States is already in a simulcast phase--that is, most 
digital broadcast television signals are already being transmitted--the 
phase of encouraging consumers to adopt DTV equipment is upon us. FCC 
has yet to fully determine how cable and satellite households will 
count toward the 85 percent threshold. Ultimately, the Congress and FCC 
will need to turn their attention to providing information, incentives, 
and possibly assistance to those who need to purchase equipment in 
order for the transition--and the return of valuable spectrum--to be 
completed. Ensuring that consumers understand the transition, how they 
will be affected by it, and what steps they need to take is critical 
not only for ensuring the transition moves forward, but for ensuring 
that consumers do not unexpectedly lose television reception or incur 
costs beyond what is necessary to successfully transition to digital 
television.

The Berlin experience highlights a few factors, which relate to 
consumers' purchase of set-top boxes, that were very important for the 
success of the DTV transition in that city: 

* Information provided focused a great deal on need for set-top box and 
benefits of completing the transition. The Berlin authorities and 
broadcasters provided extensive information to the public, the media, 
and retailers about what the transition would entail, what consumers 
needed to do, how they would benefit by transitioning to digital 
television, and where to get assistance if there was confusion about 
what equipment was necessary or if there were problems with equipment 
or reception. This effort was planned and coordinated among many 
parties, adequate resources were dedicated to the information campaign, 
and nearly everyone we spoke with told us it a critical factor to the 
success of the rapid DTV transition in Berlin.

* Set-top boxes were subsidized for needy households. Subsidies were 
provided to certain households that might have had difficulties 
affording the necessary set-top boxes. In particular, low-income 
households that rely on terrestrial television could apply for 
financial assistance for the purchase of a set-top box. Because of the 
low penetration of terrestrial television, only about 6,000 households 
required this subsidy at a cost of about half a million Euro 
($615,100). Nevertheless, this may have helped in the management of the 
transition by ensuring that the transition would not be an undue burden 
for lower-income households.

* Near-term date certain for transition deadline made clear when set-
top boxes would need to be in place. Finally, the Media Authority in 
Berlin set a date certain for the transition that required consumers to 
make decisions quickly about how they would adapt to the transition. 
This enabled all stakeholders to know what they needed to work toward: 
when set-top boxes needed to be available in the market; when education 
of consumers, hotlines, and TV scroll information would be required; 
and the date by which consumers needed to decide how to transition or 
lose their television service.

To summarize my statement, Mr. Chairman, although the context of the 
transition differs considerably in Germany as compared with the United 
States, there may be interesting and helpful lessons for the Congress 
and FCC from the DTV transition in Berlin and other areas of Germany. 
This concludes my prepared statement. I would be happy to respond to 
any questions that you or other Members of the Subcommittee may have at 
this time.

GAO Contacts and Staff Acknowledgments: 

For questions regarding this testimony, please contact Mark L. 
Goldstein on (202) 512-2834 or goldsteinm@gao.gov. Individuals making 
key contributions to this testimony included Amy Abramowitz, Dennis 
Amari, and Michael Clements.

FOOTNOTES

[1] See U.S. General Accounting Office, Telecommunications: Additional 
Federal Efforts Could Help Advance Digital Television Transition, 
GAO-03-7 (Washington, D.C.: Nov. 8, 2002).

[2] Throughout this testimony, we use the July 13, 2004, exchange rate 
of 1.2302 to convert Euros into U.S. dollars.

[3] The states of Berlin and Brandenburg have jointly formed a single 
media authority. 

[4] Because broadcasting frequencies do not respect state 
jurisdictional boundaries, an "Interstate Agreement on Broadcasting" 
was entered into by the states to harmonize disparate provisions of 
state broadcasting laws. The treaty addresses matters related to the 
protection of children, advertising content and sponsorship, and 
specific aspects of public broadcasting and private broadcasting.

[5] The fee may be waived for welfare recipients and low-income 
households. Collected by a special agency known as GEZ 
(Gebuhreneinzugszentrale), the fee is based upon a treaty entered into 
by the German states. 

[6] We were told that the 16 Euro ($19.68) fee is in some cases 
assessed for a second or third television set in a home if an adult 
child in the home owns the television.

[7] These must-carry requirements can apply to stations that are 
broadcast terrestrially and stations that are not broadcast 
terrestrially.

[8] The ownership of German cable systems is somewhat more complex than 
in the United States. While in the United States, there is only one 
entity that distributes programming from the cable headend to 
customers, more than one entity may own portions of the cable 
infrastructure in Germany. That is, one cable company may own the 
infrastructure and transmit signals from the headend into 
neighborhoods, but another may own the distribution network within an 
apartment building--in which a much higher percentage of Germans live 
compared with the United States. Although there is only a limited 
number of companies in Germany that own the portion of the cable 
infrastructure from the headend into neighborhoods, we were told there 
are thousands of entities that own facilities that reach individual 
households.

[9] As mentioned previously, DTV functions through the transmission of 
pictures and sounds in streams of digits consisting of zeros and ones, 
which reduces interference, improves picture and sound quality, and 
makes new services possible. HDTV is a type of DTV that provides 
significantly enhanced picture and sound quality, with up to 1,080 
lines of resolution compared with 480 in analog television. We refer to 
standard-definition digital television to identify digital television 
that is not of the high-definition variety.

[10] The digital standard that Germany adopted supports both standard-
definition and high-definition digital television. However, Germany 
decided to implement standard-definition digital television.

[11] The advantages of high-definition digital primarily relate to the 
picture quality. High-definition digital provides roughly twice as many 
lines of resolution, creating a television picture that is much sharper 
than analog television. Further, high-definition digital is in wide-
screen format, with display screen ratios similar to a movie theater.

[12] Consumer groups generally opposed the introduction of high-
definition television because of these higher costs and the fact that 
high-definition digital only provides benefits with large-screen 
televisions. 

[13] The German digital standard also permits indoor reception. Thus, 
households in the central areas of the islands do not need to modify or 
install a rooftop antenna.

[14] By the end of 2004, eight islands plan to have digital terrestrial 
television, including Berlin, Cologne and Bonn, Düsseldorf and 
Ruhrgebiert, Hannover, Bremen, Frankfurt, Hamburg and Lübeck, and Kiel.

[15] Public broadcasters were also allowed to provide multicast 
service.

[16] The private broadcasters that we spoke with told us that they do 
not anticipate receiving financial support in Germany's northern 
states, since the anticipated digital transmission costs will be 
similar to the existing analog transmission costs. 

[17] We were told that the direct mailing was expensive and not very 
effective.

[18] This figure does not include the value of commercial time that 
broadcasters devoted to the DTV transition.

[19] This consumer organization did mention that the DTV switchover 
could be expensive for households with multiple televisions, as each 
television would need a separate set-top box.

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