A primary goal of the DTV transition is for the federal government to  reclaim spectrum that broadcasters currently use to provide analog  television signals. Americans Watch Television through Three Primary Modes

The three primary means through which Americans view television signals  are over the air, cable, and direct broadcast satellite (DBS). In 1994, a third primary means of providing television  emerged: direct broadcast satellite (DBS). Approximately 48 percent of exclusive over-the-air  viewers have household incomes less than $30,000, and 6 percent have  household incomes over $100,000. Additionally, nonwhite and Hispanic  households are more likely to rely on over-the-air television than are white  and non-Hispanic households; over 23 percent of non-white households  rely on over-the-air television compared to less than 16 percent of white  households, and about 28 percent of Hispanic households rely on over-the- air television compared to about 17 percent of non-Hispanic households. Finally, we found that, on average, exclusive over-the-air households have  2.1 televisions, which is lower than the average for cable and satellite  households. We found that 57 percent, or 63.7 million American  households, view television through a cable service. Of the cable  households surveyed, roughly 29 percent had household incomes of less  than or equal to $30,000, and about 13 percent had incomes exceeding  $100,000. DBS Households. We found that about 19 percent, or 21.7 million  American households, have a subscription to a DBS service. Households’ Equipment Needs for DTV Transition Will Depend on their Mode of Television Viewing and Current Equipment Status, and Will Also Be Affected by Regulatory Decisions

The specific equipment needs for each household to transition to DTV— that is, to be able to view broadcast digital signals—depends on certain  key factors: the method through which a household watches television,  the television equipment the household currently has, and certain critical  regulatory decisions yet to be made. Case One. In this case, there would be no need  for cable and DBS subscribers to acquire new equipment; only households  viewing television using only an over-the-air antenna must take action to  be able to view broadcasters’ digital signals. Case Two. In the second case, we assume that cable and DBS companies  would be required to provide the broadcasters’ signals to their subscribers  in substantially the same format as it was received from the broadcasters. Because some of the broadcasters’ signals are in a high-definition digital  format, cable and DBS subscribers—just like over-the-air households— would need to have the equipment in place to be able to receive high- definition digital signals. To view the high-definition signals transmitted by their subscription  provider, the other possibility for cable and DBS households would be to  have a set-top box that downconverts the signals so that they can be  displayed on their existing analog television sets. Cost of Federal Subsidy for Set-Top Boxes Varies Considerably, Depending on Several Factors

In this section we present the estimated cost of providing a subsidy to  consumers for the purchase of a set-top box that would be designed to  advance the digital television transition. The estimated subsidy costs  presented here vary based on (1) the two cases discussed above about  whether cable and DBS providers initially downconvert broadcasters’  digital signals at their facilities before transmitting them to subscribers; (2)  varied assumptions about whether a means test is imposed and, if so, at  what level; and (3) the expected cost of a simple digital-to-analog set-top  box. A means test  would limit eligibility for the subsidy to only those households with  incomes lower than some specified limit. Table 1 provides the cost of a subsidy program under the assumption that  cable and DBS providers downconvert broadcasters’ signals at their  facilities in a manner that enables them to continue to transmit those  signals to subscribers as they currently transmit broadcasters’ signals. Although subscribers typically rent, rather than purchase, set-top  boxes, we assume that the same level of subsidy is provided to these  households as is provided to over-the-air households to defray the cost of  having to obtain a new or upgraded set-top box from their provider.
Why GAO Did This Study

The digital television (DTV) transition offers the promise of enhanced television services. At the end of the transition, radiofrequency spectrum used for analog broadcast television will be used for other wireless services and for critical public safety services. To spur the digital transition, some industry participants and experts have suggested that the government may choose to provide a subsidy for settop boxes, which can receive digital broadcast television signals and convert them into analog signals so that they can be displayed on existing television sets. This testimony provides information on (1) the current distribution of American households by television viewing methods and whether there are demographic differences among these groups; (2) the equipment required for households to receive digital broadcast signals; and (3) the estimated cost to the federal government, under various scenarios, of providing a subsidy for set-top boxes that would enable households to view digital broadcast signals. We developed estimates of the cost of a subsidy for set-top boxes using data on household television characteristics, expected set-top box costs, and varied assumptions about how certain key regulatory issues will be decided.

What GAO Found

The three primary means through which Americans view television signals are over the air, cable, and direct broadcast satellite (DBS). GAO found that 19 percent, or roughly 21 million American households, rely exclusively on free over-the-air television; 57 percent, or nearly 64 million households, view television via a cable service; and 19 percent, or about 22 million households, have a subscription to a direct broadcast satellite (DBS) service. On average, over-the-air households are more likely to have lower incomes compared to cable and DBS households. While 48 percent of over-the-air households have incomes under $30,000, roughly 29 percent of cable and DBS households have incomes less than that level. Also, 6 percent of overthe- air households have incomes over $100,000, while about 13 percent of cable and DBS households have incomes exceeding $100,000. The specific equipment that each household needs to transition to DTV--that is, to be able to view digital broadcast signals--depends on the method through which the household watches television, whether the household has already upgraded its television equipment to be compatible with DTV, and the resolution of certain key regulatory issues. GAO examined two key cases regarding the regulatory issues. The assumption for case one is that cable and DBS providers would continue providing broadcasters' signals as they currently do, thus eliminating the need for their subscribers to acquire new equipment. In this case, only households viewing television using only an over-the-air antenna would need to take action to be able to view broadcasters' digital signals. The assumption for the second case is that cable and DBS providers would be required to provide broadcasters' digital signals to subscribers in substantially the same format as broadcasters transmitted those signals. This would require cable and DBS subscribers, in addition to over-the-air households, to have equipment in place to be able to receive their providers' high-definition digital signals. If a subsidy for set-top boxes is only needed for over-the-air households (case one), GAO estimates that its cost could range from about $460 million to about $2 billion, depending on the price of the set-top boxes and whether a means test--which would limit eligibility to only those households with incomes lower than some specified limit--is employed. If cable and satellite subscribers also need new equipment (case two), the cost of providing the subsidy could range from about $1.8 billion to approximately $10.6 billion. We provided a draft of this testimony to the Federal Communications Commission (FCC) for their review and comment. FCC staff provided technical comments that we incorporated where appropriate.