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VIDEO COMPETITION: THE STATUS OF COM

PETITION AMONG VIDEO DELIVERY SYSTEMS

TUESDAY, JULY 29, 1997

HOUSE OF REPRESENTATIVES,

COMMITTEE ON COMMERCE,
SUBCOMMITTEE ON TELECOMMUNICATIONS,
TRADE AND CONSUMER PROTECTION,

Washington, DC. The subcommittee met, pursuant to notice, at 10 a.m., in room 2123 Rayburn House Office Building, Hon. W.J. "Billy" Tauzin (chairman) presiding.

Members present: Representatives Tauzin, Oxley, Schaefer, Stearns, Cox, Largent, Shimkus, Markey, Boucher, Eshoo, Engel, Wynn, Manton, Rush, Green, McCarthy, and Dingell (ex officio).

Staff present: Justin Lilley, majority counsel; Tricia Paoletta, majority counsel; Mike O'Rielly, legislative analyst; Andy Levin, minority counsel; and Cliff Riccio, legislative clerk. Mr. TAUZIN. The committee will please

come to order. Ladies and gentlemen, good morning. This is the first in a series of hearings on video competition that the committee plans to hold. This first hearing is one dedicated to the question of the deployment of video technologies in the marketplace and this hearing will be followed by hearings which will look more closely at the question of video programming.

I want to welcome all our witnesses today and all the guests today and ask you please to be seated and the Chair will recognize himself briefly for an opening statement.

Let me first report to the members of the committee on the fact that Chairman Bliley and myself and Chairman McCain and Senator Stevens, the majority of the members of the sub-conference on communications has, in fact, signed an agreement on budget reconciliation. For purposes of the committee's information and with your indulgence, I would like to give you a brief report on that agreement.

That agreement basically carries forward the broadening and extending authority to the FCC to carry out auctions as this committee had recommended. It also directly identifies 120 megahertz of spectrum for reallocation and auction over the 5-year period. It also provides for the recapture and the auctioning of the analog spectrum at an auction to be held in the year 2001 with an understanding that the auction should be returned by 2006.

It does contain a provision similar to the one this committee recommended which gives the FCC authority at its discretion to extend that date of 2006 if one of several conditions are present. One, if any one of the four major networks in the community has not yet converted to digital broadcasts. Two, if the converter boxes are not readily available to consumers in that marketplace. Or, three, if less than 85 percent of the households in that marketplace do not have at least one television digital capable or converted in order to receive digital programming in that community.

Let me repeat, the Commission is simply given authority under this agreement to extend the date for the analog, give back at its discretion, beyond the year 2006, if one of these three conditions are present. The provisions also contained a removal of the duopoly prohibition in cities over 400,000 and removal of the cross-ownership provision in similar circumstances.

It also provides in channels 60 to 69 for a reservation of 24 of those channels for public safety uses, 36 for other commercial uses and, finally, the agreement we have signed restructures and improves the auction process, in fact back loading the auctions in the 5-year period with the hope that the marketplace will clear by that time spectrum that was previously auctioned and bid and not yet deployed.

That, in sum and substance is the total of the changes that the committee has recommended. The Chair would welcome any questions at this point from any member regarding that agreement.

The gentleman from Ohio is recognized.
Mr. OXLEY. Thank you.

Mr. Chairman, I just want to congratulate you on what I think is a virtuoso performance on the conference. We started deep in our own territory, pushed back by the budgeteers and, in the final analysis, I think we have gained significant ground because of what we were able to accomplish not only here in the subcommittee and the full committee on reconciliation but also in the conference.

you look at where we started, I think that kudos are in order for you and for the entire committee for what we are able to accomplish and I want to thank you for that.

Mr. TAUZIN. I thank the gentleman from Ohio. I particularly want to pay compliments to Justin Lilley and the staff for their excellent work in the conference with the Senate and tell you that it is not yet all done, of course. The budgeteers have not finally signed on and there is still some suggestions for changes. But, as far as we are concerned, we have signed on and we consider it a done deal and I think the OMB or, rather, the CBO has estimated the numbers at about $21.5 billion and then there is some accounting mechanisms on the universal service fund that made up the difference in the requirements for us.

Any further questions on the report?
The gentleman from Massachusetts is recognized.

Mr. MARKEY. Thank you, Mr. Chairman. And I want to congratulate you because you were given an impossible task to perform by the Budget Committee and I think you did the best you could with what you had but I still think, for better or worse, that the number which the budgeters are slotting for spectrum auctions to raise is totally unrealistic. But unfortunately, both the White House and

If

Republican negotiators on the Budget Committee have agreed to this fictitious number so it is an agreed upon item now.

What is it that you can do when both sides agree that a number is real when every person sitting in this room and every other room that deals with this subject knows that it is not a real number? So we, I guess, have to just accept the fact that you did your best to try to convince them that it was fictitious and I think every member of this committee knows that it is but that is the way it is and I thank you for the hard work you put in to try to get it as good as it is.

Mr. TAUZIN. I thank the gentleman. I think I have just been damned with faint praise here. I'm not sure.

But I did want to point out, again for the purpose of the public and the committee, that in a conversation with a Washington Post reporter who made the same points about the numbers being fictitious and not real, I pointed out that the Washington Post itself had predicted that the budget would probably balance in the year 1998 because of improvements in the economy.

Nobody knows whether these numbers are real or unreal. We simply were given a set of numbers and I want to thank all the members of the committee for not only helping us get through this process but, more importantly, helping us avoid any bad mistakes in communication policy that might have been directed because of these budget requirements.

That concludes the report. The Chair would now, with the indulgence of the committee, recognize himself for an opening statement on today's hearing.

With no objection.

Today's hearing focuses on the question of video competition. And this first hearing, as I pointed out, focuses on the notion that 142 years following the enactment and signature into law of the 1996 act which called for immediate and spontaneous and vigorous competition for the provision of video services and relaxed the rules and the laws and the regulations regarding the deployment of those services by various technologies, we are still awaiting the day when consumers have real, full, active competition available to them in every community of our country. It is true that competition has arrived in some communities and competition has arrived in some forms. The question we will begin to ask today is exactly how fast is this competition developing, how fast are various technologies deploying alternative multiple video programming systems and what are the impediments to the more expeditious deployment of those services for the American consumer.

Today, we focus on the deployment of the systems. As you can look and I call the members' attention to the booklets today. As you can see in your booklet today, the staff has prepared a chart which I would call to every member's attention which describes the video market as we can discern it today. It looks a little bit, Justin pointed out to me, like a pac man with the basic 88.7 percent of video services, multichannel video services being provided by cable and a very small percentage, 1.7 by MMDS, 4.9 by DBS, 1.5 by SMATV and HSD, the old C-band dish, is at 3.2 percent.

This graph, I think, tells a story and the story told by the Supreme Court in upholding the must-carry provisions of the law in

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