[opendtv] Commentary: Be Wary Of FCC's Cash-For-Spectrum Plan
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Tue, 3 Nov 2009 08:19:55 -0500
WOW!
This is a very well written commentary by a former broadcaster who
now specializes in spectrum allocation and reallocation proceedings.
There is a wealth of information and some honest assessment about the
plight broadcasters are in - brought on in part by their
unwillingness to "buy a new coat." You'll need to read the column to
understand this.
I have highlighted a few of the most interesting paragraphs that say
volumes about the current situation and the reality of why
broadcasters chose poorly when they developed the ATSC standard.
Regards
Craig
http://www.tvnewscheck.com/articles/2009/11/02/daily.8/
GUEST COMMENTARY BY JOHN HANE
Be Wary Of FCC's Cash-For-Spectrum Plan
By John Hane
TVNewsCheck, Nov 2 2009, 1:03 PM ET
The FCC has created a big stir by proposing that broadcast spectrum
be re-purposed for mobile broadband and suggesting that broadcasters
might be compensated for vacating the spectrum. Just a few days after
Blair Levin floated the idea, the CEA released a study authored by
Coleman Bazelon -- a beautifully written document that must have been
begun long before Levin broached the subject -- offering a financial
calculus of the value of broadcast spectrum if auctioned for mobile
broadband.
Reaction from broadcasters ranges from intrigue to outright rejection.
Well, the toothpaste is out of the tube, so to speak, so broadcasters
need to come up with a framework for analyzing the situation and
responding to the opportunities and threats presented.
The questions broadcasters are asking are the right ones. The answers
will be a long time in the making, but this primer offers some
starting points. The bottom line is that transition payments, if any,
will come many years from now and are unlikely to be substantial
compared to the enterprise value of most leading television stations.
This came out of left field. Why, and why now?
The superficial answer is that mobile data demand is growing faster
than anyone could have expected. That's true, but the real impetus is
the change in administrations. Almost every item on this FCC's top-10
list starts with "broadband," and mobile broadband is a big part of
it. The FCC has the backing of the White House on this, so this
debate is here to stay.
Is there really a shortage of spectrum for wireless broadband service?
No, in the short and intermediate terms. Yes, in the long term.
Demand is growing faster than supply, but a lot of spectrum that has
already been allocated, auctioned and licensed is undeveloped or
underdeveloped. If the entire television band were vacated tomorrow
it would take many years and hundreds of billions of dollars in
capital to develop it fully for broadband use. The FCC's broadband
task force is right to look ahead, because no spectrum incumbent is
going to go away quietly, but at the moment there is more wireless
broadband spectrum available than there is capital to develop it.
That said, wireless spectrum doesn't have an absolute amount of
capacity. Carriers can add more towers, change spectrum re-use
patterns, improve filters, update transmission standards and do any
number of other things to push more traffic through a fixed amount
of spectrum. So even if the swaths of spectrum allocated to wireless
broadband remain fixed, there's a lot more room for growth in
existing allocations. More spectrum can lower the cost of
development, and ultimately it can provide for more capacity, but
spectrum isn't the only path to capacity growth.
Moreover, while allocations are made nationally, demand is highly
correlated to populated areas and major highways. Geographically
speaking, in most of the country, there is no shortage of spectrum
for wireless services today. Even if stations could "cash in" their
spectrum today with minimal hassle, there probably would not be many
takers.
Why the television spectrum?
It's obvious if you look at a spectrum chart. There are two places
to find substantial amounts of spectrum that's good for mobile data:
the government and broadcast television. Other spectrum blocks
exist, but they are smaller and reclaiming them would amount to
trench warfare. As hard as it is to reclaim government and
television spectrum, if you succeed, there's a big payoff.
How much could I get for my spectrum?
That depends on a lot of factors that can't be predicted. In most
cases, both the amount of compensation and the timeframe for getting
it are likely to come as big disappointments to any broadcaster that
expects a windfall.
The money available to compensate broadcasters will not be higher
than the likely proceeds of an auction of the unencumbered spectrum
and in all likelihood it will be far less, because the Treasury will
take most of the proceeds and the costs of whatever transition plan
is devised will consume most of the remainder.
The CEA study floats a benchmark (based on the most recent 700 MHz
auction) of $1/MHz/pop, but that spectrum was, in effect, already
cleared out by the government-mandated DTV transition. Anybody buying
broadcast spectrum is going to have to pay, directly or indirectly,
the cost of transitioning existing broadcast stations to other
spectrum or some other delivery means, or pay the cost of simply
buying out existing broadcast operations and shutting them down.
About two million people live in the Kansas City Metropolitan
Statistical Area. Assuming a Kansas City station is credited with
covering them all, auction of its 6 MHz channel at $1/MHz/pop would
yield $12 million. A lot of this would be spent on whatever
transition mechanism is used and the Treasury will keep a substantial
portion of the remainder. Perhaps $1 million to $3 million would be
available as an "incentive" payment to the station.
Of course, when you're selling spectrum the underlying franchise
value isn't relevant, so a marginal noncommercial station would have
the same spectrum value as the leading network affiliate, even though
the business risk of the transaction would be much higher for the
more valuable station. Perhaps someone can devise a mechanism for
rationalizing payments depending on the value of the station for
broadcasting purposes as opposed to the raw spectrum calculation, but
that would entail a long, complicated battle that would extend the
timeframe for resolution and proportionally reduce the present value
of the transaction.
How would a reclamation process work? How long would it take?
There are many different ways to proceed, each with its own set of
challenges. They can be split roughly into two different categories,
depending on whether we assume that another round of re-packing will
occur.
Without belaboring the point, there's very little auction value in
any individual license if the spectrum isn't re-packed. Viewed from
the perspective of someone planning a terrestrial service, the
current usage of the TV bands is wholly irrational. The usage today
spreads across hundreds of MHz, but each 6 MHz block is only used
here and there. Without repacking, a wireless carrier couldn't
aggregate a coherent block of spectrum by purchasing broadcast
license. Even if you buy every ch. 26 in the country (very
unlikely), you still don't get full coverage, probably well under
half the pops.
Carriers don't want a hodgepodge of 6 MHz circles since current
technology doesn't allow a single tuner to tune across hundreds of
MHz. Something in the range of 20-30 MHz per band is more like it.
Carriers won't put discreet frequency bands into devices just for
occasional use. It's too expensive. They need to know what blocks
they have, and they need those blocks everywhere they can get them.
Because the spectrum really needs to be re-packed to yield any
licenses useful for auction, it's unlikely that any quick exit
scenarios exist. That means broadcasters are unlikely to see any
dislocation payments for many years. The idea on the table seems to
be that some or all broadcasters would voluntarily commit to turn in
their existing licenses on a date certain. Those licensees would be
promised a share of the proceeds of any subsequent auction.
Presumably the FCC would adopt some mechanism to modify the licenses
of stations that did not consent to the plan. The FCC would then draw
a new broadcast band using a far smaller swath of spectrum and
consolidate all television stations in that band, presumably using
shared 6 MHz ATSC facilities.
There probably would be little or no room for high definition, mobile
or multicast, although if multiple ownership relief came as part of
the deal, some broadcasters may be able to consolidate enough shared
spectrum to provide differentiated services. There have been
suggestions that stations could provide high-definition feeds to
cable and satellite distributors, but (as explained below) any
spectrum reclamation would jeopardize must-carry rights.
With the band plan final, the FCC would auction the spectrum and set
a transition date, and the process would proceed much like the one
just completed. Auction winners would likely be responsible for
paying transition costs and completing the transition. Either the
auction winner or the Treasury would make some sort of dislocation
payment to broadcasters.
At present there is no mechanism to guarantee that broadcasters would
be paid anything or that any promised payments would actually
materialize. So at one level, this would be the digital equivalent of
giving Wimpy a hamburger today in exchange for payment on Tuesday.
Is the broadcast spectrum really underutilized? Should it really be
reallocated and auctioned for wireless broadband?
The answer is not as simple as some people contend. Although Coleman
Bazelon is an excellent economist, he's also an advocate with a job
to do, just like a lawyer or any other consultant. His study for the
CEA makes a lot of assumptions, many of them explicitly stated in the
text, that may not or simply will not hold true in practice.
But let's assume we conclude that the broadcast spectrum is
underutilized. There's a big jump from that point to the conclusion
that the spectrum should be reclaimed and auctioned for wireless
broadband use.
We should first understand why it is underutilized and whether that
is a temporary or a permanent condition. It's true that not many
people directly receive television broadcasts today, but the reason
is more likely to be archaic technical rules and ownership
restrictions that simply don't allow broadcasters to fit into the
way people want to consume video today.
If today's mobile devices still looked like first-generation cell
phones and if it were impossible to roam nationally there wouldn't
be 270 million cell phones and we may well conclude that, by modern
standards, the wireless service bands are underutilized.
The FCC imposed the ATSC standard, which is (from a consumer's
perspective) very, very hard to use. By contrast, the FCC does not
mandate which standard wireless carriers use. Consumers want and
expect their services and devices to be engineered for plug and play
and they expect services that can only exist when a return path
exists. ATSC does not fit the bill. Moreover, ownership limits
prevent anyone from providing a consistent coast-to-coast service or
introducing a game-changing service in any local market. If people
find broadcast spectrum hard to use, Part 73 of the FCC's rules is
the first place to look for some of the reasons.
Broadcasters are working within the FCC-imposed constraints to
improve utilization. Mobile and multicast services are being
launched. The digital transition was completed just a few months
ago, and over-the-air usage is actually up a bit by many measures.
Equally important, television broadcasting does not actually "use"
294 MHz of spectrum nationally. Depending on how one counts, much or
even most of the television broadcast band is already open for
unlicensed wireless broadband use.
Auctioning reclaimed broadcast spectrum would require also
reclaiming vast areas of spectrum now reserved for unlicensed use.
The net effect would be to capture spectrum that now provides or
soon will provide a wide range of free services to the public --
multichannel video, mobile video, and unlicensed wireless services
-- and sell it to entities that operate subscription services.
It is almost certainly true that the broadcast spectrum can be better
used than it is today, and starting from a clean slate, re-allocating
some of the band for licensed mobile service makes sense (especially
if those carriers were required to provide a return path for
remaining broadcast services). It would probably be a healthy thing
for the industry if some broadcasters sold out and signed off. But it
is logical fallacy to conclude, based on the success of the recent
700 MHz auction, that the great majority of the television broadcast
spectrum should be reallocated and auctioned for licensed mobile
services.
To make the right policy choices, we need to think about the best
way to provide digital services to a mobile population, and free,
advertising- or viewer-supported noncommercial services are
undoubtedly part of the mix. Projections of exponential growth of
wireless broadband demand are based in substantial part on growing
demand for unicast video. Most of that demand can be met much more
efficiently through broadcast services, especially five or 10 years
from now, when any mobile device will have enough memory to store
hundreds of hours of video.
People consume services, not bandwidth, and not all bits have the
same value. Arguments that proceed from the premise that we have to
provide the greatest number of bits-per-Hertz to the exclusion of all
other considerations are far too reductionist. Just because the FCC
(with the support of several industries) made some poor choices about
the digital television standard, it does not follow that video
broadcasting services are no longer relevant.
What else do broadcasters need to consider?
Although most people don't get their TV over the air, many of the
legal constructs that help make television stations valuable --
including must carry, compulsory copyright and even network
non-duplication and syndicated exclusivity -- are tied to the
spectrum one way or another, and if you take the spectrum away, those
legal constructs are more vulnerable to being dismantled by the FCC,
Congress or the courts.
Must carry survived 5-4 in the Supreme Court last time around. If the
FCC pursues a protracted proceeding in which the basic premise is
that free over-the-air broadcasting is much less important to the
public than it used to be, it will be interesting to see how the
Supreme Court reacts the next time it chooses to review the issue.
Is there anything good about this for broadcasters?
There's actually a lot to like. The FCC appears to think that
broadcasting is undervalued as a service. If this motivates an open
debate about how broadcasting can be improved then the FCC and
perhaps even Congress may take a fresh look at archaic regulations
that are binding broadcasting to a model defined by its overwhelming
technical and market success in the last century.
Thomas Jefferson observed, "We might as well require a man to wear
still the coat which fitted him when a boy as civilized society to
remain ever under the regimen of their barbarous ancestors."
Television broadcasting is not in need of euthanasia, but it may be
time to shop for a new coat.
John Hane is counsel in Pillsbury's communications group. Formerly a
broadcaster and in-house counsel for NBC and a major television
broadcast group, Hane currently represents clients in complex
spectrum allocation and licensing proceedings. He holds three
patents, including one addressing DBS spectrum re-use and another
disclosing a method of asynchronous broadcast video distribution. He
can be reached at 202-663-8116 or john.hane@xxxxxxxxxxxxxxxxx
Copyright 2009 NewsCheckMedia LLC. All rights reserved.
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