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Kaplan: NAB Will Fight For a Fair Auction - Broadcasting & Cable

Kaplan: NAB Will Fight For a Fair Auction

Broadcasters’ spectrum point man believes parts of auction framework violate statute, must be rethought
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The National Association of Broadcasters was never going to roll out the welcome mat for an effort to reduce its spectrum holdings in favor of wireless via the incentive auctions. But the NAB has long said it was willing to be a constructive part of the process so long as broadcasters were held harmless.

It appears that was too much of a condition for the commission. The NAB says the FCC’s recently adopted framework for the auction does not hold the association harmless—actually, the FCC has admitted as much—and it may file suit against at least one part of that decision.

NAB auction point man Rick Kaplan, himself a former top official at the FCC, said it will be up to the NAB board to make that call—a decision which could come at any time—but he had plenty say to B&C about what was wrong—and some things that were right—about the FCC order. An edited transcript follows.

What is wrong with the FCC’s incentive auction order?

We certainly did make some progress with the staff that we were pleased about, but overall there are still significant problems that permeate the order. Hopefully they will be changed, one way or another, by the time we get to the auction.

So, all is not lost?

No, but we think there are things that don’t adhere to the statute. So, hopefully, the FCC will find its way to adhere to the statute. I’m hoping that, because of the sheer volume of what the commissioners had to deal with at [the FCC’s May 15 open meeting], not only network neutrality but an item on wireless spectrum holdings and a 500-page [incentive auction] order, that maybe some things got lost in the shuffle that, when brought to the fore, and reconsidered, will go a different way.

The FCC seemed pretty certain about its interpretation that holding broadcasters harmless doesn’t mean absolutely harmless if that means not reclaiming enough wireless spectrum.

Probably the biggest surprise to us was the aggressiveness with which they interpreted that. Our view was actually not extreme. Our view of the statute was that the default is to hold broadcasters harmless. That is part of having a voluntary auction and of having no consequences for not participating. Certainly that was the entire compromise that was developed.

We recognize that “all reasonable efforts” does not mean every conceivable effort. For example, say [the FCC] is about to put together a nationwide band but one station stood in the way. So, in that extraordinary circumstance, you can potentially give that station more interference in some sort of “cabined” reasoning. The statute allows you to make exceptions because you don’t want to take down the entire auction because of one or two stations.

But it also means that your default is that you do everything you can to take every reasonable effort to make sure broadcasters aren’t harmed. And everyone involved in creating the statue thought that to be true.

And broadcasters were among those helping come up with the bill’s language?

Right, and the reason we supported the legislation was specifically because of that.

And then there are those other FCC decisions broadcasters see as pushing them toward a purportedly voluntary auction?

There are a series of things teed up or being teed up, and if you want to go down that road to try and twist broadcasters’ arms into participating, that’s just not that lawful. And so, it is more of a: “Think twice before you go down that road if that’s what you’re thinking.”

And you are talking about joint sales agreements, UHF discount…

There are a lot of things teed up and talked about on major issues that affect broadcasters and you don’t see those in other major industries. You don’t see cable being threatened. You don’t see wireless being threatened with all these regulatory moves. Suddenly we are the most important industry that needs to be regulated.

There are a lot of things they could look at, and we’re not suggesting they look at any of them. But it’s odd that all the ones that are regulatory focus on us.

At the end of the day for us, it is very simple. Most broadcasters have nothing to gain here. There are a few that will have the opportunity to go off the air and make some money if they choose to, and that’s great for them. But most broadcasters won’t even be eligible for the auction and all we want is to make sure we aren’t harmed in the auction. That isn’t too much to ask. That was promised to us in legislation and that’s what Congress wanted. And the FCC should follow through.

And while this is an order, it didn’t resolve everything.

Great point. There are still plenty of things that are up in the air. For example, co-channel interference between wireless and broadcasting is not even close to being decided and it is very complex. That is a major issue for broadcasters. And we still have not seen the repacking software. I mean, we are arguing over OET-69 [the agency’s methodology for calculating a TV station’s coverage area], which is a mere input into a larger repacking scheme that has not been vetted publicly.

Can you give us the condensed version of what OET-69 is and why the FCC’s adjustments aren’t working for you?

OET-69 is essentially the method that the FCC for 20 years has been using to figure out what area broadcasters cover and who they cover. We lobbied to have it in the statute so that the goalpost didn’t move and our coverage areas didn’t suddenly shrink or change in some way. Just to make sure we had certainty in the process.

And there isn’t?

Surprisingly, after the Notice of Proposed Rulemaking [NPRM, in 2012], the FCC announced it was changing OET-69, and that has led to a year and a half of angst and uncertainty. All the things we warned about. And it is unfortunate because this should not be an issue. Congress was very specific about what to do and, unfortunately, the FCC went and changed it after the fact and the majority of the commissioners blessed it.

But the FCC has always suggested all they are doing is bringing OET-69 up to date?

That is what they are claiming. First of all, it’s not true. There is a big debate over what might make that determination accurate or not, and they should certainly start a proceeding to figure that out, or they could have done it concurrent with the NPRM. But what they elected to do was make a few specific changes and announce that they made them, and that was their new software.

The real story appears to be that four years ago the FCC hired a contractor to develop the study before the auction was even passed into law. My guess is that they got so far down the road and did not anticipate that OET-69 would be in the statute, and [said] how do we find a legal argument to get around it.

But is the difference between the old and new OET-69 such a big deal and what are the consequences of using one over the other?

A lot of broadcasters will lose coverage area and viewers will no longer be determined to be viewing the station that they are watching today.

Is this calculation a way for the FCC to get more spectrum back?

Possibly, but it’s not significant overall. The reality is that they developed software, they want to use it, they like it better than what Congress told them to use, so they are just going to do it.

And what are the consequences?

First of all it continues to create this growing distress between broadcasters and the FCC, which is unfortunate. It does not have to be this way. We wanted to be partners in this. But between things like JSAs and other things, the rules of the game changed. All those things create unnecessary distrust going into a process that requires a great deal of trust, where everything is going to be under the hood. So that is the first concern. We would rather have a situation where our industry felt like it was confident with the FCC. And I think that’s shaken by things like OET-69 changing or like, ‘Oh, I’m sorry but the fund may run out of money and we won’t cover you even though the previous FCC chairman said that the whole point of the auction is to hold you completely harmless. You won’t have to pay a dime. But now that is no longer the case.

The NAB has already filed suit against the FCC over JSAs and against the Media Bureau now vetting guidance on sharing agreements. What is the likelihood that the auction will trigger yet another lawsuit?

That is a decision for our board to make. We have a little bit of time to figure out how to approach these things. At the end of the day we’d like the commission to recognize that it should reverse course and see that there is a much better way to go where there is a successful auction and broadcasters can be unharmed. We’ll exhaust all our options if it is something we feel strongly about.

What about the FCC’s proposal for repacking, any issues?

I am not sure what the Media Bureau did to deserve the assignment it received from the commission. Maybe the chairman is still mad at them about JSAs.

They have been assigned a very unenviable task with limited guidance: How to actually make a massive repacking happen. There is still a lot of work to be done in that area. The idea that the Media Bureau decides who goes when is almost impossible to imagine working.

Can you explain?

They have delegated it to the Media Bureau to decide who has what timeline within the 39 months to transition.

So, up to 39 months. It was originally proposed as 18 but NAB wanted 39, so that was a victory for you.

Yes. There are actually a number of positive developments in the area of actual repacking. I think the Media Bureau was really able to listen to the arguments of the broadcast industry to really reform what were some of the original proposals in the NPRM. For example, as opposed to an 18-month window to transition, which would be impossible to meet, they are now making it essentially 36 to 39 months. Now, they have certain statutory constraints that have nothing to do with the FCC and everyone may be going back to Congress at some point because it is unclear if it is going to actually physically happen before that time, but the FCC is doing pretty much everything it can to make that happen.

It also, I think, listened well to the industry by not having things like uniform or bulk pricing [for repacking and moving costs] because it is very clear that each station has its own configuration and deals with the vendors in different ways.

They attempted to find ways to make it uniform, but recognized that it is going to be a very individualized process. The broadcast industry did a very good job of listing examples, and the media bureau did a great job of listening and changing its understanding of how it might work. That was very positive.

Anything else?

It looks like they are going to appoint an independent administrator to manage the reimbursement process, which is essential. We expected that but it is still pleasing to see they went in that direction. We think they may want to do the same thing for repacking in terms of the transition itself and not just reimbursement because that is going to be a very time-consuming and difficult process.

Repacking is a tailor-made process for the industry to work hand in hand with the FCC. It happened during the DTV transition and I have no doubt it is going to happen this time around as well. It is just too important for consumers to get this piece right.

The reality is they can’t execute an actual repacking without really understanding what goes on on the ground and that is going to take close collaboration with broadcasters. The Media Bureau has a history of doing that.

What is the biggest challenge with the repacking?

This transition just isn’t thought through yet and I recognize they are on the back end. But there were some things that were decided and, the most egregious and the one that scares us the most upon first blush is the notion that when that 39-month period runs out, under no circumstances are you allowed to stay on your channel. Hurricane, disaster of any sort, you have to move off that channel. No waiver.

There will be stations going dark because we all know it is going to take longer for some stations than 39 months.

But in that case they can go to a temporary facility?

They can—but if there is one available, and then there is the question of who pays.

We are not insensitive to the fact that in the forward auction, licensees are going to pay a lot of money to be on the frequencies that some broadcasters are getting off. But there may be certain circumstances where that becomes impossible, and the stations can’t be penalized in that respect. If they have nowhere to go and their viewers are left in the dark, that’s just not fair.

What else.

I just think the transition itself is not completely thought through yet. There’s this notion that there will be different timelines assigned to different broadcasters based on Media Bureau judgments about how hard it is for each individual broadcaster to transition. I mean, we’re talking about hundreds upon hundreds, maybe a thousand broadcasters. I don’t know how they are going to be able to identify whether tower crews are available or not and then how they are going to come up with the number of months they get to transition. It seems like a recipe for disaster. However, there is no clear-cut right answer, so I think it is going to take additional work.

Another thing would be to take a few more steps to insure you limit the amount of repacking. You still get to repack a bunch of the stations, not just unlimited so you wouldn’t go over [the $1.75 billion relocation/repacking fund established by Congress).

As a backstop our suggestion was to have the new licensee pay for any excess cost of for the licensee to move. That happened with the AWS-4 and H block [auctions]. That would also give the FCC an incentive not to go over [$1.75 billion] in the aggregate. So, that is not a hard thing to do. We are not asking them to change the whole process or redo the auction. The things on our mind are not deal-breakers by any means.

How about border issues. Coordination with Mexico and Canada is obviously very important to the NAB.

Very disappointing. The commission basically spent all of its effort talking about why it doesn’t have to coordinate or redefine coordination by saying it’s an ongoing process. That is not what they meant in the statute. It was clear from the markup of the bill in the House that the coordination had to be completed before repacking. So, we think that is not consistent with the statute. The reality is that wireless carriers and broadcasters will both be hurt by that.

The National Association of Broadcasters was never going to roll out the welcome mat for an effort to reduce its spectrum holdings in favor of wireless via the incentive auctions. But the NAB has long said it was willing to be a constructive part of the process so long as broadcasters were held harmless.

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