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An Open Letter to John McCain - Broadcasting & Cable

An Open Letter to John McCain

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Dear Sen. McCain: Seventy billion dollars is a big round number. It rolls easily off the tongue, especially when coupled with phrases like "digital spectrum" and "broadcast giveaway." And, because it comes from some eggheads on the FCC's own staff, it has had a certain aura of legitimacy (even long after those same eggheads disavowed it).

We now know, however, that $70 billion has no more legitimacy than a Clinton golf scorecard, or any other discredited numbers: like 300,000 looted Iraqi antiquities, an Enron earnings release, or this year's projected federal budget deficit.

We know this because the FCC has sold off some actual, not hypothetical, spectrum. In two recent auctions, it sold the nationwide rights to spectrum now occupied by three broadcast channels (ch. 54, 55 and 59). The price: about $50 million each.

As you know, the digital conversion has enabled the FCC to "repack" TV broadcasting into "core" channels 2-51. That's 50 channels nationwide for broadcasting, or $2.5 billion at current prices. In fact, interference protection limits usage to no more than half of these channels. That works out to … less than $1.25 billion.

Whoa! From $70 billion to $1 billion-2 billion?

A big part of that drop is, of course, the bursting of the spectrum/telecom bubble. Seventy billion implied that each digital broadcast channel was worth almost $3 billion. Three years ago, PCS speculators were paying the equivalent of $6 billion per nationwide TV channel.

About that time, another full channel's worth of TV spectrum, cobbled together from ch. 62 and above, was sold for about 10 times the price of the most recent auctions. Even that was only half a billion per channel—and it was far more than anyone would pay today.

There is certainly room to quibble over whether the amount paid for ch. 54, 55 and 59 is a full reflection of the value of the digital broadcast spectrum. It, too, was a snapshot in time; investors will someday return to the telecom sector. And preserving a universal broadcast industry surely was worth more than $1 billion and change.

Broadcasters should get credit for the fact that their move to the more spectrum-efficient digital technology allowed the FCC to free up ch. 52-69. Unlike other spectrum purchasers, they must use their channels for digital broadcasting, which will generate only costs for years to come.

In fact, there was no "giveaway" at all. Temporary use of a second channel was needed only to prevent the consumer outrage that would have been caused if Congress had mandated that hundreds of millions of analog sets become obsolete overnight. This problem was created by Congress: Alone among all communications providers, broadcasters have a statutory mandate to transmit signals that are open, unencrypted and available to every TV receiver.

But, giveaway or not, at least we know now that the digital spectrum is not worth anything close to $70 billion. Can we throw this number on the scrap heap where it belongs?

Your humble servant, Greg Schmidt.

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