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Spectrum Auctions:What Now? - Broadcasting & Cable

Spectrum Auctions:What Now?

Passage of legislation empowering the FCC with incentive auction authority raises more questions than answers about broadcasters’ future
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RELATED: NAB's Smith: We'll Engage Constructively With FCC

After twp years, the Federal Communications Commission finally got what it wanted: The authority to pay broadcasters to give up spectrum for auction to mobile broadband.

Legislation passed Feb. 17 empowers the FCC to reclaim and auction broadcast spectrum, as well as to create an interoperable broadband public safety network paid for with part of the proceeds of that auction. Passed by the House and Senate as part of the Middle Class Tax Relief and Job Creation Act of 2012, the legislation was included as a “pay-for” to help fund extending unemployment benefits through year-end.

At stake now in what will essentially be a second digital TV transition—stations repacked and squeezed together to make room for the vaunted mobile broadband—is what kind of business broadcasters are left with. Much remains unclear. Among the key questions broadcasters need answered:

• How many broadcasters will agree to give up some or all of their spectrum?

• How long will this second DTV transition take? Stations must be moved and repacked into more cramped spectrum quarters. The bill sets an outer limit of 10 years for the auctions, but no repacking or moving or reclamation of the spectrum can come until after those auctions, so theoretically it could stretch on for more than a decade.

• Will everything go smoothly and without unforeseen delay? Don’t bet on that outcome, if the first DTV transition is any indication.

• Will the FCC get enough spectrum to create a national footprint? If not, will they come back to Congress for involuntary powers, kind of like using the power of eminent domain to seize property for a broadband info highway?

• Will broadcasters that do not sell try to tie up the process with lawsuits related to the FCC’s mandate to preserve their coverage areas and interference protections?

The new legislation “raises a lot more questions than answers,” says one former top FCC official speaking on background. “We don’t know how long this is going to play out. It will be long after Julius Genachowski has left the scene, or even Obama has left the scene.”

The former FCC official, now a communications attorney, says his clients are not planning to take the money and run. “I don’t know of any big [station] group that is planning to turn in their chips,” he says.

One of the biggest groups, Sinclair, has been among the most vocal proponents of broadcasters using their spectrum to join the wireless revolution, rather than be taken down by it. “Sinclair has no spectrum for sale,” says VP of advanced technology Mark Aitken, a point he says company chief David Smith made earlier this month in a call with investors.

Another broadcast executive whose station group has no plans to give up spectrum hopes the auction goes smoothly anyway, fearing that if the FCC doesn’t get the spectrum it wants, it will come back to Congress seeking involuntary authority. Politically, it would be tough for the FCC to simply take back spectrum, though it has that power, after Congress emphasized broadcasters would have to give up spectrum voluntarily for re-auction.

But Aitken is also concerned about the other shoe dropping. He says he has had discussions with FCC officials who made it clear that the agency would get the needed spectrum.

Some broadcasters will now have a big decision to make. The FCC will not be making offers in all markets, since many smaller markets have plenty of empty spectrum real estate (ironically, they are the markets that could be most in need of some government money). But in larger, urban markets, the FCC will be looking to woo smaller or financially hurting stations or multiple noncommercial stations to clear out.

National Association of Broadcasters president Gordon Smith, who says he is happy with the language in the legislation protecting the coverage areas and interference protections, argues the first question that needs to be answered is what kind of deal the FCC will be offering broadcasters.

“They have to put together their auction proposal and induce broadcasters to put up a price,” says Smith. “But I am not hearing the hooves of any stampede.”

Having just taken 40 MHz of potential mobile wireless spectrum out of circulation indefinitely with its decision to rescind the LightSquared waiver, there is even more impetus for the FCC to get moving if there is, indeed, a spectrum crunch.

The FCC will now have to come up with auction rules. Genachowski, who is widely expected to exit after President Obama is reelected or a new president takes office, wants to have the process as far along as possible. Says one Washington-based broadcast executive: “Look, they are going to move quickly.”

The FCC’s alacrity notwithstanding, it will still be years before spectrum can be reclaimed. The bill sets a 10-year deadline on the two auctions. The first is a reverse auction in which broadcasters put a price on their spectrum—there must be a least two broadcasters per market willing to give up spectrum—and the FCC takes the lowest bid.

The second auction will put that reclaimed spectrum on the block, presumably for wireless companies, but theoretically for anyone who has a better use for it.

Then there is the little matter of a second DTV transition. Because the FCC needs to free up a contiguous swath of spectrum in each market, the commission must move—repack—existing stations into a smaller spectrum footprint, as the agency did for the transition from analog to digital. That means the FCC has to produce a new table of DTV allotments, a complicated process that took years the first time. “It’s huge, and a daunting task,” says Smith.

“It’s a much larger job than the transition from analog to digital. There is no way to mask that.”

Blair Levin, the former FCC official who helped come up with the spectrum auction proposal, has been arguing that the legislation that passed last week could create even more issues because of its requirement that the FCC make “all reasonable efforts” to replicate the coverage areas and interference protections for the stations that remain after reclamation. Levin says that is sufficiently vague to allow broadcasters that don’t agree with their new allotment to sue on the grounds that the effort was not suf! ciently reasonable.

Asked by B&C if that were a threat, Smith said that broadcasters are going to “engage constructively” and “do our very best to get the FCC to observe the black-and-white terms of the statute.”

The FCC already has the ability to revoke licenses without compensation, which was always the iron fist in the velvet glove of “involuntary” as the commission went about persuading broadcasters not to oppose reclamation outright.

But getting that proposed 120 MHz may not be easy. With cord-cutting on the rise, multicast networks targeting growing minority populations and the prospect of using some of their digital spectrum for non-broadcast services like off-loading wireless traffic, the FCC’s goal may not be a slam dunk.

Some broadcasters could both sell their spectrum and stay in the business, since they could strike a deal to share spectrum with a broadcaster that remains in the market. And the FCC is offering must-carry status to stations that give up spectrum and share with other stations.

Levin also sees a number of scenarios in which broadcasters may not wind up giving up spectrum:

1) Somebody comes up with a technology that essentially means spectrum can be shared in ways that devalue spectrum so much no one wants to pay broadcasters for it;

2) the wireless industry consolidates to a level where existing players don’t really need it that much;

3) broadcasters figure out a great use of the spectrum that means it is really valuable. Broadcasters argue that they are already there with mobile DTV and providing a more efficient means of off-loading peak wireless traffic.

Sinclair’s Aitken says one of the questions that has recently surfaced involves language “buried” in the public safety section of the bill that he says “nobody knew was going to be in there that impacts broadcaster spectrum.” The legislation says the FCC “shall” auction public safety spectrum in channels 14-20, which he called “a total surprise to everyone.” What the section appears to mean, Aitken says, is that when public safety moves to the D block spectrum being allocated, those channels will be auctioned too, giving broadcasters even less access to the UHF spectrum more friendly to DTV broadcasts.

NAB reads it differently and says it was no surprise. “According to our engineers and our reading of the statute, the bill states that the FCC has to ‘reallocate the spectrum in the 470-512 MHz band…currently used by public safety.’ We don’t interpret that to mean that broadcasters would have to be relocated from that swath of spectrum,” says NAB spokesman Dennis Wharton. “The bottom line is the Republicans wanted public safety to give up the narrowband channels in channels 60-69, and this was a compromise to have public safety give up existing spectrum.”

But with still much interpreting to be done and many questions to be resolved, the one thing that’s clear is that, well, a lot of things still aren’t clear. “I don’t think anybody knows how it is going to work out,” said the former top FCC official. “The FCC has its work cut out for it. Start a rulemaking, get this process going, set it up, and then see which broadcasters are going to belly up to the bar.”

E-mail comments to jeggerton@nbmedia.com and follow him on Twitter: @eggerton

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