Progress Snapshot
Volume 5, Issue 13 November 2009
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WASHINGTON, D.C. 20005202-289-8928
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An Offer They
Can’t
Refuse:Spectrum Reallocation That Can Benefit Consumers,Broadcasters & the Mobile Broadband Sector
By Adam Thierer & Barbara Esbin
We are not referring to a horse’s
head between the sheets.
1
Consider these two relativelyuncontroversial statements:(1)
America needs more spectrum to feed its growing appetite for mobile broadband
:Consumer demand for high-speed wireless data services is exploding and shows no signof slowing in the near- or long-term. Consequently, mobile network operators areclamoring for more spectrum to be allocated by the Federal CommunicationsCommission (FCC). And yet spectrum is increasingly hard to come by.(2)
Traditional television broadcasters are facing unprecedented marketplace competitionand serious financial turmoil that threatens their long-term viability
: Never hascompetition for our eyeballs been more intense, and, as a result traditional over-the-airbroadcasters are losing viewers, advertisers, shareholders, and money at a steady pace.
2
While most would accept the validity of those two statements, what may be less obvious is howthey can be reconciled to the advantage of all the relevant players
—
broadcasters, wirelessbroadband providers,
and
consumers. The answer lies in a grand bargain.
Let’s Make a Deal
Both sides offer consumers services of great value and both have something of great value tooffer one another. Broadcasters have their underlying spectrum
—
hundreds of MHz worth of prime spectrum
—
some or all of which could be used for a variety of other uses, includingmobile broadband. Meanwhile, wireless network operators have cash and would make eager
Adam Thierer is President and Barbara Esbin is a Senior Fellow at The Progress & Freedom Foundation. Theviews expressed in this report are their own, and are not necessarily the views of the PFF board, fellows or staff.
1
We refer, of course, to the famous scene from Francis Ford Coppola
’s “The Godfather” in which a character
initially reluctant to cut a deal with the mob awakes one morning to find the severed head of his horse in his bed.
2
Testimony of Adam D. Thierer, The Progress & Freedom Foundation, Hearing on “Video Competition in aDigital Age,” Before the Subcommittee on Communications, Technology, and the Internet, Committee
on Energyand Commerce, U.S. House of Representatives, Oct. 22, 2009, available at www.pff.org/issues-pubs/testimony/2009/10-22-09-thierer-testimony-video-competition-digital-age.pdf .
Page 2 Progress Snapshot 5.13
buyers of that broadcast spectrum. Could they make a deal? Or, could Congress or the FCChelp to broker a deal by buying out the broadcasters and then re-auctioning that spectrum (or aportion of that spectrum) for mobile broadband services?Blair Levin, the
Executive Director of the FCC’s Omnibus Broadband Initiative
,
has been askingsuch questions. Although no official proposal has yet been released by the FCC, according to
press reports, Levin has apparently pitched some television broadcasters on a “cash
-for-
spectrum” deal that would entail broadcasters voluntarily giving up a
substantial portion of their current spectrum holdings.
TVNewsCheck
reported that, at an October 8th meeting withthe board of the Association for Maximum Service Television (MSTV):Levin suggested broadcasters might want to consider returning their spectrum inexchange for a share in the billions of dollars that would come from the auction of the spectrum to the wireless industry.Broadcasting would retain just enough spectrum so that each station could providea lifeline standard-definition service to the millions of TV viewers who still rely onover-the-air reception. Broadcasters could no longer offer over-the-air HD andsecond channels and mobile video would be off the table, but they could continueto provide a single channel of TV to every home in their markets as they do today
—
in full-blown HD via cable and satellite carriage and SD via the over-the-air lifelineservice.
3
Subsequent press reports suggest
that Levin’s pitch didn’t get much traction with the MSTV
board members.
4
That doesn’t necessarily mean that it’s a bad idea, however, or even that
other broadcasters might not be willing to hear a more formal offer. MSTV has traditionally
been broadcasting’s praetorian guard;
the group has
“endeavored to ensure that the American
public receive the highest quality, interference free, over-the-
air local television signals.”
5
That
is a noble mission, but MSTV’s approach to broadcast spectrum management and its desire to
continue, and improve, broadcast television service, does not necessarily mean other
broadcasters won’t be willing to consider the FCC’s pitch. In this case, as in so many, where you
stand is a function of where you sit. Some local TV station or group owners may welcome acash infusion that allows them to repurpose their operations to better compete in thefragmented digital media marketplace that much sooner.
6
Moreover, this could have just been
3
Kim McAvoy,
FCC Floats Cash-For-TV-Spectrum Scheme,
4
Harry A. Jessell,
It's Too Early For Cash-For-Spectrum
5
Association for Maximum Service Television,
About Us
6
At least one veteran broadcaster acknowledged that some broadcasters are not using their spectrumefficiently, and some groups would want an exit strategy, a strategy that could prove attractive to some of theprivate-equity firms looking to cash out their station holdings. John Eggerton
, Broadcasters Defend Their Spectrum,
Broadcasting & Cable, Nov. 1, 2009, www.broadcastingcable.com/article/366470-Broadcasters_Defend_Spectrum_From_Reclamation_Proposals.php
.
FCC Commissioner Michael Copps is reportedto
have recently lamented that if the FCC “can’t rejuvenate shuttered newsrooms, put the brakes on ‘mind
-
Progress Snapshot 5.13 Page 3
MSTV’s opening move in a bargaining process that is bound to continue in multiple rounds.
Like any good negotiator, they are wisely not giving away too much too soon.And the FCC
will
likely be willing to bargain. The working assumption behind Levin’s pitch is
that the short-term need for high-value spectrum (that is, spectrum with excellent propagationcharacteristics) can only be met by reallocating spectrum from the broadcast band. Thatassumption is based on two undeniable realities:1.
At least in the short term, no other sufficient blocks of good spectrum are scheduled tocome up for auction; and,2.
The only other holder of such prime spectrum
—
the government (esp. the military)
—
isunlikely to surrender much, if any, of the spectrum it holds.Assuming these realities remain constant, the broadcast band is where the action is at in theshort-
run. That’s why the FCC is sending signals to broadcasters that they’d like to make a deal.And it’s even more relevant that Blair Levin is the one making the pitch, since he is in charge of formulating the FCC’s plan to boost broadband deployment.
A Spectrum of Spectrum Reform Options
In 2005-6, The Progress & Freedom Foundation brought together over 50 leading scholars
—
anon-partisan collection of lawyers, economists, engineers and others
—
with the ultimate aim of crafting a regulatory framework that is adaptive to the frequently changing communications
landscape. The resulting “
Digital Age Communications Act (DACA) Project
”
offered policyrecommendations and model legislation in five policy areas, including spectrum reform.
7
The
“
Report from the DACA Working Group on New Spectrum Policy,
”
8
offered five “
TransitionOptions for Encumbered Spectrum
.”
Several of the options would require the government to define new property rights inspectrum. Each attempts to address two central issues in making the transition from thecurrent command-and-control spectrum allocation system to a flexible and efficient market-driven one. First, to what degree should current licensees, who may or may not have paid fortheir licenses (payment could either have been at an initial spectrum auction, in a secondaryspectrum market, or through the purchase of an existing licensee) be allowed to retain theirlicenses? Second, and closely related, if current licensees do retain their licenses, should thegovernment simply give existing licensees broader rights, or should the government try to claimfor itself the new economic value of the expanded rights it will confer by charging the
numbing
monoprogramming
’ and otherwise turn the tide (he calls it a ‘tsunami’), of consolidation, then ‘maybethose who want the spectrum back have the better of the argument after all.” John Eggerton,
Copps: MaybeBroadcasters Deserve to Lose Their Spectrum
, Broadcasting & Cable, Nov. 4, 2009,www.broadcastingcable.com/article/367367-Copps_Maybe_Broadcasters_Deserve_To_Lose_Their_Spectrum.php.
7
8
The Progress & Freedom Foundation,
Report from the DACA Working Group on New Spectrum Policy
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Broadcast TV Spectrum Reallocation (Thierer & Esbin - PFF)
A publication of The Progress & Freedom Foundation (www.PFF.org) by Adam Thierer & Barbara Esbin. Thierer and Esbin discuss a recent proposal by an FCC official to reallocate a significant portion of the broadcast…
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