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The most fundamental issue for broadcasters is how deeply any channel cuts would go. NAB statements have indicated some flexibility in working with Congress and the FCC to allow for some spectrum reclamation – if it does not materially impair the current service provided by TV broadcasters. In a recent study highlighted in the Washington Times, and discussed with various groups in Washington and across the country, the NAB has looked at spectrum usage and what would happen to TV service if 20 television channels were reclaimed by the FCC, as suggested in the Broadband Report. By compacting existing stations into a smaller television band, and because of the limitations imposed by television uses in Canada (where the digital television transition is not yet complete), NAB claims that there simply would not be enough TV channels in some markets for all of the current broadcast television stations to continue to operate.  In Detroit, there would be room for none of the current stations, and in many areas near the Canadian border and in the Northeast, more than half of the television stations would disappear.  (See our prior article on this study, here).

The FCC has not responded officially to this study, nor has it released details of its plan for “repacking” TV stations into whatever spectrum is left after any spectrum reclamation that may occur (see NAB statement on the issue here). There have been many statements by FCC officials that such a plan cannot be developed until it is determined how many television stations will survive after “incentive” auctions are held. These auctions are planned to pay some stations to turn in their spectrum, or to enter into arrangements to share spectrum with other stations, freeing some channels for broadband use. Broadcasters, on the other hand, are concerned about how any such auction would really work. Questions include whether the auctions would truly be “voluntary” (as there have been recent reports that the Obama administration is favoring some sort of spectrum tax that would apply to broadcasters that don’t voluntarily turn in their channels) and whether there will be enough spectrum bidders, especially in rural areas, to compensate stations that may cease operations. Even in rural areas where the demand for wireless spectrum is far less than in urban centers, there are questions about whether stations will have to change channels, so the same spectrum will be available for wireless users across the country. The question of who would pay for channel relocation is also unanswered. As many smaller, rural stations are still struggling with the costs of their DTV transition in 2009, being forced to pay for further channel changes could be financially disasterous.

All these questions and more (see, e.g. our article on the question of whether VHF channels are still adequate for broadcast use – as those channels 2-12 would have to be used in some areas were the FCC to reclaim the portions of the current TV band in which the FCC has indicated interest) are currently being debated in the halls of Congress. Broadcasters have asked why the government should assist one industry (the wireless providers) take spectrum from another, especially as some TV operators have claimed the ability to provide some broadband service of their own (see our article here), and as the new services offered through wireless would require subscription payments, while TV is free to the user. Other studies have questioned the reality of the spectrum shortage. Wireless advocates, on the other hand, dispute those studies (with evidence of dropped calls and slow wireless service in certain urban areas as evidence of their need for more spectrum), and claim that TV broadcasting is an outdated technology that should move out of the way to allow wireless to become an engine of economic growth.

Thus far, Congress seems to be pursuing different paths on this issue, with the Senate draft bills providing the FCC maximum flexibility to craft incentive auctions, while the discussion in the House seems to be looking to provide broadcasters protections from significant new interference and ways to pay for any spectrum repacking. But suggestions from all sides have gone to the Super Committee for consideration, and that committee’s decision could preempt the actions that would normally be taken in the House and Senate committees. With the budget Super Committee supposed to deliver its report before Thanksgiving, and with Congress to vote on it before Christmas, the future of free TV may soon be decided. Stayed tuned for more developments. 

120 MHz is 20 television channels, and they are proposed to come from the UHF band, where most digital television stations now operate.  As part of the digital transition, the television band shrunk from Channel 2 through 69, to today's band which ends at Channel 51.  Most of the band formerly used for Channels 51 to 69 has already been auctioned off to wireless users - including a large swath that had been purchased by Qualcomm for its MediaFlo service that never took off and has already been abandoned, with the channels used by that service having been sold to AT&T, subject to FCC approval.  The FCC's current proposal, which was outlined in a Notice of Proposed Rulemaking (see our summary here) is to have "incentive auctions" to convince some television broadcasters to sell their channels to the FCC and cease broadcast operations, at which point the FCC would re-pack the television band into a much smaller part of the spectrum - theoretically reclaiming TV channels 32-51 for broadband use. These auctions cannot be held until the FCC is granted authority by Congress.  While several bills dealing with such authority have been introduced, none has yet made its way through either House of Congress.

The NAB has recently been reporting on a study it completed questioning whether a re-packing to Channels 2-31 is even possible.  The NAB study is said to demonstrate that, in many markets in the Northeast, and in markets near the Canadian border, sufficient channels in this range do not exist because of the protection needed to other broadcast and wireless users, and due to international treaty obligations (especially to Canada).  According to the NAB study, in Detroit, there would be no room on the spectrum for any of the existing television stations to continue their operations, and in markets like Seattle, Buffalo and Philadelphia, more than half the stations would have no place to go if this reclamation took place.  While the FCC and other repacking proponents have accused the NAB of engaging in scare tactics, they have not thus far specifically refuted the NAB's findings.  The failure to provide specific information about the mechanics of the repacking, after a request to do so, prompted Michigan Congressman John Dingell to write a stern letter to the FCC about their failure to respond to his requests for information (see this article in TV NewsCheck with links to the correspondence between Dingell and the FCC).

Beyond the possible impact in these specific markets identified by the NAB, why are broadcasters concerned?  There are a number of issues that they simply don't feel comfortable with under the various FCC proposals.  These include issues such as following:

• How would incentive auctions work?  The auctions that are supposed to incentivize television stations to go out of business or to share frequencies with other broadcasters have not been detailed.  As the US treasury is looking to make money from the auctions to help reduce the Federal deficit, how much money will be left over to pay TV stations to give up their channels?
• How will the repacking work?  Will stations be able to keep their current coverage area and interference protections?  Will they be forced to move to VHF channels, which so far have not been successfully used for digital operations (see our summary of the issues with DTV on VHF channels and a request in this week's FCC Public Notices of a station proposing to move from VHF to a UHF channel because of the difficulties of VHF reception, even after two power increases unsuccessfully attempted to improve that VHF signal).
• If there is repacking into channels 2-31, who will pay the costs for TV stations that currently operate on channels 32-51 to move?  To make spectrum available nationwide to wireless carriers, the repacking will take place across the country, not just in the major metropolitan areas where the spectrum crunch is most acute.  Many stations, especially those in small markets, are still trying to recoup the substantial sums spent just two years ago to convert to digital, and needing to spend more to change channels could be a burden on many stations.  Will there be money to accommodate these costs from the proceeds of the incentive auctions?

Beyond the technical issues that are involved, other matters are driving the push for spectrum auctions. In the recent debt ceiling talks on Capitol Hill, one potential source of revenue to help reduce the budget deficit was spectrum auctions - presumably talking about the proceeds from the reclamation of parts of the television spectrum.  With the new Super Committee in Congress looking for all sorts of ways to reduce the deficit, one can expect that these auctions will be back on the table in the coming months.  The need for money for deficit reduction and the needs to reimburse broadcasters for their channels and for any government-mandated channel changes may clash in these upcoming talks.

With the impending 10th anniversary of the 9-11 attacks, there is also a press for better utilization of spectrum by first responders.  Some of the television spectrum that has already been reclaimed was to be used by public safety entities but, even though the spectrum has been available for years, it has not yet been deployed - at least partially because of funding issues.  Given the perceived value of the spectrum, and the lack of Federal money to pay for a spectrum buildout, auctions are also seen as a potential funding mechanism for public safety if these reserved channels are retained.  If so, that will put more pressure on the auction proceeds available to fund the buy-out of broadcasters.

Given all of these competing pressures, and broadcasters' practical concerns about their future, there is no telling when and if the repurposing of TV spectrum for broadband will take place.  The digital television transition itself took over 10 years, and in many ways, the issues here are more complex - fitting more stations into smaller spectrum, and figuring out how to compensate them for moving.  Watch for these issues to continue to be debated in the coming months, as the FCC continues its proceedings to design the incentive auctions and TV transition, and as Congress struggles with implementing legislation at the same time that it tries to reduce the Federal debt.  Look for a major struggle ahead. 

Commissioner Copps spoke first, indicating that he was cautiously optimistic about the proposals. But Copps was very concerned about the potential impact on broadcast television, recognizing the public interest benefits of over-the-air television. The Commissioner stated that he believed that Digital Television provided the potential for broadcasters to develop new programming on multicast streams, especially programming addressing local needs. But he stated that he was disappointed by his perception that few broadcasters were taking advantage of the new opportunities to provide local services stating that, if broadcasters had done so, he would not be supporting efforts to redeploy some of the television spectrum to wireless broadband. In fact, Commissioner Copps suggested that, if broadcasters demonstrate a commitment to local services that use the whole of their spectrum, he could be convinced that changes in the TV band are not in the public interest. 

The Commissioner also expressed some degree of skepticism about the ability of the FCC to do anything to enhance the operation of Digital Television in the VHF band. Recounting his experience as acting FCC Chairman during the final phases of the DTV transition, and the Commission’s attempts to overcome issues that arose after stations converted to digital on VHF channels, he indicated that any real changes that would make VHF channels more useful for DTV might well be a very difficult process – but he had no objection to the FCC exploring the issue. 

Finally, he said that he hoped that parties would address whether reallocation of TV spectrum to broadband would indeed benefit consumers. He asked whether auctions of more wireless spectrum would actually lead to lower prices and more consumer-friendly wireless broadband options.

Commissioner McDowell echoed Commissioner Copps in praising the public interest benefits of broadcast television and in recounting the difficulties of using VHF channels for DTV operations during the DTV transition. McDowell raised some interesting issues not highlighted in the comments of other Commissioners, asking why broadcasters themselves could not provide some or all of the wireless broadband service that the FCC seeks. McDowell noted that broadcasters can already provide ancillary and supplemental services on portions of their television channels. If there is such a need for wireless uses of this spectrum, broadcasters themselves might be able to provide that service as an ancillary and supplemental service. McDowell specifically asked a few questions about this ability on which he would like to see comments, including:

• Whether broadband through ancillary TV spectrum is technically feasible
• How would it work?
• Would such uses be faster to implement than the reclaiming of the spectrum and the use of incentive auctions?
• Would such uses be more efficient than the other proposals being considered by the FCC?

Commissioner Clyburn was also generally supportive of exploring the issues raised by the Commission, but she was particularly concerned about the impact that any repurposing of the spectrum would have on those who are particularly reliant on over-the-air television. She stated that, during the DTV transition, the FCC noted that senior citizens and the poor were particularly reliant on over-the-air TV, and could be most impacted by any change to TV accessibility.

Commissioner Attwell Baker also had her own particular take on these issues. Commissioner Attwell Baker stated that it was important that the FCC approach these issues with an open mind – not with a preconceived notion of the final outcome. She also noted, as we have in prior articles on this topic, that it has been less than a year and a half since the end of the DTV transition, so that it was important that the FCC not now take actions that could lock any service provider into today’s technology – perhaps an indication that the FCC should not take decisions that will lock television broadcasters into their current business model. Instead, any decision should allow them to adopt new technologies – perhaps including technologies like the Mobile DTV systems that will soon roll out. Commissioner Attwell Baker’s comments were also notable for her suggestion that other technologies – like MPEG 4 instead of MPEG 2, OFDM technologies instead of the current ATSC digital television standard, and cellularized television operations – should be explored. Finally, the Commissioner suggested that the Commission should also consider the impact of its decision on the broadcaster’s public interest obligations. Should the same public interest obligations apply to a broadcaster who is sharing spectrum as currently apply to broadcasters who have a full 6 MHz to exploit?

Chairman Genachowski spoke last, and was obviously most enthusiastic about the proposal. He is looking to wireless broadband to spur the economy and to maintain American industrial competitiveness, and has identified the “beachfront” spectrum of broadcasters as ideal for this use. He was particularly concerned with broadcasters who were not now currently using their entire 6 MHz allocation – likening a television channel to a train, and the unused capacity to empty boxcars. He suggested that channel sharing arrangements would give broadcasters the opportunity to cooperatively fill the empty boxcars. He also remarked that it was an inefficient use of the spectrum to dedicate so much of it to a service that only 10% of the population use (claiming that only 10% of the population gets their video programming over the air). The Chairman said that this was the time to begin exploring the issues raised by this proposal, even before Congress has approved incentive auctions, as the FCC will be poised to move quickly once that authority is granted. 

There are obviously weighty issues to be discussed in this proceeding.  We will write more about the proposals when we have reviewed the full texts of the FCC rulemaking notice. But all interested parties should be prepared to file comments on the important issues raised by the NPRM when the comment filing dates are established. 

At next Tuesday's FCC meeting, the Commission will begin its consideration of the future of over-the-air TV, as initially laid out in its Broadband Plan.  While we will see the specifics of the FCC action this coming week, they are rumored to include proposals to encourage the compression of the TV band - encouraging TV stations to move into the VHF band (apparently, despite laws imposed by physics, not by man, which have thus far dictated that these channels suffer from more interference and worse coverage than DTV stations that operate on UHF channels), to share channels (by multicasting programming now appearing on separate channels, perhaps in Standard Definition instead of true HD), and, in some cases, to surrender channels entirely in exchange for some share of auction proceeds from so-called "incentive auctions."   How these changes will be implemented will be seen after the meeting.  Assuming that the changes are voluntary options afforded to broadcasters and not mandates, the changes may assist in the natural evolution of television.  But, if mandated or otherwise forced (e.g. through spectrum taxes on some perceived value of the frequencies), then regulatory changes may artificially affect the natural progression of the media.

Pogue also notes his observation that people often have very personal reactions to technology, and those reactions can color their perceptions about whether change is good or bad - with two people looking at the same change but from different personal biases having completely different reactions to the same change.  We have noted that how a personal bias can affect the reaction to regulatory events, for instance in reaction to changes in rules regarding HD radio, with some detractors being the first to comment on any post we write about that technology, convinced that it will do nothing but degrade the FM band, while others see it as a way to bring new life to radio.  That same observation applies to the changes being considered for TV.  Some, apparently including many at the FCC, see broadband, and wireless broadband in particular, as the way in which people will receive entertainment and information in the future - essentially dooming TV as we have known it for the past 70 years.  Others see a renaissance of over-the-air television being upon us with the new potential of the Digital Television transition being recognized through new opportunities for programmers on multi-cast channels and, with mobile DTV just beginning to be rolled out, for new services that will reinvent the service for the future.  After all, it has been less than 18 months since the digital transition for over-the-air TV was completed.  Another truism we have heard about technology is that people tend to overreact to changes in the short-term, while underestimating those changes in the long term.  Of course, those long-term consequences are the most difficult to predict.  One hopes that the actions of the government in the upcoming week don't reflect the attitudes of a few who overestimate the impact of new technologies and artificially restrict the choices of consumers in selecting their own media future. 

In an action from yet another branch of government, Congress also has a new Bill to consider these issues.  Senators Kerry and Snowe introduced a bill to comprehensively address spectrum reallocation issues - The Spectrum Measurement and Policy Reform Act.  The Bill also gives authority to the FCC to share auction proceeds with services that give up some of their spectrum to be reused for broadband purposes.  This would presumably allow for the "voluntary" relinquishment of spectrum by some television broadcasters that the FCC has suggested should happen.  The bill, however, also has a stick to go with the carrot of potential revenue sharing.  The legislation gives the FCC the authority to impose a spectrum fee based on the "fair commercial value" of that spectrum.  This certainly bears that threat that broadcast spectrum would not be deemed as having a "fair commercial value" as the value to the broadcaster - but might instead be taxed at some higher perceived value if it were to be used for broadband purposes.  Harry Jessell, in Friday's TV NewsCheck has a great analysis of this potential use of spectrum taxes to force the surrender of TV spectrum - called Seaside or Spectrum: It's Still Extortion.

Broadcasters, of course, have to deal with all of these fires at once.  The NAB responded to the White House Memorandum with a letter to the President's Director of Economic Policy Council with a statement agreeing to work with the government to find spectrum to meet broadband needs, but emphasizing that any spectrum reclamation must be voluntary and must not compromise the free, over-the-air television service on which the public relies, and the new technologies like mobile DTV (the deployment of which the FCC is encouraging) which television broadcasters plan to commercially launch using their new digital capabilities later this year. 

And finally, as all of these political issues affecting the grab for TV spectrum are being debated, it's worth looking at what has happened to television spectrum that has already been given up for supposedly new and innovative services.  As part of the digital transition, television gave up what used to be Channels 52-69, which were then, for the most part, auctioned to commercial users for flexible new systems - including potentially for broadband.  One of the biggest aggregators of spectrum was Qualcomm, who introduced its FLO TV system, to deliver media content to mobile users across the country.  This week, there were several press reports suggesting that the service was not a success, and that Qualcomm was looking to sell it or the spectrum.   Perhaps the highest and best use as decided by an auction is not always in fact the highest and best use, and the government needs to be careful in trying to assess the "fair commercial value" when that value may already be realized by current users.

An eventful summer so far - TV broadcasters should keep a careful watch of what the Fall may bring. 

The order allows mobile receivers to leave out not only the analog tuner, but also a tuner that is capable of receiving normal over-the-air digital television pictures, as long as their is a clear disclosure to consumers that these tuners are not capable of receiving normal analog or digital television programming.  Thus, these will be dedicated devices for the new mobile television service. 

One interesting note is that the success of this service will make it more difficult for the Commission to reclaim television spectrum for broadband use.  The old VHF channels, still used by some television stations, though much less congested than in analog days, are reportedly not very good for mobile use.  Were the Commission to try to take back television spectrum for broadband use, where could they put the TV stations displaced from the reclaimed spectrum, especially if they have successful mobile operations?  Thus, the services which this ruling promotes may help to shape the debate about the broadband recapture. 

To answer the call for more spectrum for wireless broadband, the Commission is seeking to locate up to 500 MHz of spectrum to be redeployed for broadband use. Some of the spectrum that the Commission will seek to repurpose is that which has already been allocated to some wireless uses, but where service rules currently make broadband deployment difficult. These include the Wireless Communications Service (WCS) and Mobile Satellite Service (MSS) spectrum. The Commission proposes to make the use of this spectrum more flexible, so that existing licensees can dedicate the spectrum to broadband or else sell it to others who can put it to such use.

But the largest swath of spectrum to be used to meet this perceived need is proposed to come from television broadcasters. The Commission’s plan proposes to recapture 120 MHz of spectrum (20 UHF channels) from television broadcasters. This would be done essentially in two steps – a voluntary sale by some broadcasters of all or part of their spectrum, followed by a repacking of the spectrum to make a more efficient use of the remaining spectrum by the remaining television broadcasters. 

Throughout the section of the report dealing with the potential recapture of TV frequencies, the Commission suggests that the television frequencies are underutilized, and that television broadcasting is not the highest and best use for the channels. In the view of the Commission, this spectrum is not being used efficiently at the moment, as many television stations have the ability to transmit their over-the-air signals in less than the full 6 MHz of spectrum allotted to each television station. While High Definition programming and opportunities for multi-channel operations are possible on the current channel allotments, in the Commission’s opinion, too few broadcasters are making full use of the spectrum. Moreover, as only about 15% of US households currently rely on over-the-air television as their sole means of television reception, other alternative means of viewing television are available, thus freeing the broadcast television spectrum for broadband use. While the Commission recognizes that mobile DTV is now being rolled out, and offers the potential for relieving some network congestion by delivering video programming to mass audiences from a single transmitter, the Commission expresses its finding that the roll out of this service has been slow thus far.

Thus, the Plan suggests reclaiming some of the television spectrum from broadcasters in order to repurpose it for wireless broadband. Some stations may sell out entirely, while others could agree to share current frequencies (e.g. allowing two stations to each use 3 MHz of one 6 MHz TV channel, allowing the other 6 MHz to be reclaimed by the FCC for broadband use). While the Commission indicates that the need for recaptured spectrum is most acute in large markets, it also finds that some spectrum can be used in small markets to reach unserved rural areas. To compensate broadcasters for that return of some of the spectrum currently used for television broadcasting, the Commission would in exchange provide a payment out of the revenues recognized from the re-auction of that spectrum. The details of how that auction could work are discussed in the report – suggesting that an auction by the FCC where a portion of the proceeds are paid to the broadcaster is the favored method, though a direct sale of spectrum by the broadcaster to the wireless company is an alternative.

Once stations agree to this voluntary plan, the FCC will take the remaining television stations and repack them into a smaller portion of the television spectrum, to clear up a large contiguous swath of spectrum for broadband users. Broadcasters may need to share spectrum or transmitter sites, reduce coverage, or otherwise modify their technical operations to fit into the more limited allocated television band.

The plan justifies this transition of spectrum from broadcasting to broadband on the determination that spectrum is currently not used at its highest and best use. To reach that conclusion, the Commission looks at its calculation of the prices paid for wireless spectrum in the last broadband auction and contrasts that price to the Commission’s perception of the market value of the broadcast spectrum. Based on that comparison, the Commission concludes that wireless spectrum is valued at $1.28 per megahertz per person, versus 11 to 15 cents per megahertz per person for television. To compute the value of television, the Commission looks at what it believes to be the total enterprise value of the television industry ($63 billion), and the fact that only 14-19% of TV households rely solely on over-the-air viewing, and then divides the value of the 14-19% of the total enterprise value of TV by the number of people in the country and the total spectrum devoted to TV. The Commission determines the enterprise value of the TV spectrum by multiplying what it finds to be the total broadcast revenue times the perceived operating margin of television operators (estimated from 2010 earnings reports of public TV companies) times an assumed EBITDA multiple used for sales of stations in the TV marketplace. The Commission thus premises its views the value of the industry based on the approximately 15% of homes that rely exclusively on over-the-air reception, ignoring the value of the rest of the industry.

The Commission further suggests that the value of television stations may be decreasing. To reach that conclusion, the Commission looks at recent advertising sales issues to question if the television business model continues to be viable. The Commission also suggests that recent court cases challenging the must carry rights of television stations, and the Commission’s own multiple ownership proceeding that will be conducted this year, could further depress the value of television stations (query what that implies about the outcome of multiple ownership issues such as duopoly relief to television broadcasters, especially in smaller markets).

Finally, the Commission indicates that, if broadcasters are not ready to voluntarily step forward to give up sufficient spectrum to accomplish the plan, broadcasters and any other spectrum that is not dedicated to “flexible uses” (i.e. where FCC rules and not the market decides the best use of the spectrum), should be assessed a yearly spectrum fee. The plan suggests that the fee should be set by the FCC and NTIA, based on their perception of the highest and best use of the spectrum to encourage those who do not make that best use to allow for a change in the use of the spectrum. No spectrum fees are proposed for other users of wireless spectrum, even though these other users may, in some cases, be marketplace competitors of the broadcasters. In addition, the FCC suggests that, if these methods don’t succeed in clearing enough spectrum, the FCC could either force broadcasters to give up spectrum (recognizing that this would be a long legal battle), or that the technical rules could be changed (requiring, for example, a cellularization of the TV spectrum though mandated use of low power stations instead of high power transmitters). 

These approaches will require significant changes in order to be implemented. First, Congress will have to authorize the redirection of auction proceeds to pay broadcasters who choose to surrender their spectrum. Second, the Commission will need to adopt rules for the auction, and how the repurposed spectrum would, for maximum efficiency, be packaged into contiguous blocks. For instance, there is no discussion of how the costs of such shifts would be authorized. The FCC states that it will initiate a rulemaking proceeding this year to adopt rules on these issues – aiming to conclude that proceeding in 2011 so that the spectrum reclamation can begin in 2012. 

At the same time, Congress is in the process of considering a bill that would provide the FCC and NTIA with funding to inventory the current usage of the entire radio spectrum in order to identify inefficiencies and potential areas where additional spectrum might be found to meet future wireless broadband needs. In the most recent House version of that bill, the inventory process is to take 5 years. Given this process of determining what, if any, needs exist for spectrum and what spectrum may be available to meet these needs, along with the controversy that is always engendered when the government considers changes to television, one wonders how quickly any of the proposals advanced in this report will be implemented. 

The Commission also proposes other ideas to immediately use the television spectrum more efficiently. The final resolution of the TV White Spaces proceeding is urged. Also, it is suggested that the conversion of LPTV to digital, a deadline for which has yet to be set, be accelerated. Commissioner McDowell, in his statement on the Report, suggests that broadcasters be urged to immediately lease excess digital spectrum to wireless uses, which would be a voluntary plan not requiring Congressional or FCC action. 

While we will be writing about the issues raised by this proceeding in coming weeks and months, there is no doubt that there will be objections to these proposals. Television representatives have expressed concerns about the rumors of these proposals, arguing that broadcasters and the public have just spent billions of dollars converting their over-the-air operations from analog to digital, thereby greatly improving the efficiency of the spectrum and already returning substantial spectrum to be repurposed for broadband use in the process. While broadcasters may not all currently be using their full 6 MHz of spectrum to its maximum potential, it has been less than a year since the digital transition was completed, hardly providing broadcasters with the time to fully utilize the spectrum or for the industry to capitalize on the enhanced opportunities afforded by the digital transition. For example, while the FCC dismisses mobile DTV as not being widely deployed, it is just now being rolled out by broadcasters, promising far more use of the spectrum in coming years.

Broadcasters also argue that forcing all viewers onto pay platforms is not in the public interest, as most of the proposals for subsidies are limited in duration and will thus, inevitably lead to higher costs to consumers. Moreover, they contend that the portent of a spectrum crunch is overstated. They argue that wireless carriers have not yet fully deployed systems on the existing spectrum currently allotted for their use. Additionally, by forcing all over-the-air broadcast uses onto other platforms, spectrum congestion may actually be increased, as the point-to-multipoint service provided by broadcasters is, in fact, the most efficient way to deliver mass content to large numbers of viewers. These issues will no doubt be debated in the coming months, so watch as this debate unfolds. 

Spectrum conflicts with radio will also be on the table. There have been proposals for the reallotment of TV Channel 6, and perhaps even Channel 5, to radio uses. Particularly given the issues that many major market television stations had with the digital conversion of VHF stations, and the demand by more and more entities for radio spectrum, this proposal has already been advanced for public comment by the FCC in several proceedings, and could theoretically be ripe for action. More likely is further consideration, as there are many issues that would need to be resolved – like who would pay for the few remaining TV stations on these channels to move elsewhere on the TV band, plus questions of how the spectrum, if reallocated to radio use, would be divided. More on that below in the radio discussion.

The FCC will also have to complete the digital transition of TV translators and LPTV stations, which were not bound by the June 2009 DTV conversion deadline. The FCC will need to set a digital conversion deadline – a conversion that many translator and low power licensees are not looking forward to paying for, but which may be necessary to preserve their over-the-air viewership as the analog tuner becomes an historical relic. This transition may also bring to the fore questions about the use of LPTV stations on Channel 6 for quasi-radio stations broadcasting audio that can be received on 87.7 or 87.9 on most radio receivers as analog television audio signals are just below the bottom of the FM dial. This use of channel 6 stations for Fm broadcasting would disappear if LPTV stations go digital, and thus there may be resistance to the transition from that element of the LPTV community.

Another carryover issue from 2009 is the status of the SHVERA extension, authorizing DirecTV and DISH Networks to rebroadcast local broadcast television signals to satellite TV subscribers in their markets. That authorization expired at the end of 2009, and has been extended by Congress, but only until March. While everyone seems to agree that a further extension is appropriate, many parties are trying to load up the bill with all sorts of goodies from the wish lists of various industries – everything from a mandatory extension of local-into-local service into every television market (as urged by TV interests), to changes in must-carry and retransmission consent schemes and rules on the importation of distant network affiliates (sought by various multichannel video providers), to issues about allowing the carriage of in-state TV stations in markets with counties that currently receive their television service from stations in adjoining states. These and other issues will need to be resolved before a more permanent extension can be granted.

Radio Issues

The most fundamental issue for radio broadcasters is the potential for the broadcast performance royalty – which would require that radio stations pay not only the composers for the use of music on the radio (which they currently do through ASCAP, BMI and SESAC payments), but also to pay performers (and the record companies, as the copyright holders in these performances) for the use of their recordings on the air. Radio has never paid such royalties, though digital cousins of radio – satellite radio, Internet radio and cable radio – have paid these royalties for the last decade. While broadcaster representatives have thus far been able to beat back attempts impose this performance royalty for the use of sound recordings, both the House and Senate Judiciary Committees passed forms of this legislation in 2009, and proponents of the royalty will be pushing for a vote on these bills this year. With the potential for a crippling new cost to be imposed on radio if these royalties are adopted and imposed on top of the royalties already paid to ASCAP, BMI and SESAC (which are themselves in negotiation for new royalty rates as old rate agreements expired at the end of 2009), music radio could be dealt a severe blow if the proposal was to be adopted in this time of decreasing revenue. While the new NAB President has seemingly taken a somewhat more conciliatory tone in dealing with this issue (no more claims that the royalty will only be discussed at knifepoint), it is difficult to see where the revenue to pay such royalties would come from. But it will be an issue that will be fought hard this coming year.

The digital transition in radio will also need to be addressed. While many stations are already operating with digital over-the air streams of programming, the Commission is still faced with resolving proposals for increased power for HD Radio operations (In-Band On Channel or IBOC digital radio), which some broadcasters have opposed as holding the potential for adjacent channel interference. While a compromise proposal to allow for IBOC power increases has been offered to the Commission, it has not yet been adopted. Watch for action on that front soon.

LPFM stations may become more common this year, as legislation to remove a ban on those stations causing third-adjacent channel interference to full-power FM stations may well be removed by Congress this year. A bill to do so has passed the House, and will likely be considered soon in the Senate. The House Bill did protect some full power stations from real cases of interference, and certain existing services like existing translators and stations proving reading services for the blind. But the bill must also be addressed by the Senate, and we will have to see what will be in the final legislation.

The related issues of the relationship between LPFM stations and other FM users also remain to be resolved at the FCC. A new LPFM window has been held up by issues on how to process the thousands of FM translator stations that remain pending from the 2003 translator window.  Similarly, issues remain to be resolved on whether LPFM stations, which were authorized as secondary services, should be able to be protected from increases in power or other facility changes by full-power stations. Perhaps the removal of third-adjacent channel protections will alleviate some of the conflicts, but others are bound to remain.

The proposals discussed above to recapture some of the television spectrum, including Channel 6 and possibly Channel 5, and to use that spectrum for new radio stations, may provide a further outlet for LPFM stations to remove some of the conflict with translators and full-power stations. Proposals are already pending to immediately allow LPFM stations on 87.5, 87.7 and 87.9 – all parts of channel 6 that can be heard on most FM radio receivers. But a longer term solution could result from this reallocation, giving LPFM stations places to operate without restricting FM upgrades or endangering FM translators. Others have even suggested that some or all AM stations could be moved onto these channels. This is likely to be a long-term project, but one that may get further serious consideration this year.

 Finally, the FCC under Interim Chairman Copps, suggested rules that could limit the ability of FM stations to change city of license to move toward larger communities, undoing some of the flexibility accorded to stations in recent years to change city of license to reach larger audiences. Action on this proceeding might be forthcoming, or will perhaps be rolled into the localism proceeding discussed below. 

Issues for Both Radio and Television

The FCC’s Localism proceeding remains on the table, proposing a whole host of requirements to assure that broadcasters are serving their communities and the “public interest”. While comments have been filed and the proceeding ready for resolution for over two years, there are so many controversial issues raised by the proposals that coming to any resolution will not be easy. Some proposals seem to be dead – like that for a fully manned main studio during all hours of operation, located in the station’s city of license, as regulators realize the costs that such a requirement would impose, and the likely impact that the requirement would have on new entrants and on the 24 hour operations of some stations. Yet requirements for some form of mandatory ascertainment of community needs, plus some enhanced disclosure of public interest programming, seem more likely. Some of the proposals rumored to be on the table include requiring that broadcasters be judged by whether they perform certain tasks set out on a menu of options by which they would demonstrate their service of the public interest. One would hope that any set of menu options would be broad enough to recognize all the diverse ways that broadcasters serve their communities, and not so restrictive as to make every station meet the public interest in the same cookie-cutter way, and thus eliminating diversity in approaches that has allowed the broadcast industry to flourish.

The difficulty with localism issues is illustrated by the Commission’s rules, adopted over two years ago, requiring TV stations to document in minute detail their public interest programming on Form 355. This rule has never become effective, as the form has never been approved by the Office of Management and Budget as being in compliance with the Paperwork Reduction Act. As this form required so much new information, for no appreciable purpose, it seems unlikely that it could survive such a review. Broadcasters argued that the information required to be documented would require the hiring of new staff whose only role would be to fill out this form. In an era of declining revenues for broadcasters, hiring a person to deal with these issues would, of necessity, require cutbacks in other areas, possibly compromising service to the public. 

While that would seem to be an issue, in recent hearings on the FCC multiple ownership rules, which will come up for a full review in 2010, certain public interest group representatives suggested that gathering detailed information about a station’s public service should be seen as a cost of doing business, and that owners who did not want to shoulder this burden should simply get out of the business. With views such as that being advanced in the multiple ownership proceeding, questions of how to modify the Commission’s ownership rules will not be easily resolved. The FCC’s 2007 modest relaxation of the broadcast-newspaper cross ownership rules has never been fully implemented, causing us to wonder if the restrictions may well outlive the newspaper itself.  Broadcasters, especially small market TV operators, have also been looking for the ability to combine operations under more flexible rules – an issue to be examined by the FCC in this upcoming 2010 proceeding (though don’t expect any final resolution this year).

The troubles of the newspaper industry, and of some broadcast stations, in funding their news operations, has given the FCC and the FTC pause, with both agencies conducting reviews of how the government may be able to facilitate good journalism in the 21^st century. The FCC has gone so far as to appoint a Special Advisor to the Chairman to look at the issues of how the media should best serve their local audiences and how to assure that service is forthcoming to local communities.  One wonders what the government can do to mandate what are essentially business decisions.  But some fear that any review of content issues, whether it be in the guise of community service or localism or some other form could be a backdoor way to bring back the Fairness Doctrine, which many conservative pundits have predicted.  Certainly, many of these proposal would face constitutional and practical problems in implementation. Yet these will be matters which broadcasters will need to continue to monitor. 

In the advertising world, the FCC will be resolving its embedded advertising and product placement proceeding, where some “public interest” groups have advocated a total ban on such advertising, while others have suggested immediate sponsorship identification, through a crawl or superimposed caption, of any product for which consideration has been paid for its inclusion. The related issue of video news releases – whether stations have to identify on-air anything given them at no charge (e.g. a script, video footage, etc.) before its inclusion into a news report – will also likely be resolved. Some have also suggested that the Commission may be planning some adjustments to its payola rules, though what those changes would be, and how they would improve on the current rules, is hard to fathom. We’ve also written about the FTC’s recent actions on sponsorship identification (especially for the new media) and celebrity endorsements, obligations that are only now being fully implemented.

There is also real concern that the Congressional committees which oversee the FCC may well push proposals for content regulations. Issues on limits on prescription drug advertising have been raised both independently and as part of the health care debate. Proposals on restrictions on violent programming and on advertising directed to children are also possible, especially in connection with ads for food considered unhealthy (however that may be defined). Congress also seems poised to pass a law regulating loud commercials – mandating that the volume on commercials be kept the same as that in programming, no matter how hard (and in some cases subjective) that may be to assure in reality.

Protecting children from violent or other potentially harmful content has also been the subject of both FCC and FTC proceedings, which may spur further actions this year.  Indecency issues will also continue to be litigated in the Courts, as both the Janet Jackson clothing malfunction and the Golden Globes fleeting expletive cases are considered after their remand by the Supreme Court.  The constitutional issues left unresolved by the Supreme Court may well be considered by the Courts of Appeals rehearing these cases, though an ultimate decision on the constitutional issues are probably several years down the road when these cases finally make their way back to the Supreme Court (so look for indecency on our list of issues next year).

And 2010 will be a big political broadcasting year.  While the political broadcasting rules have for the most part remained unchanged for almost two decades, there are aspects of the rules that need to be addressed as the technology has changed since the current rules were adopted. The FCC has a long-outstanding proceeding to decide how on-line sales of broadcast inventory by various advertising clearinghouses and aggregators affect a station’s lowest unit rate. It’s interesting that the proceeding itself has outlasted most of the companies that were offering the on-line sales of broadcast inventory.  Also, as both radio and TV are now multicasters in the digital world, the FCC has not yet addressed how reasonable access and other political rules apply to multicasting.  Are a station's multiple streams each considered a separate “station” for reasonable access purposes, or can a station decide that candidates can be accommodated on one or more streams and kept off of others.  While this may not be a big issue in this election as most multicast audiences are small, the issue will no doubt grow in significance in future elections. 

Copyright issues could also impact the broadcast industry this year. We discussed the performance royalty above.  But both radio and television have outstanding issues on their ASCAP and BMI royalties that could lead to rate court proceedings to decide what should be paid to composers for the use of their music.  And TV broadcasters have brought a suit against SESAC to try to bring it under the antitrust laws, a suit that radio broadcasters may well consider joining at some point in the future, 

Conclusion 

Just a cursory look at the broadcast issues to be dealt with by Washington this year is enough to give any broadcaster pause about the future.  And these are just some of the issues that could impact broadcasters.  Broadband rollout, network neutrality, and regulation of wireless and wired carriers can fundamentally affect the competitive landscape for the media in general.  And there are a whole host of other regulatory issues that we have not addressed here, including some that we have no idea are on the agenda but which are nevertheless bound to arise. In an industry rapidly adapting to new media competition and changes in the economy, broadcasters cannot afford to face the heavy hand of government regulation.  Broadcasters need the freedom to adapt to marketplace changes and to address the new realities of the advertising supported media. One can only hope that Washington recognizes these new realities and regulates with a realistic hand, not one based on the realities of a totally different time and place.  Stayed tuned to these pages to see what develops in this new year.

This reliance on the new media, and the mantra that is being chanted regularly by the new Commission, seemingly approaches media issues from a position where there is an assumption (perhaps rebuttable, but there nevertheless), that the new media is where all the action is and where all the attention should be placed.  This is reflected by the proposals (about which we wrote here, and which have gained much press since we wrote about these ideas) to re-allot television spectrum to broadband, with the idea that this will serve the new media at the expense of the dinosaurs in the broadcast industry - exchanging a sure thing that serves virtually the entire country for a promise of service in the future.  It also ties into a feeling that seems to be pervading government, that the "traditional media" can no longer be counted on to serve the needs of the public.  Not only is there this appointment, but there is also the upcoming workshop at the FTC on how newsgathering will survive in the future in light of the technological and economic challenges to newspapers and other traditional media.  Perhaps, in the words of Monty Python, it's time for the broadcast industry to rally and cry - "not dead yet" - as a vibrant though challenged industry is being almost assumed by the regulators to be out of business.

The Capital Formation workshop is perhaps a good sign that the Commission has not totally abandoned the broadcast industry, as the Public Notice announcing that event does specifically refer to the broadcast industry.  The lack of financing to acquire broadcast stations has been cited by many observers as the biggest impediment to minorities and other new entrants getting into broadcast ownership.  We are bound to hear those issues discussed in this week's workshops on the new multiple ownership proceeding.  While the Capital Formation workshop may be one way to address that deficit, we do note that the companies who are identified as participating do not seem to have a broadcast background, but from their descriptions in the public notice, they all seem to be more invested in technology companies.  Will potential owners who attend the session be disappointed by the lack of broadcast investors who are present?

These actions show the conflicted nature of the FCC when it comes to broadcasting.  What kind of reform is possible, and what kind of broadcast industry will we see in the future?  Will regulation recognize the change in technology and allow broadcasters to adapt to the changes, or will regulation force that change, or will broadcasters continue to be regulated as they always have been (or as they once were 25 years ago as some proponents of more regulation seem to suggest)?  These will no doubt be questions addressed on these pages many times in the coming months.