The FCC today released its National Broadband Plan to Congress, and in it spelled out its suggestions for the future of television. Facilitating the deployment of ubiquitous, dependable wireless broadband service is identified as a fundamental goal of the Commission’s proposals. The authors of the Commission’s report have viewed the problems experienced by some wireless broadband providers in major markets as indicative of a coming shortage in wireless capacity. Specifically, the Commission is concerned that as more and more applications for wireless broadband are deployed, the capacity of existing wireless spectrum will be exhausted, foreclosing opportunities presented by wireless broadband. And, as detailed below, the Commission sees the television spectrum as providing a significant part of the answer to that perceived spectrum shortfall.

The opportunities for broadband are many, in the view of the authors of the study. The Commission sees growing demand and future applications for wireless broadband not just in the areas of entertainment and commercial applications, but also in education, health, energy conservation, civic involvement, and public safety, among others. However, the Commission fears that sufficient spectrum will not be available to meet all of these needs.

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.