Mysteries of the TV Spectrum Auction

Let’s say you live in Columbus, Ohio, and you’re watching TV with rabbit ears or a rooftop antenna, not via cable or satellite. If you live in the green area, you won’t have any trouble receiving a clean signal. In the yellow, you may need an outdoor antenna. If you live in the orange or red zones, you will certainly need an outdoor antenna, and if you’re red, you may still have a tough time. Of course, every over-the-air TV channel broadcasts with its own distinctive coverage pattern— the result of the physics of the specific channel frequency, the antenna height and location, terrain, quality of your home antenna and home receiver, interference with other signals and with physical objects like buildings and mountains. Television broadcasting is a complicated business!

Let’s say you live in Columbus, Ohio, and you’re watching TV with rabbit ears or a rooftop antenna, not via cable or satellite. If you live in the green area, you won’t have any trouble receiving a clean signal. In the yellow, you may need an outdoor antenna. If you live in the orange or red zones, you will certainly need an outdoor antenna, and if you’re red, you may still have a tough time. Of course, every over-the-air TV channel broadcasts with its own distinctive coverage pattern— the result of the physics of the specific channel frequency, the antenna height and location, terrain, quality of your home antenna and home receiver, interference with other signals and with physical objects like buildings and mountains. Television broadcasting is a complicated business!

For most Americans, the story was pretty much the same from the early 1950s until June of 2009: turn on the TV, and watch a handful of channels, perhaps a dozen if you lived in or near a big city, for free. In 2009, the number of channels began to double, then triple. Now, I can watch about fifty channels without the help of cable, satellite, internet, mobile technology, or any other means. I just need a TV set, and a decent TV antenna. These days, there is a difference between a television “station”—a license to operate a portion of the local television spectrum (6 MHz, in case you’re keeping score) within a specific geographic area (say, for example, Syracuse, New York), and a “channel” (in technical terms, a “program stream operating on a portion of the 6MHz channel; this is why you see, for example, channels 10.2, or 14.3, when you use an over-the-air television tuner).

So that’s the new status quo. But it’s about to change. Within the next two years or so, the FCC (the government agency that provides and monitors television, radio, and other broadcast licenses) will, in essence purchase, very roughly, 1 in 10 television stations, maybe more, maybe less. They will buy these television licenses in order to sell them to wireless mobile internet operators so that the television spectrum may be used, for example, to stream video any time, anywhere, on to your smart phone or tablet. Most likely, the smallest and weakest of television stations will cease broadcast, including the few that are affiliated with any national broadcast network.

For several reasons, the situation is strange. As a rule, these licenses do not belong to the owners of these television stations, any more than your fishing license belongs to you. It is a permit to operate a broadcast television station, provided at no cost to the broadcaster in exchange for a promise to provide a public service: local news, programs for children, emergency information, and so on. Of course, broadcasters don’t want to simply give the licenses back to the government—why would they, unless they were either required to do so, by law, or, paid a handsome incentive to surrender what is, for many, a valuable asset. This is why the FCC is going to the buyer—the wireless internet provider who will use this spectrum—for the funds needed to encourage the current licensees, the broadcasters, to give up their chunk of spectrum. Why can’t the local TV station contact, say, Verizon, and say, “hey, want to buy our spectrum?” Yeah, that’s a good question, and no, there is no good small answer to that question. There is, however, a good big answer: there are thousands of local television stations, and the FCC is playing middleman in order to maintain some degree of rational organization.

Why? Also a good question, especially when you consider that about 90 percent of U.S. television viewing has little, if anything, to do with the local television stations and their broadcasts. Nearly all of us ignore the thirty or forty free television channels available via any good recent TV set and a connected antenna, and instead choose to pay Verizon, Comcast, or similar companies about $1,000-$1,500 per year to receive nearly 1,000 channels, plus DVR services, on demand, etc., as well as home internet service. So we’re protecting an asset that is vital for about 10 percent of us, and, largely, irrelevant to the rest. Except, of course, when there is an emergency, or so we’d like to believe. In reality, television is probably the fifth most important communication medium in an emergency situation (for example, Hurricane Sandy): first comes word of mouth, probably followed by cell phone, then internet and mobile, then radio, and then, if the power is on and the television stations’ antennas and transmission systems haven’t been zapped by power or ice or other maladies, there’s TV. Certainly, TV does a better job with storytelling—the term “team coverage” comes to mind—but communication of details is better handled, in 21st century life, by other media that are less needy in terms of power and complex operation.

Which leaves us…where? It leaves us with FCC auction in which wireless providers will bid, market by market, to provide the FCC with the funds needed to purchase the spectrum and associated licenses to broadcast on that spectrum, by some companies (and nonprofits) that currently hold those licenses. I am reluctant to use the term “sell the license” because the term suggests that the operator owns something other than a right to operate for a period of time, but the vernacular has the FCC “buying,” so I guess stations are, somehow, selling.

Will this matter? It’ll matter if you have a favorite small television station that struggles to pay its bills, or simply wants to move past the 20th century notion of local television broadcasting in favor of a different idea. Some state or local colleges own noncommercial educational licenses, and provide PBS service, for example, and some of these could go away because the colleges may decide to “sell” and put the money to other use (for example, establishing a new distance learning scheme for the 21st century, or building new facilities for other educational activities, or hiring many more professors, or just endowing their future). An owner of commercial stations—perhaps even a group of stations—might sell to raise capital, and then put that capital to work in another part of the media business, or another business altogether. The FCC is positioning the auction as a means to raise capital for these kinds of opportunities.

Will this really happen? And might it happen again, until most or all of the broadcast television stations are gone? Yes, it will really happen, unless the new FCC chief, Tom Wheeler, can either politically maneuver in another direction (always possible), or some other part of the Federal machine shifts into an unexpected direction. If all goes as planned, some local broadcast channels will go dark (especially in the top 20-30 largest markets), and many channels will find new homes, new channel positions on the broadcast spectrum, a change that will probably be invisible to most consumers who (a) watch on cable or satellite anyway, and (b) see their over-the-air channels “masked” with channel numbers that do not represent spectrum position, but instead, reflect convenience and tradition (for example, channel 10 in Philadelphia has always been channel 10 in Philadelphia, but it has been broadcasting on channel 34 for several years). As for future changes, there is nothing in place to support the contention that this will not be the final auction, but anything is possible, and the need for over-the-air broadcast stations in the top 20-30 markets is doing the opposite of growing. (In areas that are poorly served by cable, broadcast remains viable in small regions.)

So that’s the story, for now. The FCC plans to release a plan in May, and that could change half of what I’ve just written.

From the FCC: A Summary of the Spectrum Auction Plan

imagesThe FCC posted a useful (11-page) summary that explains the upcoming television spectrum auction with a reasonable level of detail.

Why is the FCC beginning to shut down large amounts of television spectrum? Here’s why:

“In key areas, the United States leads the world in wireless infrastructure and
innovation. However, our successes in building a first-class wireless industry have also
created our greatest challenges; the skyrocketing usage of our wireless networks is
dramatically increasing demands on both licensed and unlicensed spectrum. The mobile
wireless landscape is undergoing a transformation as mobile broadband networks are
emerging not only as the foundation for communications services in the 21st Century,
but also as the infrastructure supporting economic growth and innovation in such wide-
ranging areas as entertainment, health care, public safety, education, and social service.
Like the railroads in the 19th Century, and the electrical grid in the 20th Century, our
mobile broadband networks are primary economic engines for our country. Spectrum is
a critical building block for these networks.”

Here’s more about the law that sets this process in motion:

“Congress, in passing the Middle Class Tax Relief and Job Creation Act of 2012
(“Spectrum Act”) in early 2012, authorized the FCC to conduct incentive auctions, with
the first auction to be of broadcast television spectrum. Congress further directed that
certain net proceeds from the broadcast incentive auction are to be deposited in the
Public Safety Trust Fund to fund a national first responder network, state and local
public safety grants, and public safety research, and the balance is to be used for deficit reduction.”

And how are they going about it?

Well, that’s the complicated part. The FCC needs to acquire spectrum from current users, and it needs to sell that spectrum to future users. This involves a pair of auctions. The mechanics of these auctions are not simple, and sometimes seem to be counter-intutitive.

As citizens, it’s important that people in the U.S. develop an understanding of what the FCC is doing, why, and what will happen as a result.

For those who do not live in the US, where a combination of local television stations, broadcast television networks, cable television networks, and a wide range of other services are commonplace, this whole adventure may be very difficult to understand, and may not make much sense. For those who wonder why the FCC directed a complete conversion from analog to digital television as a project separate from this latest shift, you should count yourself among the many.

Guest Article: Legal Developments / Over-The-Top TV

Aereo’s marketing materials. The service is now launching in the New York City area.

With Aereo now in launch mode, this unconventional service (based upon thousands of tiny television antenna–each smaller than a dime), the television industry is facing some interesting questions about even its most basic operating assumptions.

As a result of reader interest in the blog post “I Want to Watch TV on My iPad,” here’s a legal view of the Aereo situation.This material is used with permission of the law firm Drinker, Biddle & Reath, and it originally appeared in the firm’s Antenna newsletter as “Legal Developments Affecting Over-the-Top TV.” The article was written by DBR communications attorney Howard Liberman and and his associate, Jennifer T. Criss.

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The past several weeks have seen important developments regarding “over-the-top” television. More and more consumers are moving away from traditional means of watching television and are embracing services that provide access to television programming directly on computers, tablets, and mobile devices. While some services such as Hulu distribute copyrighted content with permission of copyright owners, other over-the-top services are providing access to copyrighted content without obtaining copyright licenses or paying retransmission fees to TV stations.

One such over-the-top service, Aereo, provides the signals of local broadcast stations to subscribers who “rent” one of thousands of miniature antennas located in Aereo’s facility, for a monthly fee. In March, numerous television broadcasters, including ABC, CBS, NBC, Fox, and PBS. brought suit against Aereo for copyright infringement. While local stations would ordinarily be available for free to any household with an antenna, today most consumers receive access to local stations through subscriptions with cable or satellite providers. The broadcast companies argue that Aereo, which is backed by Barry Diller, is infringing copyrighted material by allowing its users to access live broadcasts over the Internet. Aereo asserts that it is simply providing access to programming that consumers are able to receive for free by allowing consumers to rent its miniature antennas either on a recurring or a per-program basis.

On July 11,2012, Judge Alison J. Nathan of the U.S. District Court for the Southern District ofNew York ruled that Aereo can continue providing services to its subscribers while the case moves through the courts. Judge Nathan concluded that Aereo does not retransmit broadcast channels to its customers because the company provides an individual miniature antenna for each customer rather than offering access to a single, large antenna that transmits signals to all Aereo subscribers. The court disagreed with the television broadcasters’ claim that they would be irreparably harmed and lose numerous customers should Aereo continue its activity until a final ruling in the case.

For now, Aereo operates only in New York City. But Aereo is planning to expand into additional U.S. markets. Thus, it is important for all TV broadcasters to be aware of developments in this litigation. In the meantime, the FCC is considering what constitutes a “channel” within its definition of “multichannel video programming distributor” (“MVPD”). The FCC is questioning whether Internet-based services such as Aereo and Hulu should be considered MVPDs if they distribute more than one broadcast or cable television channel. Including these services as MVPDs could mean that television stations could seek retransmission consent payments for the delivery of their signals by these systems.

As the Aereo case and the FCC proceeding move forward, it is clear that consumer access to television is rapidly changing. With companies such as Google, Apple and Sony considering offering video channels directly to subscribers via the Internet and going “over the top” of cable and satellite providers, defining what constitutes a “retransmission” and what service qualifies as an MVPD is critical to shaping the next decade of television viewing. Today’s viewers don’t just want their MTV; they want their MTV available inexpensively, 24-7, and on their computers, tablets and smartphones. These two proceedings – the Aereo litigation and the

FCC’s effort to re-define “MVPD” – will have a major impact on the future of over-the-air broadcast television.

This issue also has the attention of Congress. Hearings have been held in both the House and the Senate in recent weeks, as lobbyists and trade associations are gearing up for the introduction of legislation — perhaps this year – to make substantial revisions in U.S. communications laws for the first time since the passage of the landmark 1996 Act. We will monitor all these proceedings and provide updates in future issues.

A clear explanation of the TV spectrum auction

http://a.tiles.mapbox.com/v3/fcc.Unavail_20111007_2/mm/legend,zoompan,tooltips,zoomwheel,zoombox,attribution,bwdetect,share.html#6/37/-96

Congress has approved a law that Obama will likely sign. That’s the first step in a long, complicated process. A national plan would be a good idea, but this adventure may take shape market-by-market, station-by-station instead.

What does this mean for the American people? Well, it’s probably the beginning of the end of broadcast television. If the FCC and lawmakers work together, they can probably construct a sensible transition to a robust IPTV-based system. Along the way, they must address the significant public interest concern of free access to information. The version of the future in which Comcast, Verizon and (probably) Google control all information is probably not in our best interests, but their investments are probably required to make ubiquitous broadband multimedia a reality. The alternative more closely resembles the information superhighway (remember the term?) version of the interstate highway system. This is not the way most people are thinking, but strong arguments will move in this direction, and soon.

Here’s the article as it appeared on February 17, 2012 in TVNewsCheck (link at end of article). It’s called Incentive Auction Headed for Obama’s Desk, and it was written by Kim McAvoy.

—–

After more than two years of political wrangling, Congress on Friday signed off on legislation authorizing the FCC to conduct an incentive auction of broadcast TV spectrum.

The measure is contained in a major legislative package that would extend payroll tax cuts and unemployment benefits.

Both the House and Senate approved the package, which now goes to President Obama, who is expected to quickly sign it into law.

The legislation permits the FCC to hold auctions and share the proceeds of them with broadcasters that voluntarily relinquish their spectrum.

However, for TV broadcasters who chose not to give up their spectrum, the measure contains safeguards against their suffering any loss of service.

Before the FCC conducts an auction, it has much to do. Implementing the law could take as many as three separate rulemakings. Some believe it could take five to 10 years to get to get to an auction.

A key element of the FCC’s March 2010 National Broadband Plan, the incentive auction is a mechanism by which the FCC hopes to reallocate up to 120 MHz of spectrum from TV to wireless broadband carriers.

The NBP believes the reallocation is necessary to meet what it believes will be a severe shortage of broadband spectrum as more and more Americans use smartphones, tablets and other mobile devices to access the Internet on the go.

The incentive auction language in the spending package is based on legislation authored by House Communications Subcommittee Chairman Greg Walden (R-Ore.) and has the backing of the National Association of Broadcasters.

NAB has been pushing hard for specific safeguards fearing that the FCC’s incentive auctions might damage the broadcasting business.

Among the key provisions is a requirement that the commission make “all reasonable efforts’’ to preserve … the  coverage area and “population served’’ of broadcasters who don’t participate in the incentive auction.

For local TV broadcasters, it is paramount that any legislation guarantee that their service areas will remain unaffected by the channel reassignments or “repacking” that will occur as a result of the auction.

Broadcasters are also pleased that the legislation would set aside $1.75 billion to compensate TV stations (and cable operators) for costs associated with repacking — the wholesale switching of channels that would occur after the FCC identifies the spectrum it will have to auction and consolidates it into large swatches that can be more easily auctioned.

Originally, Walden’s bill allocated $3 billion to a relocation fund, but House Democrats complained about the amount and argued that the fund should be only $1billion as recommended by the Congressional Budget Office.

The legislation also makes it easier for those broadcasters that are thinking about leasing excess spectrum to wireless carriers. According to the legislation, in lieu of reimbursing stations for the costs of repacking, the FCC may grant stations waivers to use some of their spectrum for services other than broadcasting. Such a waiver would remain in effect only while the licensee provides at least one free, over-the-air television program stream.

The measure also prevents the FCC from moving stations from a UHF channel to a VHF channel or from a high VHF channel to a low VHF channel.

And it makes clear that this is a one-time auction with a 10-year sunset on the FCC’s authority to repurpose broadcast spectrum.

Under the legislation, only full-power TV stations and Class A low-power stations can participate in the incentive auction.

It states that the FCC must use a “reverse auction system’’ as a means to establish a price at which TV stations would give up their license and then conduct a “forward auction’’ of the TV spectrum.

Most important, if the proceeds are insufficient to cover the incentive payments and relocation costs, the auction fails. And stations that participate in a channel-sharing arrangement retain must-carry rights.

NAB is also pleased about the provisions directing the FCC to address issues that could affect TV stations with service areas bordering Canada and Mexico before it relocates those broadcasters to another channel.

Those provisions were authored by Reps. John Dingell (D- Mich.) and Brian Bilbray (R- Calif.).

There is also language in the measure that allows an unhappy broadcaster that is being displaced by the incentive auction, or any interested party, with the right to go directly to court.

“The bottom line is, instead of protesting a license modification at the commission first, you could go to court,” says a source familiar with the legislation.

Although broadcasters would get a cut of the incentive auction proceeds, the bill intends for most of the revenue to go to the federal treasury and to help fund a nationwide communications network for first responders.

The CBO is estimating that $15.2 billion will be raised by the incentive auction.

House Republicans wanted to include the auction language in the payroll bill as way to help cover the costs associated with extending those tax breaks.

Overall, the measure was being hailed on and off Capitol Hill.

“We struck a fine balance to make more efficient use of the airwaves while also providing necessary protections for broadcasters,” said a statement released by Chairman Walden and House Commerce Committee Chairman Fred Upton (R-Mich.).

NAB President Gordon Smith said: “NAB salutes the tireless efforts of Congress to ensure that local broadcasters have a vibrant and robust future.’’

Smith applauded the efforts of  Chairmen Upton and Walden “for steering this bill to conclusion, and … Reps. Dingell and Bilbray for a critically important amendment guaranteeing continued viewer access to TV station signals along the Canadian and Mexican borders.’’

Over at the FCC, Chairman Julius Genachowski was also pleased with the news of impending congressional action on the incentive auction proposal. The FCC chairman has been a chief proponent of the incentive auctions, believing that TV spectrum is underutilized and would be put to better use for wireless broadband services.

“I’m pleased that Congress has recognized the vital importance of freeing up more spectrum for mobile broadband, both licensed and unlicensed, although the legislation could limit the FCC’s ability to maximize the amount and benefits of recovered spectrum,” Genachowski said.

The wireless industry, which has been leading the charge on Capitol Hill to get the incentive auction bill passed, called today’s vote “a resounding victory for consumers and the American economy,’’ in a statement from CTIA-The Wireless Association President Steve Largent.

“Making spectrum available will make it possible for America’s wireless carriers to offer consumers better, faster, more ubiquitous wireless broadband service,” Largent added. “The release of additional spectrum also will spur the investment and job creation that our economy needs.”

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