TV broadcasters prepare for spectrum battle

A fight is brewing in Washington, D.C., and this one's not the much-publicized battle over health care reform.

No, the brawl that is just getting started is much quieter and could drag on for years. In one corner of the ring is the Federal Communications Commission, which wants to reclaim wireless spectrum for new broadband services. In the other corner are TV broadcasters, which sit on the spectrum the FCC wants to take back.

The FCC's new National Broadband Plan, officially introduced this week, proposes that government shrink the overall spectrum that is allocated to TV broadcasters in the U.S. by about 40 percent. The plan (PDF) calls for the FCC to reclaim about 120MHz of spectrum from broadcasters in the next five years that would be used by cell phone operators and other wireless entrepreneurs to deliver new broadband services. Today, about 300MHz of spectrum has been set aside for free over-the-air TV broadcast.

For people who watch broadcast TV, reclaiming this spectrum could mean a loss of some channels. For everyone, it could mean more wireless capacity and fewer dropped calls on smartphones like the iPhone. And it could encourage the development of new wireless broadband competitors.

The FCC believes the choice is clear. Only about 10 percent of the U.S. population still watches free TV using an antenna. And it believes it can reclaim a significant amount of spectrum without affecting over-the-air TV viewing in much of the country. In fact, last month FCC Chairman Julius Genachowski noted in a speech that only about 36MHz of spectrum is typically used for broadcasting in TV markets with less than 1 million viewers. Even in the largest TV markets, only about half of the spectrum is used, he said.

It should come as little surprise that TV broadcasters are not happy about the FCC's proposal. Lobbyists are already working Capitol Hill to rally political opposition, and the industry has likely begun assembling an army of lawyers to take the fight to the courts.

House Communications Subcommittee Chairman Rick Boucher (D-Va.) and former Energy and Commerce Chairman John Dingell (D-Mich.) have already said they oppose any mandatory move of broadcasters off their spectrum.

"The FCC is staking out a really aggressive stance on spectrum," said John Hane, a lawyer with Pillsbury Winthrop Shaw Pittman, a Washington, D.C.-based law firm that has represented broadcasters. "They're essentially shrinking the broadcasters' coverage by 40 percent. And if there isn't a lot of political opposition to do this now, just wait. They'll rally it."

Hane said a lengthy political and legal battle will likely prevent the FCC from achieving its stated goal of auctioning this new spectrum in 2012 or 2013.

"This fight will go on for a long time," he said. "I don't see any way they can stick to this schedule."

The plan
Last February, Congress asked the FCC to pull together a comprehensive blueprint that would provide every American access to fast and affordable broadband. It's clear when reading the text of the 360-page report that the FCC views wireless broadband as an important vehicle for achieving the overall goals of the plan.

Not only will new 4G wireless technologies, such as WiMax and LTE, provide services to a slew of new mobile devices, but it will also become an alternative for some consumers to wired cable and phone broadband services. In order to ensure that the wireless market continues to grow and evolve, the FCC says more spectrum is needed. Currently, there's only about 50MHz of additional spectrum in the pipeline for use. The FCC says this is not enough to keep up with demand.

The National Broadband Plan calls for 500MHz of wireless spectrum to be made available for wireless broadband services by 2020. The plan outlines suggestions for freeing 300 MHz of that spectrum within five years. The plan suggests getting some of this spectrum from government agencies that are not using allocated spectrum. It also recommends finalizing rules for spectrum already allocated so that it can be used for broadband. But the bulk of the spectrum, roughly 120MHz to be exact, is recommended to come from TV broadcasters.

This is where the battle begins. Broadcasters are not happy about the plan, pointing out that they have already given up 100MHz of spectrum to cellular carriers when they shifted from analog broadcast to digital last year.

The FCC anticipated this resistance. And the plan recommends that Congress grant the FCC authority to establish "incentive auctions" that would allow current spectrum license holders, such as broadcasters, to share in the profits of an auction with the government. This could be a very good deal for some TV broadcasters, which unlike wireless operators, never paid license fees for their broadcast spectrum.

The FCC's most recent auction of the 700MHz band of spectrum freed by the digital TV transition generated nearly $20 billion in proceeds, resulting in an average spectrum valuation of about $1.28 per megahertz pop. The market value of similar spectrum used for over the air TV is valued about 11 to 15 cents per megahertz pop, according to the National Broadband Plan. FCC Chairman Genachowski said in a speech last month that he thinks the government could generate as much as $50 billion from the auction of unused wireless spectrum.

Given the fact that 90 percent of Americans watch TV via a paid cable or satellite TV service, the FCC argues that it doesn't make sense to let this spectrum go unused, especially when demand for 3G and 4G wireless services is exploding.

An offer they can't refuse
The FCC says its incentive program can actually provide a win-win situation for broadcasters and the broadband community. And it anticipates that the incentive program will allow it to get most if not all of the 120MHz spectrum from broadcasters voluntarily.

But some experts say the FCC is simply trying to strong-arm broadcasters.

"I think the voluntary part is a good marketing claim," Hane said. "If I am a broadcaster, I'd see this as a coercive plan that may include a voluntary escape hatch. But in general, I don't see how it can be good for broadcasters."

If the FCC is unable to get enough spectrum through incentive auctions, the report recommends the agency consider a series of rule-making proceedings to force broadcasters off that spectrum. These rules would include changing the broadcasting technical architecture, initiating an overlay license auction, or implementing more extensive channel sharing.

Naturally, broadcasters take issue with these suggestions.

"We were pleased by initial indications from FCC members that any spectrum reallocation would be voluntary, and were therefore prepared to move forward in a constructive fashion on that basis," Dennis Wharton, executive vice president of the National Association of Broadcasters said in a statement. "However, we are concerned by reports today that suggest many aspects of the plan may in fact not be as voluntary as originally promised. Moreover, as the nation's only communications service that is free, local and ubiquitous, we would oppose any attempt to impose onerous new spectrum fees on broadcasters."

Forcing new transmission architectures on broadcasters will be expensive. And the cost to upgrade will fall on broadcasters not the government. Hane said some broadcasters, particularly small broadcasters that are underperforming, may be enticed by the incentive auctions. But many larger and stronger broadcasters will not have an economic incentive to give up spectrum or to share channels with other broadcasters.

"The only broadcasters this plan makes sense for are the ones that are underperforming in big markets where the value of the spectrum exceeds the value of the business," he said. "For everyone else, it means technical changes and a lot of involuntary transition and legal expenses."