A Television Broadcast Station Road Map to the Upcoming Spectrum Auctions

A warning for TV station owners and operators that the notion of doing nothing is not a safe strategy.

It is not too early for TV broadcasters to think strategically about the upcoming spectrum incentive auctions, which are designed to open up TV Channels 31 through 51 for use as broadband spectrum. The FCC has given commercial and noncommercial TV stations on Channels 31 through 51 a variety of options, including the opportunity to voluntarily change to another channel, share a channel with another station, or turn in their over-the-air authorization and operate as a cable/satellite-delivered channel only.    The legislation authorizing the FCC to hold the auctions provides for compensation to stations that turn in their over-the-air channel or for reimbursement of channel relocation costs.  While the prospect of exchanging a television over-the-air authorization for cash may  be attractive for some station owners, prudent owners/operators of TV stations should know all of the facts before agreeing to cease terrestrial broadcasting forever.

Congress, in authorizing spectrum incentive auctions  in the “Middle Class Tax Relief and Job Creation Act of 2012” (“Act”), expect that the auctions will result in an increase of funds in the U.S. Treasury.  The Act calls for two types of auctions: reverse and forward.   In a “reverse” auction, a TV station tells the FCC that it will take an action (turning in the over-the-air authorization, for example) in exchange for compensation deemed acceptable by the licensee.  In a “forward” auction, wireless companies bid on the desired spectrum, assuming that enough TV stations are willing to vacate sufficient spectrum to make it worth their while. The FCC is in the process of deciding whether the auctions will be held at the same time or one before the other.  If they are held sequentially, which one will happen first?   There is nothing in the legislation that requires the auctions to be run sequentially or concurrently.  We expect to have more guidance as to the FCC’s plans for the auctions when it releases a Notice of Proposed Rulemaking which is expected to occur sometime in September or October.

As we see it, the auctions provide four options for stations on Channels 31 to 51:  The first option would be sharing a single RF channel with another station.  The second is to relocate to another channel below Channel 31.  The third is to turning off the over-the-air operation completely and continuing to be carried by the cable/satellite providers.  The fourth option is to make no changes at all (as discussed below, that option may not be available to some stations).

Option One: When two stations share a single 6 MHz TV channel, each  provides a program stream to a single transmitter much like stations do now with two (or more) programs channels.  The difference between the shared-channel scenario and the single station multi-stream approach is that the two program streams will be identified and licensed as two individual television stations. The FCC will require that channel sharing agreements contain a provision requiring each station to retain sufficient spectrum usage rights to allow it to provide at least one standard definition program stream at all times. The channel sharing rules permit two full service commercial or noncommercial educational stations to share a single channel.  Also, two Class A LPTV stations will be allowed to share a channel. LPTV and TV translator stations will not be allowed to participate in channel sharing arrangements.

Oddly, the newly adopted FCC rules (see Section 73.3700(b)(5)) allow  a full service station to share a channel with a Class A LPTV station.  There are several physical and practical complications posed by this channel sharing arrangement. For example, if a Class A LPTV station shares a full service station’s channel, the Class A LPTV station will share the larger coverage footprint of the full service station. The result: stations in the market will have a new full service competitor.  Conversely, if a full service station shares the Class A LPTV station’s channel, the full service station would experience a severe loss of coverage.  It would seem that sharing a channel with a Class A station would not be attractive to an existing full-power station.

Channel sharing would have little appeal to a station that is already committed to the technology for additional program channels or mobile DTV.  The addition of more program streams (and revenue streams) or data channels in half of the 6 MHz channel bit stream may not be possible due to  data throughput limitations of the current digital television transmission system.  Also, finding a channel-sharing partner in a given market may not be easy.  Vetting a compatible channel-sharing partner will entail a good deal of investigation and negotiation.

Channel sharing, however, might be an attractive option for station owners with more than one television station in a market. It might be advantageous or fiscally prudent for the more dominant station to share a single channel by housing the less dominant station as a secondary digital channel.  The prospect of eliminating a second high power UHF transmitter power bill from the bottom line could be enticing.

Option Two: There are a number of important factors that need to be considered in connection with a change in channels.  In the current world of virtual RF channels, channel branding has become a non-issue for digital stations that may have changed channels several times as a result of the DTV transition.  However, it could be very costly for a station to change channels depending on which channel the FCC ultimately determines the station will be using.  We understand that the FCC will be determining which channels stations will be assigned within the new core (Channels 30 and below). However, it’s unknown at this point how much input a station might have as to their new channel or any subsequent change (as they did during the DTV transition).  Congress requires the FCC to make “reasonable efforts” to preserve the coverage of the station as it existed on February 22, 2012 (see Section 6403(b) (2) of the Act). However, given the congested spectrum in the larger television markets, it’s possible that using the FCC’s OET-69 method, a station could be assigned a channel and power level that serves fewer people than it does now.  Currently, there appears to be no recourse for a station that might find itself in this situation.

Significant channel moves, as we learned from the DTV transition, can be costly.   A TV station changing channels will have to pay “up-front” the cost of modification, replacement or relocation of transmitters, antennas, and other systems.  There will be a three year window for reimbursement starting on the completion date of the forward auction, a date that has yet to be determined.  Few details are currently known as to what the FCC will consider as “costs reasonably incurred” for reimbursement (see Section 6403(b)(4)(A) of the Act).  Congress made it clear that any “lost” revenues resulting from the channel change, such as off air time or other such problem, will not be reimbursed.

Option Three: A station could give up its over-the-air RF channel and rely on cable providers and direct-to-home broadcast satellite companies to relay the station’s programming to viewers.  On the plus side, a station that turns in its spectrum would eliminate the cost of operating and maintaining its transmitter site and receive an as yet-to-be-determined one-time payment.  In some markets where cable penetration exceeds 90%, some broadcasters are of the view that it is not a fiscally sound idea to maintain an expensive over-the-air operation for a minority of the audience.  Conversely, the station would immediately be serving a 10% smaller audience.   What impact would that have on advertising rates?  Since cable and satellite “must carry” rights will be maintained regardless of whether a station broadcasts over-the-air, some TV station owners might find this to be an attractive option.

Additionally, when there is a long-term power outage, cable customers rely not only on utility power to their own homes, but also on utility power that feeds the various cable head-ends and line amplifiers along the way to the home. Broadband customers also rely on head-end equipment — a wireless network may not be able to maintain a signal in a long-term power interruption.  A battery-operated TV to pick up over-the-air signals might be the only way for the audience to be able to watch the station.

Option Four: If a station is satisfied with their current channel, can it just stay where it is?  If a station is on a channel below 31, what are the odds that it would have to change channel as part of the repacking?  At this time, no one knows how the FCC’s repacking process will work in any given market.  In order for the FCC to make “reasonable efforts” to maintain a relocated station’s coverage, other existing stations may have to change channel or transmit location.  This will be especially difficult process in many large, closely-spaced markets on the West Coast and in the Northeast, and the Great Lakes regions. Additionally, some UHF TV spectrum in major markets is reserved for public safety radio communications use (fire and police), providing fewer channel options for remaining TV stations.

Whether or not television station owners have any current plans to participate in the upcoming auctions,   it will become very important that they be aware of all of the re-packing activity in their market, and understand not only what options are available to them but also what others are doing that might impact their existing operation.

If a station on a channel between 31 and 51 wants to stay put, and other stations on adjacent channels move, would this station need to relocate to provide a wireless company bidder with contiguous spectrum? As an example, a UHF station on Channel 47 decides not to participate in a proposed reverse auction and an adjacent Channel 46 station decides to participate and wants to relocate and the other station on adjacent Channel 48 agrees to share with another station on Channel 14.    The wireless company bidding on the spectrum may decide that it will only agree to bid on contiguous spectrum spanning channels 46 through 48.  It is possible that the Channel 47 station could be required to move to another channel regardless of the owner’s wishes.

The upcoming spectrum incentive auctions are uncharted waters for the FCC, broadband companies, and TV stations. As a result, there are far more questions than answers about the auction process.   We recommend that station owners begin their own due diligence to keep abreast of the upcoming auction proceedings and decide which options are the most productive and least costly.  As in the analog to digital television transition, changes in regulation provide both opportunity and cause for concern.  Doing nothing and hoping for the best is NOT likely to be the best course of action. The lessons of the DTV transition teach us that prudent owner/operators must stay aware of the changes on “the rules of the road,” maintain contact with their congressional delegations to let them know about concerns, and team with their consulting engineers and legal advisors to monitor and explore threats and opportunities, and form strategies to take advantage of this latest regulatory wrinkle.

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