FCC clears way for spectrum-for-cash swap
Sudden riches for
14 public TV stations?
Part 3 of a series, published in Current, Nov. 19, 2001
By Dan Odenwald
Suppose the FCC wants to make a deal. Without penalty, the commission tells TV broadcasters, you can delay the 2003 deadline for launching your digital signal until 2005 or later. And you can eliminate the costs of running both analog and digital transmitters during the transition.
The catch? Return your second channel, which you got for free in the first place, earlier than you thought. The incentive? A payoff worth millions or even hundreds of millions of dollars.
That's the offer now confronting 14 public TV licensees (and about 130 commercial stations) that are assigned to the remote and little-used 700 MHz band of spectrum, Channels 59-69 (see box at right).
The details--laid out in a Sept. 17 ruling by the FCC--are complex and confusing, leaving several general managers wondering whether they're truly facing the biggest windfall of their careers.
The situation: The FCC is under congressional order to speed up the DTV rollout so that it can auction off spectrum to (a) fatten the federal treasury and (b) expand cell phone service. The surplus spectrum to be auctioned is Channels 60 to 69, and the FCC is also clearing Channel 59 as an interference buffer. Since Sept. 11, the government has needed money from those auctions more than ever.
But there's a problem. The spectrum to be auctioned is currently held by broadcasters, who don't have to get off it until December 2006--or later, when 85 percent of homes can receive digital signals. That could be a long time, the FCC says, and no one wants to bid on spectrum that's uninhabitable for many years.
Enter Bud Paxson. The head of Paxson Communications, which alone controls 18 of the channels, went to the FCC with a solution. Auction off the spectrum, Paxson says, and let the winners pay broadcasters to leave before they're required to. The FCC agreed.
In June, the commission will auction off the 700 MHz band, including about 145 analog and digital assigned channels, most represented by the Paxson-led Spectrum Clearing Alliance.
The auction's winners will then pay the alliance a lump sum for the additional benefit of getting the channels early. The sum will be divided among the stations according to a population-based formula.
The broadcasters will have forfeited their chance to make the gradual transition from analog to digital. They'll have a choice: Begin digital broadcasting right away on their remaining channels. Or operate those channels in analog until December 2005 or until 70 percent of viewers can receive digital signals, then pull a "hot switch," converting overnight.
Joining the alliance is voluntary, says John Feore, an attorney for Paxson. The alliance doesn't expect full participation and doesn't need it. If 80 percent of the licensees cooperate, the deal can go forward. The alliance already has 60 percent.
Few people involved in this spectrum-for-cash swap are willing to say how much money the government and broadcasters stand to make. Feore says it's impossible to say. With the economy tanking, cell phone companies and wireless Internet providers won't have unlimited sums to buy spectrum.
But critics claim broadcasters are keeping quiet because they're afraid of backlash from reaping untold billions. Michael Calabrese of the New America Foundation, a Washington think tank, says the auction could yield between $20 billion and $30 billion, based on a similar auction held a year ago. By conservative estimates, he says, broadcasters could pocket an additional $10 billion. Paxson could earn $1 billion of that.
By the same arithmetic, public TV--with 15 channel assignments in the 700 MHz band--could make nearly as much. Compare that to public TV's total request for federal DTV aid--$700 million.
The sum is staggering but also a complete fantasy, says Marilyn Lawrence, g.m. of KCSM (Channel 60) in San Mateo, Calif. Financial analysts who examined her station's situation predicted that she'll see no more than $8 million from any Spectrum Clearance Alliance payoff. The value of spectrum is falling, and the current recession will keep it down, they say.
But there's no denying that $8 million could go a long way for an overlap station in the fiercely competitive San Francisco market, she says. "I cannot afford not to consider it," Lawrence says.
Rob Shuman, president of Maryland PTV, operates two transmitters on the 59-69 band, one in Baltimore and one in the largely rural Frederick area. He's also questioning the Paxson idea, especially the 70 percent penetration threshold for the hot switch. What will happen to the other 30 percent of households? he asks. Will those viewers be left without public TV?
The potential revenue for MPT, according to Shuman's estimates, could run into the tens of millions of dollars--money that could be used for the state net's $40 million-plus DTV transition. The deal could work, he says, if he were able to promise universal service throughout the transition. Possibilities include working with other broadcasters to reach over-the-air viewers or working with cable operators on a comprehensive carriage deal for which MPT would pay. It's an offer he can't ignore, he says.
Most of the stations affected by the proposal--ranging from the relatively prosperous WNET in New York City to ultra-poor KMBH in Harlingen, Texas--are seriously considering the deal. Ken Creech, g.m. of WTBU in Indianapolis, predicts a Paxson deal could yield his station hundreds of thousands of dollars, if not more.
Jerry Franklin of Connecticut PTV thinks he can arrange a payoff without loss of service. In heavily cabled Connecticut, the state network may not need four digital transmitters to guarantee universal coverage. Barring any last-minute surprises, CPTV is waiting to sign on the dotted line, he says.
But even if things go according to Paxson's wildest dreams, the good fortune of 14 public TV stations may not be so great for the larger system. Early buyouts could slow the digital transition, cut off service to viewers and threaten the DTV funding case on Capitol Hill, according to some public TV execs. It's not clear how Congress would respond to these developments or a huge financial windfall for a small minority of public stations.
None of the stations is ignoring these concerns, says Bill Marrazzo, president of WHYY in Philadelphia, which operates repeater WDPB (Channel 64) in Seaford, Del. While his digital plan does not prevent him from turning spectrum into money, he says there are "a thousand details to be worked out."
"It would have to be a huge number--a breathtaking number--to motivate us to turn our back on a material percentage of our marketplace," Marrazzo says. Even then, he says, WHYY would find a way to cover them.
James Baum, chief of WLVT in Allentown, Pa., must decide between a payoff and turning off his digital signal. His digital channel (62) went on a year ago and serves more than 300 schools with instructional programs delivered via DTV.
If local cable operators would agree to take over that service, he says, a Paxson deal could make sense for him--even if it means turning off WLVT's high-definition programming for a few years. But Baum worries about public TV lobbyists' efforts on the Hill. "We would never do something that would enrich us at the expense of the system," he says.
The clearance plan, meanwhile, has aroused opposition on Capitol Hill. Fritz Hollings (D-S.C.), chairman of the Senate Commerce Committee, calls it "outrageous." The Paxson plan allows the broadcast and wireless industries to usurp the powers of the FCC by controlling spectrum auctions, he says.
Billy Tauzin (R-La.), chairman of the House Commerce Committee, says the plan will delay the digital conversion by allowing analog stations to remain on the air, stifling demand for DTV equipment.
Leading broadcasting trade associations argue the FCC's ruling doesn't protect against interference. Stations that give up their analog channels in 59-69, opting instead to broadcast in analog on their digital assignments within the core (Channels 2-51), may interfere with analog stations already there, they say.
But FCC Chairman Michael Powell defends the clearing arrangement as crucial to the success of the spectrum auction next June, which has already been postponed five times. It will generate much-needed revenue for the U.S. treasury, he says, and guarantee the rollout of new wireless services that will double the spectrum reserved for public safety.
Band of gold?
Public TV licensees have nine channels for analog broadcasting and six for digital located in the 59-69 band that the FCC wants to clear for auction.
KMBH Harlingen, Texas 60
KCSM San Mateo, Calif. 60
WFPT Frederick, Md. 62
-- Owned by Maryland PTV
WDPB Seaford, Del. 64
-- Owned by WHYY, Philadelphia
WEDY New Haven, Conn. 65
-- Owned by Connecticut PTV
WMPB Baltimore, Md. 67
-- Owned by Maryland PTV
WBCC Cocoa, Fla. 68
WKMJ Louisville, Ky. 68
-- Owned by Kentucky ETV
WTBU Indianapolis, Ind. 69
WNET Newark, N.J. (N.Y. City) 61
WLVT Allentown, Pa. 62
WDIQ Dozier, Ala. 59
-- Owned by Alabama PTV
WUNC Chapel Hill, N.C. 59
-- Owned by UNC-TV
KCET Los Angeles, Calif. 59
KCSM San Mateo, Calif. 59
Sources: APTS, PBS
To Current's home page Related stories: Current Briefing on DTV and public television. Outside links: FCC press release on reallocation of Channels 60-69 in 1998; FCC order and release on voluntary clearing of band, Sept. 17, 2001
Web page posted Dec. 5, 2001
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