Broadcasters Still Have Many Questions About Channel Sharing, Lake Concedes

"We're just now exploring a whole range of issues about the incentive auction, including how channel sharing can fit into the structure of the auction itself,” Lake said. “We recognize that if broadcasters are going to consider whether channel sharing is for them they need to know as much as they can about what life would be like as a channel sharer.” The FCC’s April 27 order provided some basic principles, Lake noted (CD April 30 p6). Many more questions remain to be asked and issues to be resolved, he said.

The FCC so far has only proposed channel sharing in the context of the incentive auction, Lake said. “We may address down the road whether to adopt rules for channel sharing outside the context of an auction,” he said.

Rebecca Hanson, FCC senior adviser for broadcast spectrum, said it is unclear when the incentive auction will begin. “There is a variety of very complex issues that we still have to resolve,” she said. “We will begin addressing those questions with one or more NPRMs that we're working on now. We anticipate that those NPRMs will be out in the fall.” Hanson said the FCC is not addressing any proposed channel changes other than those from broadcasters seeking to leave Channel 51. “We need to stop the traffic in the band while we assess and plan for this auction and the rebanding that will occur after that,” she said.

"Stations will not be able to fully evaluate their interest in going forward until we know a lot more about what the particulars of the rules are,” said John Hane of Pillsbury Winthrop, one of the four panelists at the workshop. “The devil is in the details and we're a long way from getting to the details at this point.” Some points are obvious, Hane said. “Stations that are likely to consider channel sharing are stations that may not feel like they have or will continue to have a robust and profitable business going forward with a full channel,” he said. “WNBC has probably not created a committee to study whether their channel in New York should be shared. … At the other end of the spectrum are stations that have little or no business plan at all and are looking … exclusively to exit altogether through the spectrum auction.” Most stations fall somewhere in between and may take a closer look, Hane said.

Some stations that offer niche programming, including religious and foreign language broadcasters, may be contemplating sharing channels and selling part of their spectrum if they feel they don’t need to offer the highest resolution full-screen picture and could use a cash infusion, Hane said. “I think those would be good candidates,” he said. What happens during channel repacking is a wild card, Hane said. “No matter what decisions you make about who has got the best broadcast value and which station has the best spectrum value, you have to discount that a little bit because we don’t really know what’s going to happen in repacking,” he said. “If we choose a tower site, we know our tower site and we think we know what our contours are, but we don’t know that the channel is going to remain constant even if it’s in the lower part of the band. It could be moved in repacking.”

"There are a lot of stations where the broadcast value is significantly higher than the spectrum value,” said John Cunney, head of Santander’s telecom media technology practice. “Those guys are not going to be interested in selling their full station. Below that … if you have a station that is not creating a lot of cash flow, it’s sort of a no-brainer from my point of view that if you can participate it makes a lot of sense. That’s what I'm seeing from clients I've talked to.” Some broadcasters who “place a high value on future technologies and the ability to use their spectrum other than primary stream,” probably also won’t sell, Cunney said. In picking a partner for sharing, broadcasters will have to look closely at whether the spectrum offered will be viable in the incentive auction, he said. “A practical matter … is how do you unwind it if [the sale] doesn’t happen,” he said. “I think that’s a practical matter that has to be looked at."

Other factors will also play a role, said Eric DeSilva of Wiley Rein, also on the panel. “You've got to start looking, if you're trying to find an acceptable partner, to find someone who is going to be able to generate efficiencies through shared operations that are going to be meaningful to your business model tomorrow,” DeSilva said. Stations with common programming or common facilities may find sharing easier, he said. “You might also look to … a common philosophy,” he said. “If you've got two stations that are both prioritizing religious education or service to the Hispanic community you might find that shared business philosophy actually facilitates some of the decision making you have to do going forward.”

At this point “for better or worse, the FCC has sort of left how you go about sharing as a wide-open topic,” DeSilva said. “It allows people to structure these relationships any way you want.” The only stricture is there’s no way to unwind the relationship post-auction, he said. The FCC needs to look closely at what happens, for example, if a company decides to sell a station to a third party, he said. “Do you have a separate channel sharing agreement and a separate facilities agreement?” he asked. “They don’t necessarily have to be all bound up in the same arrangement.”

The outlook on whether public broadcasters are likely to participate in sharing remains unclear, said Lonna Thompson, executive vice president of the Association of Public Television Stations. Thompson noted that her group represents 170 licensees operating 350 stations. “They're all locally owned and operated and they all make their own local decisions,” she said. “The structure is very unique and different to each of our stations.” Thompson said her group has spent a lot of time talking to its members about the upcoming incentive auction and many are taking a closer look. “Our stations are and always have been very entrepreneurial, contrary to perhaps what some members of Congress think,” she said. “We don’t just rely on our federal funding.”