FCC Push to Insulate Broadcasters from Market Forces Could Undermine Incentive Auction, Public Knowledge Official Says

The FCC could encourage broadcasters to sell their spectrum if it clamped down on retransmission consent and otherwise made broadcasting less profitable, said Public Knowledge Vice President John Bergmayer Tuesday at a Law Seminars International conference in Washington. Bergmayer said that in some ways different parts of the FCC are at odds, with parts of the Media Bureau seeking to strengthen broadcasters while the commission hopes the incentive auction of broadcast TV spectrum will be a big success.

Also on the spectrum panel were Verizon Vice President Charla Rath, AT&T Assistant Vice President Jeanine Poltronieri and T-Mobile Senior Counsel Chris Wieczorek. Those companies have been working with NAB and broadcasters on rules for an incentive auction. “Are we going to see Verizon, T-Mobile or AT&T weigh in on a la carte or distant signal importation as a way to encourage broadcaster exit from the 600 MHz band?” asked moderator Trey Hanbury of Hogan Lovells of the carrier executives. “I think I know the answer to this but I feel compelled to ask.” The three carrier officials declined to answer. Bergmayer said he has worked with AT&T and Verizon as both companies entered the multichannel video programming distributor market. “The question’s on whether the two sides kind of have an ‘aha’ moment or not,” he said.

Wieczorek said some issues have emerged that could have an effect on the auction, including the fight between Aereo and broadcasters over whether the online TV service can rebroadcast TV signals without violating the Copyright Act. “Who would have thought a year ago or so that more people are watching Aereo in New York City than are probably watching broadcast television,” he said. “It’s a very interesting play. … You've heard broadcasters who have said we're going to go off the air if Aereo doesn’t go off the air. Could you imagine what kind of broadcaster participation you're going to have [in the auction] if suddenly several of the networks decided to leave?"

An NAB spokesman disputed Bergmayer’s arguments. “Mr. Bergmayer’s claim that broadcast TV viewership is declining is simply false,” said the spokesman. “Last year, because of cord-cutting and the lingering recession, the number of Americans that became exclusively reliant on over-the-air TV soared by nearly 6 million viewers to 59.7 million people, according to GfK Research.” SNL Kagan found “that for every dollar that local TV stations receive in retransmission consent fees, cable systems are paying less-watched cable networks ten times that amount in carriage fees,” he said. TV stations “deliver ratings that vastly dwarf the ratings of cable networks,” said the spokesman. “Our stations deserve to be fairly compensated for that programming, the proceeds of which are then re-invested in local stations to deliver news, entertainment and emergency weather warnings that are the hallmark of local broadcasting.”

The carrier officials said they all hoped for an auction next year. The FCC appears to be acting as “quickly as possible,” Rath said. “I think it’s possible it could happen in 2014. … We're sort of working with the commission on their timeline. What else can you say about that?"

The three major carriers signaled they would likely oppose a move by small carriers, led by the Competitive Carriers Association, to divide any of the spectrum sold into the auction into small cellular market area (CMA) licenses, rather than the expected economic area (EA) licenses (CD June 20 p1). “I really would worry about CMAs because they're very small,” Rath said. “There are 734 of them. It will undermine the structure of the auction. One of the reasons you want to have EAs across the board is you want to be able to bid on all of the licenses, it’s generic licenses, and there’s a lot that’s hanging on that.” The FCC would have to “undo the auction design that they've had” to set aside some spectrum for CMAs, she said. “Whether they'll do that or not … there could be enough political pressure. But I don’t think it would be a good thing.”

The panelists also continued the debate from Tuesday’s House hearing on the fight between T-Mobile and AT&T and Verizon on spectrum aggregation limits for the auction. (See related story in this issue.) Rath said the wireless industry must take advantage of offloading onto Wi-Fi, small cells and all other possibilities for making the best use possible of available spectrum. There’s no “silver bullet,” she said. “We need to be talking to the federal government, which we do on a regular basis, we need to be doing incentive auctions, we need to be cleaning up the underbrush."

The carriers agreed about the importance of carriers filling in their networks through purchases on the secondary market. “We look at practically everything that comes up,” Poltronieri said. “We're always looking at whatever is available in the secondary market, and I think the secondary market has been a big success.” “I totally agree that the secondary market for CMRS spectrum has been wildly successful,” Rath said. Wieczorek noted that T-Mobile’s options for filling in its network are limited to a few bands, AWS and PCS. There are few sales any more of cellular spectrum, the original band set aside for cellphone use, he noted.

Rath countered that there were a lot of deals for cellular spectrum in the 1990s and early 2000s. “I can just show you a picture of our footprint when I started versus what it looks like now,” she said. “Believe me, there were a lot of cellular transactions.” And “they all kind of [went] to two companies,” Wieczorek parried. “We went out and bought them,” Rath answered. “You didn’t.”