The Citizens for C-SPAN Companion Networks

Sen. McCain's Plan to Liberate the Broadcast Spectrum
Issue #87
September 30, 2004

by Adam Thierer

Last week, Sen. John McCain (R-AZ) introduced an important new bill dealing with the digital television (DTV) transition and the vexing question of how to get broadcasters to return their old analog spectrum. The bill, S. 2820, proposed a controversial new policy ($1 billion in subsidies for set-top converter boxes to help some households convert to DTV) to correct for a controversial old policy (the misguided giveaway of $10-$100 billion worth of free spectrum to the broadcast industry). The bill also demanded that broadcasters return their old analog spectrum by 2009, two years after the original deadline. While not the optimal policy approach, the new McCain bill offered a quick way out of the DTV industrial policy fiasco and would have helped free up massive amounts of valuable spectrum for other important wireless uses. Unfortunately, however, the Senate Commerce Committee has already voted 13-9 to water-down the McCain bill and let broadcasters hold onto most the spectrum they were suppose to return.

A Misguided Giveaway. By way of background, as part of the Telecommunications Act of 1996, every broadcaster in the U.S. was loaned free of charge a second 6 MHz block of spectrum to help them make the DTV transition. (Every broadcaster already possessed a 6 MHz license which they use to transmit analog broadcast signals to rooftop antennas). What was so scandalous about the award of the second 6 MHz license was that so many other high-tech companies were salivating at the prospect of bidding large sums for that spectrum and putting it to alternative uses. America might already have had a wireless broadband infrastructure if Congress had not given all this beach-front spectrum to the broadcasters for little more than a promise that they would return their old analog spectrum licenses by 2007.

But even the return of that old analog spectrum remains uncertain. A subsequent DTV decision gave broadcasters the right to transmit analog signals on their old 6 MHz license until 2007, or until 85 percent of Americans had made the migration to digital television. Only then would they have to return the old spectrum to the government. Getting to that 85 percent threshold is taking longer than most policy makers expected, with fewer than 10 percent of American homes possessing DTV receiving equipment. Consequently, barring additional government intervention to correct for this previous mistake, it is going to take a lot longer—some experts estimate perhaps until 2020—before the 85 percent threshold is met.

Meanwhile, the opportunity costs associated with this giveaway have grown larger with each passing year. Countless other wireless service providers are being denied the opportunity to use that same spectrum for alternative applications. Consequently, Americans are being denied access to important wireless services of both the commercial and public safety variety. Equally troubling is that fact that in an attempt to keep the DTV transition from derailing entirely, Congress and the FCC keep imposing additional mandates on other industries. For example, in August 2002, the FCC mandated that television set manufacturers include digital tuners in all their new sets by 2006, even though the tuners will add more than $200 to the cost of each new television. Likewise, there's talk of new "digital must-carry" mandates on cable providers. And a new "broadcast flag" regulatory mechanism has been mandated by the FCC in the name of protecting digital TV signals from copyright infringement.

The Necessity of an Escape Plan. With this industrial policy fiasco spiraling out of control, Congress must find a way to get out of this mess. Policymakers need to realize that it is vital they find a way to free up at least some of the valuable spectrum they have given to the broadcasters as quickly as possible. Countless other wireless providers are starving for access to any spectrum they can get, and the broadcast spectrum is a mother lode of beach-front quality spectrum. But getting it back will be tricky since most broadcasters are now making a good faith effort to make the digital transition and many consumers have purchased the hardware (TVs, set-top boxes, antennas) needed to receive DTV. Congress can't just pull the rug out from underneath the transition.

The good news is that there are two very reliable alternative DTV delivery paths available to which both broadcasters and the public can turn: cable and satellite. Almost 90 percent of American homes already subscribe to cable or satellite systems and these providers made a natural digital migration many years ago. Consequently, the DTV signals that traditional broadcasters want to get to the public can be delivered via those cable and satellite systems once retransmission deals are cut voluntarily. Must-carry mandates should not be imposed for this to occur. Cable and satellite operators want that valuable DTV programming that traditional broadcasters offer, so they will find a way to contract for carriage.

But there remains one big problem: What should Congress do about the small percentage of households, many of which are elderly or low-income, that do not have a cable or satellite subscription? Politicians will be extremely sensitive to the needs of this group, which continues to rely on over-the-air broadcast signals and rooftop antennas to receive television signals. And broadcasters will likely employ "leave no TV viewer behind" rhetoric to strike fear in the heart of Congress.

McCain's Practical Solution. Sen. McCain—a long-standing critic of the DTV spectrum giveaway—is eager to reclaim the old spectrum for both commercial and public safety uses, but he understands the political problem of leaving some viewers stranded. Few members of Congress will sign off on any spectrum take-back plan that results in some homes losing their TV signals. To account for this, McCain's bill would provide set-top box (STB) subsidies to low-income households who continue to rely on analog over-the-air signals, allowing them to move over to cable and satellite systems immediately. The price tag for the STB subsidy is steep—$1 billion—but the money would ultimately come from the revenues generated from auctioning the returned spectrum, which will generate tens of billions.

It is regrettable that it has come to this, but the McCain plan may be the only way out of an industrial policy fiasco that has cost America untold billions in terms of lost wireless innovation. Again, Congress' top priority should be liberalization of the broadcast spectrum band to open up a vast new frontier of spectrum for wireless innovation. The only other realistic alternative is simply to let the broadcasters keep both licenses and use them—and more importantly, sell them—for whatever purpose they wish. Such a policy would encourage the broadcasters to eventually release much of their valuable spectrum on the secondary market. But many critics will find this additional giveaway to the broadcasters unconscionable, especially considering the princely sums sale of the spectrum will net. Just surrendering and giving the broadcasters all the spectrum will be viewed by many as an unjust windfall. But giving the broadcasters the equivalent of property rights in both licenses would allow them to realize the opportunity costs of hoarding that spectrum and then move it to its highest and best use.

The McCain bill offered a second-best way out of the DTV mess, but the Senate Commerce Committee's recent vote to force only a few stations to return their old spectrum largely guts McCain's effort. Consequently, the open-ended DTV transition remains intact and countless companies and consumers are again denied access to valuable spectrum needed for other purposes.



Adam Thierer (athierer@cato.org) is the director of telecommunications studies at the Cato Institute in Washington, D.C. To subscribe, or see a list of all previous TechKnowledge articles, visit www.cato.org/tech/tk-index.html.

http://www.benton.org/publibrary/prettypics/working13.html


Pretty Pictures or Pretty Profits:

Issues and Options for the Public Interest and Nonprofit Communities in the Digital Broadcasting Debate

October 1995

Gigi B. Sohn and
Andrew Jay Schwartzman
Media Access Project

Congress and the Federal Communications Commission are currently considering a policy change that will transform broadcast television as we have known it. In the name of moving the U.S. broadcast system toward digital television, television station owners have asked the FCC and Congress to give them vast quantities of additional space on the valuable public airwaves without any significant corresponding financial or public interest contributions made in exchange. The broadcasters' proposal is receiving increased opposition from organizations and individuals on the left, right and center. They argue that broadcasters should compensate the public either with financial remuneration or enhanced public service. This paper examines the various policy options for ensuring that these goals are met.

Introduction


The broadcasting industry is asking Congress and the Federal Communications Commission (FCC) for a huge gift-enormous amounts of additional, valuable, publicly-owned spectrum.(1) And unlike the spectrum allocated to broadcasters under the Communications Act of 1934, this block, they hope, will come with no strings attached: broadcasters are seeking to use the spectrum without offering either enhanced public service or money in return. This "spectrum giveaway" has raised the ire of individuals and organizations of every political stripe. While some may differ as to the type of compensation the public should receive in return for the spectrum, few believe that broadcasters should get this spectrum for free.

In the early 1990s the FCC reserved an extra allotment of public spectrum for the exclusive use of each existing television station owner to convert from "analog" to "digital" television technology. The express purpose of this action was to enable broadcasters to provide High Definition Television (HDTV), which doubles the clarity of today's television picture. The understanding was that once this conversion was made, the broadcasters would return their original channel to the FCC.

As technology changed, however, so did broadcasters' business plans. They determined that it would be far more lucrative to provide non-HDTV pay-TV, paging and data services over the new spectrum. Thus, they are demanding what they euphemistically call "spectrum flexibility," a scheme that permits TV stations to provide one "advanced" television channel to the public, while leaving broadcasters latitude to use the remainder of their transmissions for other program and nonprogram services as they wish. This version of "spectrum flexibility" contemplates that no significant financial or public interest contribution would be expected in exchange.

Pending telecommunications legislation would give the FCC the authority to award the spectrum exclusively to existing television licensees. The Senate version, S. 652, gives the Commission the discretion to award licenses to the extra spectrum to other parties. If the Commission chooses to give the spectrum to existing licensees, however, it would permit them to keep both the old and the new spectrum. The House bill, H.R. 1555, requires the Commission to give the new spectrum to existing broadcasters, but also compels the broadcasters to give back the old spectrum at an undefined point in the future. It also requires that any fees broadcasters pay for the right to deliver nonprogram services be designated for the U.S. Treasury, and not for any public interest purpose.

The telecommunications legislation may well be superseded by Congress' desire to raise revenue. While the recent effort by Senate Commerce Committee Chairman Larry Pressler to auction the spectrum set aside for digital broadcasting as a part of the recent budget reconciliation process has failed, the issue could arise again. If Congress does decide to auction the spectrum, the question then becomes: does the money (approximated by some to be as much as $100 billion) simply go to pay down the national debt? Or should some significant amount be used for the benefit of the public?

In any event, the FCC has commenced a rulemaking proceeding to determine whether, and under what conditions, broadcasters will receive the extra spectrum. The request for comments in the proceeding raises a wide range of questions, including several that address the type of public interest obligations broadcasters must provide in return for use of the spectrum. With the possibility of auctions ever-present, the nonprofit/public interest community must take a three-pronged approach.

First, if auctions are going to occur, nonprofits must first ensure that a portion of the moneys raised go for public purposes other than simply reducing the budget deficit. Some of the money could go to help fund public broadcasting, fund the production of children's programming and/or fund nonprofit access to advanced telecommunications networks.

Second, if Congress does not auction the digital spectrum, then efforts must be made to ensure that the telecommunications legislation gives the FCC the maximum discretion to distribute and place conditions on use of the spectrum. The language in the Senate bill is more flexible--as noted above the House bill mandates grant of the spectrum to existing broadcasters, and also requires that any fees collected for subscription services be placed in the U.S. Treasury.

Third, there are several options for action that the nonprofit community could propose to the FCC. Which options are realistic depends largely on whether legislation is passed and the degree of discretion left to the Commission. They include:

Permit broadcasters to program one or two channels on the new spectrum, and require them to lease the remaining channels to unaffiliated programmers and services. This would provide increased diversity and open the airwaves to new entrants.
Allocate the spectrum to broadcasters in exchange for increased public interest obligations including, but not limited to, free time for candidates, children's programming or a reservation for public access.
Allocate only enough spectrum for broadcasters to provide one advanced (but not HDTV) television service, and reserve the remainder either for auctions or new entrants. This would permit broadcasters to convert to digital broadcasting, as they insist they must to compete, but would not permit them to engage in nonbroadcast or subscription services.
Adopt the FCC's prior decisions in this area, and allocate the spectrum to broadcasters only to provide HDTV. This option gives little back to the public.
Allocate the new spectrum in the same manner that the FCC has allocated all available television spectrum in the past, by comparative hearing. While this option permits new entrants, it is perhaps the most unlikely to be adopted.
Background

Between 1987 and 1992 the FCC held a series of proceedings to determine whether and how broadcasters might convert from today's standard television signals to High Definition Television (HDTV). HDTV provides a television picture that is twice as clear as ordinary analog systems. HDTV picture quality approaches that of 35mm film and its audio quality is equal to that of compact discs. As part of the effort to establish an industry standard for HDTV, digital transmission proved itself superior to the analog approach that was being developed in Japan and by some U.S. research teams.

In 1992, to implement the proposed conversion, the FCC set aside a huge chunk of extra broadcast spectrum (six megahertz, or 6 MHz) for each licensee, enough to carry literally thousands of voice conversations. This allocation would double the amount of spectrum currently allocated to broadcasters. The spectrum was set aside with the understanding that it would be used for the sole purpose of converting to HDTV. The FCC also concluded that broadcasters would have to return their existing channels 15 years after the FCC adopted a standard for HDTV. This time period was chosen to ensure that broadcasters had fully completed their conversion to digital and that members of the public were not left without televisions that could receive the new HDTV service.

Since then, video technologies have progressed quickly, far beyond the expectations of the FCC and most experts. Digital encoding and compression technology now make it possible to transmit many more voice, video and data messages using much less spectrum.(2) Where at one time broadcasters thought they could only provide HDTV over the extra spectrum, it is now possible to do much more. Indeed, broadcasters could split up the digital bit stream into six or seven different "channels," which could be used to provide, among other things, multiple TV channels, as well as nonprogram services like paging and data transmission.

As the technology changed, so did the broadcasters' business plans. Their zeal for HDTV lessened as it became increasingly obvious that consumer interest in HDTV would not reach expected levels, and as the cost of providing HDTV programming became more clearly understood.

Thus, in early 1994 the National Association of Broadcasters (NAB) began to demand what it euphemistically calls "spectrum flexibility." "Spectrum flexibility" would not limit broadcasters to using the extra spectrum solely for HDTV. Under this scheme, broadcasters would provide one "advanced" television service(3) to the public, while using the rest of the transmission space for other program and nonprogram services as they saw fit. The broadcasters promised to return their existing channel once the conversion was completed.

The NAB was successful in including language in the failed telecommunications legislation of the 103rd Congress that would have given them the extra spectrum along with the flexibility to provide nonprogram and subscription services. The broadcasters' effort to have a similar provision included in this Congress' telecommunications bill, as well as its successful effort to convince the FCC to revisit its 1992 decision, has raised the profile of this issue.

Issues Raised

To determine how best to achieve its goals in this matter, the nonprofit community should look at the possibility of auctions, the telecommunications bill and the FCC proceeding both separately and as a whole. To make a determination as to what the best options are, it must assess, among other things, what can realistically be expected from Congress and the Commission. At the very least, the following issues should be considered:

Should the broadcasters simply be given this extra spectrum for free? Should they be given all 6 MHz, or just enough to provide some advanced television, if not HDTV? Should somebody else get it, or at least get to use some of it?
If it is determined that broadcasters should pay something for the spectrum, should they have to bid for it through an auction? Should they have the exclusive right to pay the so-called "market value" of the spectrum? Or should they simply be required to pay fees if they provide subscription services?
What are satisfactory terms for an auction? Should the money go only to pay down the national debt? Should a portion of the money go to provide a trust fund for public broadcasting and/or other public uses related to telecommunications, such as funding school and library access to advanced telecommunications networks?
If the broadcasters do get exclusive rights to the spectrum, whether or not they pay for it, should there be some quid pro quo, such as free time for candidates, a quantifiable amount of educational and informational children's programming, or reservation of capacity for nonprofit or public access?
Should subscription program services provided over the extra (and existing) spectrum be free from public interest obligations such as equal time, lowest unit rate, children's educational and informational programming and any enhanced obligations the Commission may see fit to impose?
Once broadcasters have made the conversion to digital, should they be required to return their original channel as the FCC originally prescribed? When should the spectrum be returned? And what should be done with it?
Congress and Spectrum Auctions

Not surprisingly, several members of Congress have looked to the spectrum set aside for digital broadcasting(4) as a possible source of funding. Depending on who is asked, and their political objectives, the spectrum has been valued at between $11 billion and 100 billion. In the recent budget reconciliation process, Senate Commerce Committee Chairman Larry Pressler (R-SD) proposed auctioning the digital spectrum and reserving receipts in excess of the $14 billion required by the Republican leadership to meet budget targets for a trust fund for public broadcasting.(5) The creation of the trust fund would have been part of a larger package that seeks to "privatize" public broadcasting.(6) However, opposition by the broadcasters, aided by House Telecommunications Committee Chairman Jack Fields (R-TX), has quelled the auction option, at least for the current reconciliation process. However, Congress could raise the issue again at any time.

Pending Telecommunications Legislation

Both the House and the Senate have passed legislation that substantially revises the Communications Act of 1934. As discussed below, each bill has language that authorizes the FCC to give digital spectrum to existing broadcasters. The most significant difference between the two bills is that the House Bill mandates the Commission to do so, while the Senate bill gives the Commission broad discretion in granting the spectrum.

The two bills will now be sent to a conference consisting of members of both houses. As of early October 1995, the conference had not yet begun, and there is a possibility that it will be put off until after the budget reconciliation process is complete. This could push the conference well into January or February 1996. President Clinton has threatened to veto the bill, but whether that threat becomes reality depends largely on what is contained in the final bill.

Senate Legislation

On June 15, 1995, the Senate passed S. 652, the "Telecommunications Competition and Deregulation Act of 1995," by an 81-18 vote. Section 206 is the spectrum flexibility provision of the bill.

Section 206 (a)(1) gives the Federal Communications Commission discretion as to whether it should give the new spectrum to existing broadcast licensees. If it does so, however, it is required to adopt regulations that allow licensees to make use of the new spectrum for the transmission of "ancillary and supplementary services" (i.e., nonprogram services) if the licensee provides at least one free advanced television program service. Importantly, Section 206 commands the Commission that it "shall apply similar rules to use of existing television spectrum." This implies that the broadcasters would not have to give up their existing channel, as was originally contemplated by the FCC. In other words, this Section permits a broadcaster to keep both its original and its new spectrum, permits it to provide digital service on both the old and the new spectrum, and requires only that it provide one free program service on each.

Section 206(a)(2) states that if a broadcaster charges a subscription fee for any of its services over existing or extra spectrum, the Commission may collect a fee from the broadcaster. The section instructs the Commission to set these fees by taking into account the portion of the spectrum which is used for such services and the amount of time such services are provided. In any event, the fee amount cannot exceed the amount paid by bidders in the recent auctions for cellular telephone-like personal communications services (PCS) licenses.(7) Nothing in the section provides for the disbursement of these fees.

Finally, Section 206(a)(3) requires that new and existing spectrum be operated in the "public interest, convenience and necessity." The section imposes the public interest standard on all program services (on the existing and new spectrum). This means that any program service, whether or not it is a subscription service, is subject to public interest obligations. These obligations include, but are not limited to, equal time, lowest unit rate, children's television and community programming obligations.(8) The section states further that the Commission may consider, at license renewal time, any violation of the Commission rules "applicable to ancillary or supplementary services." This could be read to mean that any violation of the Commission's broadcasting rules, or any violation of a law of the United States, would be irrelevant to obtaining or keeping a license.(9)

House Legislation

By a 305-117 vote, the House of Representatives passed H.R. 1555, the "Communications Act of 1995" on August 4, 1995. Section 301 is the spectrum flexibility provision of the bill.(10)

Section 301 compels the FCC to give the extra spectrum to incumbent broadcasters if the agency issues licenses for advanced television services. While it does require broadcasters to provide a certain minimum amount of free television service, it gives the Commission broad discretion to set such requirements, and provides that "ancillary and supplementary services" must be limited so as to "avoid derogation of any advanced television services" the Commission might prescribe. It also permits the Commission discretion to "prescribe such other regulations as may be necessary for the protection of the public interest, convenience and necessity."

Unlike the Senate legislation, H.R. 1555 requires broadcasters to surrender one of the two licenses in the future. The Commission is tasked with determining the surrender date on a market-to-market basis, and must consider whether 1) "the substantial majority of the public" have television sets that are capable of receiving digital transmissions, and 2) whether the cessation of analog broadcasting would "render the television receivers of a substantial potion of the public useless or otherwise cause undue burdens on the owners of such television receivers...."

H.R. 1555 sets fees for subscription services in the same manner as S. 652. However, the House bill requires that these fees be deposited in the U.S. Treasury after the costs to the FCC of implementing these policies have been recovered.

The Federal Communications Commission

On July 28, 1995, the Federal Communications Commission commenced the first of three proceedings to determine under what terms television broadcasters will receive this extra spectrum. While the Commission asks whether new entrants should be eligible for the spectrum, it takes great pains to state, on several occasions, that it is inclined to limit eligibility to existing broadcasters.

The Commission asks a broad range of questions in this proceeding, including whether broadcasters should be permitted to engage primarily in subscription services, including paging, data transmission and pay television services, and how to meet the needs of small and noncommercial television stations, which may have trouble affording the conversion to digital.

Most significant for the public, however, are the questions the Commission asks about the type of public interest obligations broadcasters should provide in return for use of the new spectrum. Should broadcasters be required only to adhere to the obligations to which they are now subject, such as providing access to political candidates and providing programming that meets the educational and informational needs of children? Or should there be enhanced, or different public interest obligations in a digital era? Might this include some form of public access to the airwaves, time set aside for free political speech, or programming specifically aimed at traditionally underserved populations? If a broadcaster provides multiple program services, should public interest obligations attach to each one? What about subscription services?

Moreover, the FCC addresses the critical issue of how to ensure that significant segments of the population are not deprived of television service. Today's television sets cannot receive digital television-either a converter box or a new set is needed. Therefore, at the same time that broadcasters are converting their transmissions to digital, they must continue, as in the past, to provide analog broadcasts on their old spectrum. While there is general agreement among the Commissioners and others (including much of the public interest community) that broadcasters should return their old spectrum at some point after they have converted, it is essential to ensure that broadcasters continue to broadcast in analog until such time as all segments of the population can afford to receive digital broadcasts.

The comments in this proceeding are due November 15, 1995, and reply comments are due January 12, 1996. A decision is not expected until mid-1996 at the earliest. It is unclear how the Commission will rule on the public interest obligations questions, but it will almost certainly be a contentious issue among the Commissioners.

Options

Few, save the broadcasters themselves, would argue that they should get the extra spectrum for absolutely no financial or public interest consideration. There are opportunities here to increase diversity in the marketplace of ideas, increase public discourse, preserve public broadcasting and finance educational, informational and children's programming. These opportunities should not be squandered.

There are a number of alternative options, not all of which are mutually exclusive. The options depend, of course, on whether Congress chooses to auction the spectrum, whether telecommunications legislation passes and what the language of the legislation dictates. For ease in examining the options, we have organized them according to the three broad areas discussed above: spectrum auctions, pending telecommunications legislation and the FCC proceeding. The options within each section are not listed in any particular order.

Spectrum Auctions

Given the fluidity of Congress' processes, it is entirely possible that auctioning the digital spectrum will be considered again. There are basically two options for action if auctions are proposed: the nonprofit community can either support an auction so long as there is guaranteed funding for public uses, or it can oppose auctions completely.

Option 1: Auction Digital Spectrum with Guaranteed Funding for Public Telecommunications Uses

Although auctioning of broadcast spectrum has traditionally been opposed by the public interest community for the reasons discussed below, an auction does have the potential to provide certain public benefits. Indeed, with broadcasters poised to offer nothing more in the way of public interest obligations after they convert to digital, such an option becomes even more attractive.

If auctions are to be supported, however, it must be made clear that the proceeds of the auction must not be used solely to decrease the national debt. Instead, any auction should include a guaranteed sum of money to be set aside for public uses related to telecommunications. Thus, it is not enough for there to be a promise of money only if there is something left over after Congress' fiscal goals have been satisfied. Examples of the types of public uses that might be funded are public broadcasting, school, library and/or nonprofit access to advanced telecommunications networks(11) and children's educational and informational programming.

Option 2: Oppose Auctions

Even with a public interest set-aside, auctions have their risks. First and foremost, there are many in Congress who want to apply this money to pay down the national debt. While this might help lower the deficit, selling the spectrum to the broadcasters would put at risk the public's right to demand that broadcasters provide service to their communities. Second, to the extent that public broadcasting would be an intended recipient of this money, there are those in Congress who do not want to give any money to public broadcasting under any circumstances. Another factor is the FCC, which might want the money for itself.

The biggest downside of an auction mechanism is that it could undermine the public trustee concept of broadcasting, and place the spectrum in the hands of the wealthiest. Under Senator Pressler's proposal, for example, the digital spectrum need not even be used for broadcasting. While broadcasters would presumably still have the use of the analog spectrum and be subject to its attendant public interest duties, it would be unlikely that Congress or the FCC would require any new duties if broadcasters get nothing more than they already have.

Opposing auctions, especially publicly, also has its risks. The biggest risk is that if the public interest community opposes auctions, the broadcasters, who fear and despise auctions, will have no incentive to offer any proposal for digital television that might include enhanced public interest obligations.

Pending Telecommunications Legislation

Should the digital spectrum not be auctioned, the next step is to ensure that the pending telecommunications legislation does not require the FCC to give spectrum to existing broadcasters, that it requires that broadcasters return the analog spectrum after conversion, and that, in the absence of legislation imposing specific public interest obligations for the grant of the spectrum (highly unlikely in this Congress), it gives the FCC discretion to impose such obligations.

Option 1: Advocate Retention of the Senate Language in Conference

As discussed above, the spectrum flexibility language in the Senate Bill gives the FCC a choice as to whether to grant the extra spectrum to broadcasters or to new entrants. The House bill, on the other hand, requires the Commission to give the spectrum to broadcasters. The Senate language has two advantages-it leaves open the possibility for new entrants (although the Commission is still likely to give the spectrum to the broadcasters), but more important, it gives the Commission, and the public, a bargaining chip with which it might get some enhanced public interest obligations from broadcasters. Moreover, the Senate language requires that all program services, whether subscription or not, be subject to public interest obligations.

Thus, when conferees for the telecommunications bill are chosen, the nonprofit community could urge them to retain the Senate language in the final bill.

Option 2: Advocate Removal of All Language Pertaining to Spectrum Flexibility

Advocating elimination of the spectrum flexibility provisions in both Houses essentially would leave all decisions up to the FCC. This option has its risks, because at the current time it is unknown whether a majority of the Commissioners will vote to require more of the broadcasters than they already do. Also, it would leave subscription services free of public interest obligations.

Of course, for many in the nonprofit/public interest community, eliminating this language would have the added benefit of possibly turning the broadcasters against the telecommunications legislation. The nonprofit/public interest community largely opposes the legislation because it, among other things, deregulates cable rates, permits unprecedented media combinations and allows local telephone companies to provide long-distance service with few safeguards.

But there is no guarantee that the broadcasters will oppose the legislation if the spectrum flexibility provisions are removed. Removing the language simply means that the broadcasters will now take their fight to the FCC, where they have been virtually promised the spectrum, and where they have been extremely successful in the past.

Federal Communications Commission

The FCC proceeding encompasses a wide range of issues. One of the most important, which will not be discussed in great detail here, is the question of whether and when the broadcasters would have to give back the analog spectrum were they to receive the digital spectrum. With respect to "whether" there is little to discuss. In the current political and fiscal environment, it is inconceivable that Congress or the Commission will permit the broadcasters to keep the analog spectrum--in perpetuity. Nevertheless, whether broadcasters will willingly return half the spectrum they have been using for the preceding 10 to 15 years whenever the transition period is declared over has been the subject of some speculation. Ensuring that they return their additional licenses was part of the rationale behind the idea of auctioning spectrum "futures" described above at footnote 5.

The options listed below, then, concentrate solely on the possible "public interest" uses that might attach to the grant of the spectrum.

The "when" part of this question is more difficult. A careful balance must be struck between quick conversion to digital (and hence quick return of the analog spectrum) and ensuring that no significant portion of the population is left without television service. Either a converter box or a new receiver will be required to receive the digital transmission. There are those who believe that broadcasters, out of necessity, will ensure that as many people as possible have access to digital. But there are others who see possibilities for an increase in the gulf between information rich and poor.

Whether broadcasters will willingly return half the spectrum they have been using for the past 10 to 15 years whenever the transition period is declared over has been the subject of some speculation. Ensuring that they return their additional licenses was part of the rationale behind the idea of auctioning spectrum "futures" described above.

The options listed below, then, concentrate solely on the possible "public interest" uses that might attach to the grant of the spectrum.

Option 1: "Condominium"

As mentioned previously, digital compression technology permits a broadcaster to split up a stream of bits into five, six or more "channels." It is not necessary, however, for a broadcaster to use every one of those channels.

Under this option, a broadcaster would be given new spectrum to convert to digital. Once the conversion is completed, however, the broadcaster would be able to program one or two of the channels, at least one of which would be devoted to free program service. The broadcaster would then lease the remaining channels to other unaffiliated program and service providers. This is similar to the "leased access" concept of cable television, providing access to new and diverse sources of programming.

The difficulty in this option lies in the details. Who would be eligible for carriage? Would carriage on a digital channel count for purposes of the multiple ownership rules? Would there be preferential rates for nonprofits and other noncommercial information providers?

Option 2: Allocate Spectrum in Exchange for Enhanced Public Interest Obligations

This option would give broadcasters new spectrum, but would impose, as a quid pro quo, special public interest obligations. For example, broadcasters could be required, on their free channel, to give one hour of time every day for the sixty days prior to a federal election for use by candidates. The Commission could set quantitative guidelines for news, public affairs and/or children's programming, or it could reserve an entire channel for the provision of that programming. Another possibility might be a reservation of capacity for low-cost public/nonprofit use, similar to access channels provided by cable operators. The Commission could require one, two, all, or more of these obligations if it saw fit.

Option 3: Allocate Only Enough Spectrum to Provide One Advanced Television Channel

According to engineers at the FCC, it is not necessary for a broadcaster to have 6 MHz of spectrum to convert to digital television. If a broadcaster wants to provide one advanced television service, it needs only about 2-3 MHz of spectrum. At the present time, however, broadcasters could not provide HDTV with this amount of spectrum.

Under this option, the Commission could give broadcasters half (or less) of the 6 MHz that was originally set aside for conversion to digital broadcasting. This would permit broadcasters to convert to digital television, which they have argued is essential to their survival. However, they would not get the added benefit of being able to engage in subscription services.

This option could free up spectrum either for an auction (from which the public could still receive funds for the public benefits described above) or for use by new entrants, which would provide much-needed diversity.

Moreover, a grant of even 2-3 MHz of spectrum would still provide a basis for the Commission to impose new public interest obligations. The options for public service would be more limited than those described above, since broadcasters would have less capacity. Thus, an entire program service dedicated to public use or children's television would not be possible. But enhanced children's television obligations and free political programming would be.

While HDTV would not be possible under this option at the present time,(12) there is little evidence that the public needs or wants it. Moreover, with digital technology advancing rapidly, it is entirely conceivable that it may soon be possible to provide HDTV on less spectrum.

Option 4: Follow the FCC's Earlier Course and Limit Use of the Spectrum at Issue Here to the Provision of HDTV

One option is for the FCC to adopt its prior decisions giving broadcasters new spectrum, but only for the purpose of providing HDTV. These decisions also mandate that the broadcasters give back the existing spectrum within 15 years. This option is being promoted by the creators of the current HDTV standard, as well as by the Association for Maximum Service Television, a trade association for large broadcasters.

This option gives little back to the public, and ignores the fact that even if broadcasters were required to provide HDTV, there will still be room on the spectrum to provide other services. This in turn raises the question of whether broadcasters should only get as much spectrum as they need to provide digital HDTV, or whether, if they do get the full 6 MHz, others should be entitled to use the extra capacity.

Option 5: Allocate Spectrum to Others via Comparative Hearing

Perhaps the least likely option is for the Commission to decide to allocate the new spectrum to parties other than existing broadcast licensees much as they would any other broadcast license, that is, by comparative hearing. This option would, like the "condominium" option, promote diversity, provided that the multiple ownership rules remain at least partially intact. However, a federal appeals court ruling (Bechtel v. FCC, 10 F.3d 875 (D.C. Cir. 1994)) calls into question the validity of the entire comparative hearing process, making it highly unlikely that the Commission will want to increase the number of such hearings.(13)

Some would argue that the Commission is bound to this option by the Supreme Court's decision in Ashbacker Radio Corp. v. FCC, 326 U.S. 327 (1945). Ashbacker held that the Communications Act requires the Commission to hold a comparative hearing for new broadcast licenses if there are two or more applicants for that license. However, the Commission, in its request for comments in the digital television proceeding, determined that the right to a comparative hearing under Ashbacker did not apply where, as here, the FCC was not seeking applicants for the spectrum. Moreover, legislation mandating the Commission to give the new spectrum to the broadcasters would effectively overrule Ashbacker.

Conclusion

Broadcasters are attempting to obtain vast additional amounts of a scarce, extremely valuable public resource in exchange for providing absolutely nothing. Congress and/or the FCC have a choice-they can either give this new spectrum away, or they can make sure the public gets a dividend of service and resources. The allocation of this spectrum could lead to increased diversity, true public access and increased funding for noncommercial public interest programming. Those who still care deeply about these goals now have a critical opportunity to realize them.

Notes

1. As a unanimous Supreme Court said in Red Lion Broadcasting v. FCC, 395 U.S. 367 (1969), "[l]icenses to broadcast do not confer ownership of designated frequencies, but only the temporary privilege of using them . . . But the people as a whole retain their interest in free speech by radio and their collective right to have the medium function consistently with the ends and purposes of the First Amendment. It is the right of the viewers and listeners, and not the right of the broadcasters, which is paramount."

2. Digital encoding converts voice, video and data into ones and zeros, commonly known as "bits." The bits are delivered, in a stream, to a converter box inside the television. The converter box sorts out the bits and presents them as pictures to the viewer. Digital compression is the technology employed to increase the quantity of television signals that can be provided. The 6 MHz of spectrum can carry 20 million bits per second of any kind of voice, video and data. In comparison, a digital signal with the quality of today's analog television signal requires just 4 million bits per second. HDTV requires between 6-18 million bits, depending on how much action is in the picture.

3. Advanced television service is commonly recognized as one that provides a clearer television picture than the current analog system, but not as clear as HDTV. It is increasingly referred to as Standard Definition Television or SDTV.

4. Although the spectrum itself is not digital, for purposes of discussion, this paper will refer to the second block of spectrum as "digital spectrum."

5. Others, including Senator Joseph Lieberman (D-CT) have proposed auctioning off the "analog" spectrum. His idea is to auction the spectrum now for use after the broadcasters vacate it in 10 to 15 years. Investors would pay the perceived present value of the spectrum and receive "futures," with ownership commencing after conversion.

6. The package would permit, among other things, a public broadcasting station to "swap" its more valuable VHF allocation (with its stronger and clearer signal), for a commercial broadcaster's UHF allocation (along with a large sum of money), and would permit so-called "enhanced underwriting," i.e., stations would be able to air commercials between programs.

7. Some have argued that this fee is equivalent to an auction of the spectrum, because it permits the amount of fees to be, at a maximum, the equivalent of what was paid for spectrum that will be used to provide PCS services. However, under Section 207(a)(2), the FCC must apportion the fees according to the amount of spectrum and amount of time that is devoted only to subscription services. Therefore, the less time and space a broadcaster provides for subscription services, the lower the fees. Moreover, setting the fee limit at the auction value for nonbroadcast spectrum automatically undervalues the broadcast spectrum. It is commonly understood that broadcast spectrum, which heretofore has been exempt from auctions, is far more valuable than nonbroadcast spectrum.

8. The language in the Senate bill that was introduced on March 21, 1995, did not contain this language. This change is critical, because the new language effectively overrules a mid-1980s FCC decision, affirmed by a Federal appeals court, holding that subscription broadcast services are not subject to the public interest obligations outlined above. Subscription Video, 2 FCC Rcd 1001 (1987) aff'd sub nom. NABB v. FCC, 849 F.2d 665 (D.C. Cir. 1988). For example, officials at the Rupert Murdoch-owned Fox television network have proposed providing a subscription-based, all news channel on the extra spectrum. Under the language in the original Senate bill, this station could promote candidates for public office without having any corresponding duty to give access or the lowest rate to opposing candidates. Another possibility could be a continuous infomercial channel, featuring products intended primarily for children. The scheme contemplated by the broadcasters would have no limits on commercialization, program length commercials or "host selling."

9. For example, FCC rules that require broadcast licensees to be of good character would not be relevant under this section.

10. The spectrum flexibility provision was designated Section 301 in the Congressional Record dated August 4, 1995. However, the Congressional Record did not contain an engrossed version of the bill, nor does one currently exist. It is possible then, that this provision will have a different Section number when the bill is engrossed.

11. Indeed, Title VI of S. 652 creates a "National Education Technology Funding Corporation" that would, among other things, "create, maintain, utilize and upgrade interactive high capacity networks capable of providing audio, visual and data communications for elementary schools, secondary schools and public libraries...."

12. The HDTV standard currently being developed by the "Grand Alliance," the consortium of manufacturers, broadcasters, engineers and policymakers, will not operate with less than 6 MHz.

13. The FCC has a pending rulemaking proceeding to determine which of its comparative hearing criteria are still valid in the wake of Bechtel. There is a high likelihood that whatever criteria the Commission retains in that docket will be subject to a judicial challenge.

About the Authors and Media Access Project

Andrew Jay Schwartzman has served as MAP's Executive Director since 1978.

Gigi Sohn, MAP's Deputy Director, joined the organization in 1988.

Media Access Project is a 21-year-old nonprofit tax-exempt public interest telecommunications law firm that promotes the public's First Amendment right to hear and be heard via the electronic media of today and tomorrow. It is the only Washington-based organization devoted to representing listeners' and speakers' interests on electronic media and telecommunications issues before the FCC, other policymaking bodies and the courts. MAP's staff attorneys provide informal guidance and representation to scores of local activist groups annually. They appear frequently at academic, legislative and professional meetings to ensure that the needs of the audience are not forgotten as policies are established for the next generation.

Additional resources

Alliance for Community Media
Barry Forbes, Executive Director
Jeff Hops, Director of Government Relations
666 11th Street, NW, Suite 806
Washington, DC 20001
202-393-2650
http://thesphere.com/ACTV/acm.html

American Enterprise Institute
Professor Thomas Hazlett, Visiting Scholar
Director, Program on Telecommunications Policy
University of California--Davis
1150 17th St., NW
Washington, DC 20036
202-862-5800

The Campaign for Broadcast Competition is an ad hoc organization of groups opposed to the giveaway of the public airwaves to the wealthy broadcasters. Members of CBC include the Small Business Survival Committee, and Americans for Tax Reform. These groups are fighting against the sweetheart deal the broadcasters have with Congress to double their share of the public airwaves for free.

Center for Media Education
Jeff Chester, Executive Director
Kathryn Montgomery, President
1511 K Street, NW
Washington, DC 20005
202-628-2620

Children Now
Victoria Rideout
Director, Children & the Media Program
1212 Broadway, Ste 530
Oakland, CA 94612
510-763-2444
http://www.dnia.com/~children

Children's Television Workshop
Gary Knell, Vice-president
1 Lincoln Plaza
New York, NY 10023
212-595-3456

Federal Communications Commission
1919 M Street, NW
Washington, DC 20544
202-418-2042
http://fcc.gov

Independent Sector
David Arons, Legislative Assistant
1828 L Street, NW
Washington, DC 20036
202-223-8100

Media Access Project
Gigi Sohn, Deputy Director
2000 M St., NW
Washington, DC 20036
202-232-4300

National Association of Broadcasters
1771 N Street, NW
Washington, DC 20036
202-429-5382
http://www.nab.org

National PTA
Arnold Fege, Director of Government Relations
2000 L Street, NW, Suite 600
Washington, DC 20036
202-331-1380

National Telecommunications and Information Administration (NTIA)
14th Street and Constitution Avenue, NW
Washington, DC 20230
202-482-1880
http://www.ntia.doc.gov

Edited, designed, and produced by Communications Development Incorporated of Washington, DC.
The Benton Foundation is working to involve nonprofits in shaping the National Information Infrastructure. Benton has created the Communications Policy Project to strengthen public interest advocacy in communications policy and to involve nonprofits in shaping the National Information Infrastructure. The Project promotes public interest values and noncommercial services for the National Information Infrastructure through research, policy analysis, print, video, and online publishing, and outreach to nonprofits and foundations. The Project has four interrelated goals:


To build a new constituency among nonprofit groups to participate in policy advocacy initiatives.
To advance analysis of selected policy issues to help nonprofits see their stake in the policy debate and to equip them with leading-edge research and policy options in support of public interest values.
To provide concrete illustrations of the social benefits these new technologies can deliver.
To encourage demonstrations of nonprofit uses of new technologies that will help create an expanded vision of the new electronic environment.
The Benton Foundation's Communications Policy Bulletins summarize key policy issues on one sheet. The Communications Policy Briefings present these issues in greater detail in short booklets. The Communications Policy Working Papers present larger bodies of policy work often summarized in Bulletins and providing detail for Briefings.

For more information about the Communications Policy Project, contact:

Benton Foundation

Telephone (202) 638-5770
Fax (202) 638-5771
Email: benton@benton.org
http://www.benton.org

Larry Kirkman, Executive Director
Karen Menichelli, Associate Director
Andrew Blau, Director, Communications Policy Project

Copyright © Benton Foundation 1995

This document may be reproduced without prior permission provided credit is given and a copy of the reprint is sent to the foundation. The document may not be resold without prior permission. The foundation invites adaptation of this document and can make the text available in electronic format.

This is one in our series of working papers, designed to bring new ideas in telecommunications policy to a wider audience. The views expressed in the paper are the authors' and may not necessarily reflect the views of the Benton Foundation or its staff.





© Benton Foundation
Washington DC USA
ph:202-638-5770 fax:202-638-5771
email: benton@benton.org
WWW: www.benton.org


Last updated: 5 December 1996 mkh