Broadcast Incentive Auction Update: Rules of the Road Coming Soon

By Michele Farquhar, Praveen Goyal, and Deborah BrodersonThe FCC is expected to vote on rules governing the broadcast incentive auction during its May 15 open meeting.  Although the Report and Order outlining the rules is still being circulated internally among FCC leadership and has not been released to the public, the FCC has not been shy about telegraphing the direction the final rules might take, including broadcaster-related provisions.

According to FCC officials who have seen the incentive auction item, the Report and Order will cover the final band plan, the auction process, the mechanism for handling the post-auction transition, and various regulatory issues that will arise after the transition is completed.  As was widely anticipated, the band plan will likely feature paired uplink and downlink spectrum, with a guard band between wireless licensees and broadcasters. 

FCC Chairman Wheeler has consistently championed the importance of increasing the amount of spectrum available for unlicensed services such as Wi-Fi.  While no official statement has been made, reports suggest that channel 37, which is currently allocated for radio astronomy and medical telemetry, would be made available for unlicensed use subject to protections for existing users (such as geolocation databases and exclusion zones).  Guard and duplex bands are also likely to be designated white spaces, although the final number of such bands will be unknown until the broadcast auction is completed.   

Scrutiny of these incentive auction issues will remain high until the auction, and Chairman Tom Wheeler published a blog on April 18th reassuring readers that the Commission understands the importance of the auction and is committed to “getting it right.”  In particular, Chairman Wheeler noted that the auction rules needed to balance the economic needs of wireless providers with those of broadcasters. 

One area that has been the focus of keen interest by broadcasters is the risk of increased interference after the close of the auction.  In what is likely to continue to be a controversial decision, the Commission has indicated plans to use the TVStudy methodology to calculate interference protections for repacking broadcast stations.  The NAB has strongly opposed the substitution of the TVStudy methodology for predicting coverage and interference for the Commission’s established OET-69 methodology, and has suggested that this shift could constitute a violation of the Spectrum Act, as well as the Administrative Procedure Act.

Chairman Wheeler has stressed the benefits of incentive auction participation to broadcasters, noting the potential of channel-sharing technologies which “offer broadcasters a once-in-a-lifetime opportunity for an infusion of cash to expand their business model and explore new innovations,” while continuing to serve their customers.  In particular, Chairman Wheeler has touted a recent proof-of-concept channel sharing pilot project, which found that two non-affiliated broadcasters could successfully share a single 6 MHz channel. 

Although the Commission continues to emphasize that broadcaster participation in the auction will be “purely voluntary,” and that electing to surrender spectrum does not necessarily entail leaving the television business, some broadcasters have expressed skepticism about their freedom to elect not to participate in the auction.  Recently, several broadcasters anonymously filed their concerns about FCC proposals for targeted outreach to individual broadcast stations, suggesting that it “potentially crosses the line” of “introducing an element of compulsion” into the broadcast auction process.

Unsurprisingly, the issue of broadcaster compensation has also proven highly controversial.  Senior FCC officials speaking on background have suggested that the auction will include “high first offers for broadcast spectrum."  The Spectrum Act directs the FCC to raise sufficient revenues to cover broadcasters’ bids to give up their spectrum, plus a $1.75 billion broadcaster relocation and repacking fund.  Several broadcasters recently filed comments regarding the conclusions of the Widelity Report, which the FCC commissioned to serve as a catalog of potential expenses and estimated costs for repacking.  Most commenters, including NAB, supported the concept of the Report as non-exhaustive guidance, but were concerned that the FCC might use it to set a ceiling for potential broadcaster compensation. 

Specifically, NAB argued that “broadcaster costs reasonably related to the channel reassignment process cannot be generalized, standardized, or predicted” before the actual auction commences, and that “limit[ing] or restrict[ing] reimbursement” would defy the Spectrum Act, which requires reimbursement of all costs reasonably incurred by broadcast licensees in connection with the channel reassignment process.  NAB has also noted that the large number of variables inherent in the auction, including uncertainty regarding what infrastructure and service investments will be eligible for compensation, will prevent broadcasters from engaging in significant pre-planning.  Ultimately the NAB warns the FCC that its current plan could cause it to exceed the three-year statutory deadline for reimbursing broadcasters.

According to one published report, the draft Report and Order would adopt a plan for broadcasters who remain on-air after the auction to transition to their new channels within 39 months after the initiation of the repacking process.  Several tower companies have expressed their concern that a short repacking deadline could increase safety risks as limited numbers of work crews rush to complete projects under tight deadlines.  In contrast, broadcasters who successfully bid to give up their spectrum or to share channels would reportedly have three months from the receipt of auction proceeds to cease operations on their pre-auction channels. 

In addition to covering broadcaster expenses, one of the primary goals of the incentive auction is to raise revenue for the U.S. Treasury.  For instance, the auction is considered one of the primary ways the FCC will raise the additional $5 billion needed for the Congressionally established FirstNet to launch a nationwide interoperable public safety network.  But some question the auction’s ability ultimately to generate the desired revenues.  For example, AT&T recently generated headlines when it threatened to boycott the auction, in response to anticipated limits on the amount of spectrum it could bid on as a provider holding 1/3 or more of the available low-band spectrum in a market.  While AT&T has subsequently affirmed its desire to participate in the auction, if AT&T (or Verizon for that matter) were to make good on such a threat, auction revenues could be less than anticipated.

AT&T’s concerns that the FCC will adopt a spectrum aggregation limit are not unfounded.  In his April 18th blog post (published after AT&T’s letter to the FCC), Chairman Wheeler observed that as a result of legacy spectrum assignments “two national carriers control the vast majority” of the low-band spectrum that will be available at the auction, which he suggested might deny rural consumers competition and choice in wireless services.  In a more recent blog post, the Chairman noted plans to institute a “market based reserve” for the auction, with all bidders competing against each other for all blocks of spectrum until a trigger point is reached, at which point dominant wireless providers would be constrained from bidding on a small number of reserved spectrum blocks not to exceed 30 MHz.  More details are anticipated during the FCC’s May 15 open meeting, when the Commission is expected to adopt the new broadcast incentive auction rules as well as spectrum aggregation limits.  

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