What’s At Stake For Broadcasters And Viewers In FCC’s TV Spectrum Auctions?

EXCLUSIVE: This is a big day for TV broadcasters, but it’s not due to anything you’ll see on the screen. Today’s the long-awaited deadline for them to tell the FCC whether they’re willing to relinquish airwave spectrum so it can be auctioned for wireless broadband — most likely to telcos led by AT&T, Verizon and T-Mobile.

FCC Chairman Tom Wheeler says the process will “align the use of the public airwaves to meet America’s 21st century spectrum needs. If broadband Internet service is an engine for economic growth, then mobile broadband has been its booster rocket, creating a platform for innovation, competition and new markets.”

The auctions (yes, there’ll be more than one) will have far-reaching effects on the television business. But the process could also be long, and complicated. Here’s what’s happening, and how the initiative could affect viewers and broadcasters.

Q: What’s happening today? 
A: TV stations must tell the FCC what they’re prepared to do in the auction process. Although it’s not set in stone, they can indicate that they’re willing to give up the 6 MHz they’ve been allocated, share a 6 MHz block with another broadcaster, move to a different 6 MHz block, or not participate at all.

Q: Why is the agency doing this?
A: The FCC’s National Broadband Plan in 2010 called for a reallocation of spectrum to meet the booming demand for wireless Internet services. Regulators said the nation needed to add 300 MHz of spectrum for commercial use in five years, and 500 MHZ in 10 years, to avoid a perfect storm of dropped calls, dead zones, slow speeds, and high prices. It saw about 120 MHz coming from broadcast TV. In 2012 Congress authorized an auction to help achieve that goal.

Q: How much are buyers expected to spend in an auction?
A: Some analysts project around $30 billion. A lot depends on how much inventory the FCC has to sell, and whether the bidders include companies other than the telcos.

Q: Who else might want to bid?
A: Other possibilities include Comcast or other cable operators, Dish Network, and tech companies such as Amazon and Google. Private equity investors also could enter the fray.

Q: Why would TV station owners give up airwave spectrum?
A: Money. Stations will share in the proceeds of the auction. Some — especially small ones not affiliated with a major network — could see a windfall. “The potential value received could be many times their value as a going concern as a TV broadcaster,” says Dan Hays, a Principal at PwC.

Q: How much could they make?
A: Hard to say, and amounts will vary by market size. But J.P. Morgan’s Alexia Quadrani estimated last month that under the right circumstances Fox could find ways to realize as much as $1.3 billion, CBS $1.2 billion, Comcast (which owns NBCUniversal) $1.2 billion, and Sinclair $730 million without undermining their core businesses.

Q: Don’t stations need spectrum to broadcast their signals to people with antennas?
A: The vast majority of viewers subscribe to cable or satellite. And with today’s digital compression technology, stations can broadcast an HD channel in about half of the 6 MHz they’re allocated, which means that two could share.

Q: How many stations will cash out?
A: As many as 600 stations, about 25% of the total, are likely to make that decision, Hays says. But many of them will still broadcast their programming by sharing spectrum with another station.

Q: What kinds of stations are most likely to go?
A: Independent outlets that primarily syndicate reruns, or offer religious or ethnic programming, may use the auction to exit the business. Many markets also have multiple public broadcasting stations that could consolidate. Owners of duopolies — with more than one station in a market — also might scale back.

Q: How will the auctions work?
A: It’s mind-numbingly complicated, but it basically consists of two stages. Today begins the process for broadcasters to join in a multi-round “reverse auction” that will determine the amount they would accept to give up spectrum. In effect, the FCC will try to determine how much it will cost to buy them. That should begin in early May and run to mid June.

Q: What’s the second stage?
A: Once the FCC knows what it has to offer in different markets, it will hold a more conventional “forward auction” to see how much wireless providers are willing to pay. That’s expected to last to September, but could go longer if the offers aren’t high enough to compensate the stations and cover the FCC’s costs. Licenses are expected to be issued, and payments will be due, around March 2017.

Q: What happens to the profit if buyers are willing to pay more than sellers say they’d accept?
A: The government keeps the excess, after accounting for cost for the FCC to run the auction and reallocate — the popular term is “repack” — the spectrum.

Q: Repack spectrum? What’s that about? 
A: The FCC will have to move services on hundreds of channels to avoid interference, and use the airwaves efficiently.

Q: What will the TV dial look like after repacking?
A: There’ll be fewer TV channels. Broadcasters currently use channels 2-to-51 after giving up 52-to-69 in 2009. Now the FCC wants to clear 27-to-51 and, where possible, move UHF stations to the VHF band. So some will have to be repacked even if they don’t participate in the auction. In markets with lots of stations it might result in some holding spectrum in the wireless band.

Q: Does that mean viewers will have to get used to lots of new channel numbers?
A: Probably not. Those who don’t use a cable or satellite service likely will have to rescan their sets so they know where to pick up, say, Channel 5.

Q: How do broadcasters feel about this?
A: Many are apprehensive. “This is going make the analog-to-digital transition look like a walk in the park,” says National Association of Broadcasters EVP Dennis Wharton.

Q: What’s their concern?
A: Stations may be overwhelmed by the changes they’ll have to make. For example, after the repacking lots of stations may have to buy new transmitters or adjust the ones they have to accommodate their new frequencies.

Q: How long will it be, then, before the process is complete and wireless broadband providers have their new spectrum?
A: Figure more than three years. The FCC sees the repacking and technical adjustments taking 39 months. Many surviving stations, including those sharing spectrum, will have to adapt to new coverage areas. That means viewers also will need an education about where to find the programs they want.

This article was printed from https://deadline.com/2016/03/fcc-begins-broadcast-tv-spectrum-auction-1201727834/