SpectrumTalk

Putting A Price Tag On TV Spectrum

Guest entry by Tom Hazlett
(Reprinted with permission from TV News Channel)

Hi, broadcasters. I'm an economist. Happy Thanksgiving. Let's talk turkey.

People say you're sitting on some very valuable radio spectrum. Like about $107 billion worth at March 2008 prices. And "sitting" is the inoperative word because the FCC's broadcast TV license has you frozen on those 49 channels.That's the 294 MHz of rich, fertile bandwidth that iPhone users (and the network engineers they bug most) dream about morning, noon and night. You're just running up a wretched electricity bill while the world has moved on. There's no app for that.

Indeed, if you had it to do over again, you wouldn't even use terrestrial broadcast. I know because some of you have done it over with ESPN and CNBC and FX and scores of other cable networks. That Travel Channel deal valued the network at $1 billion.

You folks could have a broadcast travel channel of your own and broadcast it on one of your digital subchannels to all 114 million TV homes. But no one is watching your off-air-only channels. Not even Aunt Minnie in Peoria, the one who was supposed to go bonkers when analog went dark last June.

That's fine. You've still got good shows. I don't need forensic experts from CSI: Hollywood to know that. You're not 100 percent of the TV market, like you were when the FCC stepped in to limit upstart cable TV systems 40 years ago on the grounds that cable would "siphon" viewers, but would never be a real competitor. (Boy, did the Washington bureaucrats blow that one) But you've still got the Super Bowl and Dancing With the Stars, and haul in $40 billion in ads every year — or you did until recently.

You don't need the TV band for that. Others like mobile broadband, smart phones and e-readers and M2M networks do. It's the coming wireless bandwidth tsunami. The carriers are starved for airspace, and you're way long in the stuff. Time for a deal.

You know that. I know that. Even the new crew at the FCC knows that. But they think that you're imbued with the "public interest" and have a spiritual attachment to terrestrial radio transmissions. I follow the money. Your greatest desire as a broadcaster is to secure cable and satellite carriage. That's business, not religion. You bought your stations from a broadcaster who also had a deep, metaphysical investment in the "public interest" and followed that shining light right all the way through escrow.

A fierce commitment to the TV allocation table of 1952 is your opening bid. You won't budge until you know three things. First, how much will you be paid to do your part? Second, how will your life change? And, third, how can you be sure that you won't get whacked by the opportunists in Congress — the ones you've been scaring all these years about any competitive threat to "free, universal, over-the-air TV" — when they catch a clue that you're prepared to sell out?

The first two questions are answered by seeing what the FCC should do. It should split the TV band into seven overlay licenses of 42 MHz each. Then auction all seven.

At the same time, it should provide a mechanism to supply the 10 million households not having a cable or satellite subscription with free broadcast video service for five or 10 years. This can be done by vouchers, as with the DTV set-top box subsidies or via a procurement auction. It won't cost more than $3 billion ($300 times 10 million), a small fraction of the spectrum auction receipts.

The overlay licenses will embed encumbrances — you. Existing stations would have the right to continue broadcasting, to relocate to another channel assignment or to go off off-air. No worries about coverage. The new spectrum owners will pay cable and satellite operators to guarantee carriage. If not, you won't vacate.

So "free" TV service remains, but the delivery platform will be technology-neutral. And you'll be part of the solution, for which you will be compensated. How does something like $30 billion spread across 1,750 full-power TV stations sound to you?

That figure simply derives from the prices paid in last year's 700 MHz auction. At $1.28 per MHz per capita, a station in New York might clear $200 million. A station in Spokane, Wash., about $8 million. Again, these are estimates. Real prices may vary.

That gets us down to your greatest fear: you lose your "public interest" veneer when you start quoting sell prices. So, don't. Just sit there. Let the FCC move forward with a smart plan like this. It's actually in the public interest to unleash new bandwidth for the services consumers most desire. And it makes the U.S. more competitive in the Global Broadband Race.

Here's the blunt end of the stick: Losing your special place is no longer much of a problem. There's just not much left in your business model. What can "public trusteeship" deliver that matches $30 billion? Or a tenth of that?

 

Thomas W. Hazlett is Professor of Law & Economics and serves as Director of the Information Economy Project at George Mason University School of Law.  He is also a Columnist for the New Technology Policy Forum hosted by the Financial Times.  Prof. Hazlett previously held faculty appointments at the University of California at Davis, Columbia University, and the Wharton School, and in 1991-92 served as Chief Economist of the Federal Communications Commission.

Prof. Hazlett has published widely in academic and popular journals on the economics of the Information Sector.  He has provided expert testimony to federal and state courts, regulatory agencies, committees of Congress, foreign governments, and international organizations.  His book, Public Policy Toward Cable Television, was co-authored with Matthew L. Spitzer (MIT Press, 1997).