Sen. McCain’s Plan to Liberate the Broadcast Spectrum

by on September 22, 2004

Senator John McCain (R-AZ) has introduced an important new bill dealing with the digital television (DTV) transition and the vexing question of how to get the broadcasters to return their old analog spectrum. A hearing on the bill is scheduled for today.

The bill proposes 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). While not the optimal policy approach, the new McCain bill offers a quick way out of the DTV industrial policy fiasco and will help free up massive amounts of valuable spectrum for other important wireless uses.

A Scandalous 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 transition to digital transmission technologies. (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 was given 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 less 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. Policy makers 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 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) 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 nagging issue in this debate commonly referred to as the “little old lady problem.” That is, what should Congress do about the small percentage of homes that do not have a cable or satellite subscription, many of which are elderly people? Whether or not it makes any sense, politicians will be extremely sensitive to the needs of this vocal minority which continues to rely on over-the-air broadcast signals and rooftop antennas to receive television signals. No doubt broadcasters will exploit this fact to strike fear in the hearts of Congress using “leave no TV viewer behind” rhetoric.

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 that the “little old lady” issue creates. Few members of Congress will sign off on any spectrum take-back plan that results in even one little old lady losing her TV signals. To account for this, McCain’s bill would provide set-top box (STB) subsidies to the small percentage of 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 in government revenues.

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. 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 too much to stomach, especially considering the princely sums sale of the spectrum will net. Again, broadcasters received the spectrum free of charge when others were prepared to expend considerable sums for it. Just surrendering and giving the broadcasters all the spectrum will be viewed by many as an unjust windfall at the expense of the public and competing spectrum users. 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.

To summarize, Congress’ top priority should be liberalization of the broadcast spectrum band to open up a vast new frontier of spectrum for wireless innovation. Since full-fledged property rights for broadcasters will likely be rejected as a solution, the McCain bill could break the political logjam and provide a way out of the DTV industrial policy mess by jumpstarting the liberalization process.

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