Articles Posted in Congress & Legislation

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The August 20, 2013 Federal Register (“FedReg”) included a notice officially establishing the comment and reply cycle associated with the Federal Communications Commission’s (“FCC” or “Commission”) recently released Modernizing the E-Rate Program for Schools and Libraries Notice of Proposed Rulemaking (“NPRM”).1 According to the FedReg notice, comments are due September 16, 2013 and reply comments are due October 16, 2013. This is the Commission’s latest effort to modernize and streamline the E-Rate program.

The catalyst for this ambitious initiative is President Obama’s ConnectED initiative (the “Initiative”)2, which establishes that within five years 99 percent of U.S. students will have access to broadband and high-speed Internet access (at least 100 MBPS with a goal of 1 GPS within five years) within their schools and libraries. The Initiative includes: 1) providing the training and support for teachers needed for the effective use of technology in the classroom and 2) encouraging the development and deployment of complimentary devices and software to enhance learning experiences and 3) resurrecting the U.S. as a world leader in educational achievement.

The E-rate program was created in 1997 to “ensur[e] that schools and libraries ha[d] the connectivity necessary to enable students and library patrons to participate in the digital world.”3 According to the NPRM, the program commenced when “only 14 percent of the classrooms had access to the Internet, and most schools with Internet access (74 percent) used dial-up Internet access.”4 Seven years later, “nearly all schools had access to the Internet, and 94 percent of all instructional classrooms had Internet access.” A year later, “nearly all public libraries were connected to the Internet….”5
The E-rate program requires recipients to file annual funding requests. Those funding requests are categorized as either Priority One or Priority Two. Priority One funds may be applied to support telecommunications services, telecommunications and Internet access services, including but not limited to, digital transmission services, e-mail services, fiber and dark fiber, interconnected VoIP, paging, telephone service, voice mail service and wireless Internet access. Priority Two funds are allocated for support of internal connections, including, but not limited to, cabling/connectors, circuit cards and components, data distribution, data protection, interfaces, gateways and antennas, servers and software. The funds are calculated as discounts for acquiring, constructing and maintaining the services. Discount eligibility, which ranges between 20-90 percent, is established by the recipient’s status within the National School and Lunch Program (“NSLP”) or an “alternative mechanism”.6 The NPRM indicated that, “the most disadvantaged schools and libraries, where at least 75 percent of students are eligible for free or reduced price school lunch, receive a 90 percent discount on eligible services, and thus pay only 10 percent of the cost of those services.”7
The advent of high-capacity broadband has transformed Internet access into a portal by which students can experience interactive and collaborative learning experiences regardless of their geographic (rural or urban) location while preparing them to “compete in the global economy.”8 As with most improvements, this transformation is encumbered in the ways and means for acquiring, constructing and maintaining such technology. The E-rate program, including its administration and funding provisions, has remained relatively unchanged since 1997. The initial, and still current, cap on funding was $2.25 billion dollars. The FCC has indicated that requests for funding have exceeded that cap almost from the beginning. In 2013, requests for E-rate funding totaled more than $4.9 billion dollars.

Article continues — the full article can be found at FCC Commences E-Rate Program Overhaul.

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Recently, TVNewsCheck.com ran a short item noting that a large broadcast group (not a network owned and operated group) and a large multichannel video distributor (MVPD) successfully concluded carriage negotiations. There was no interruption of service. Given the successful outcome, I was surprised to see that someone posted a comment regarding the piece saying the deal illustrates why the FCC should tighten its broadcast ownership rules. No matter how many times I read comments of this sort, I am perplexed that people actually believe it’s a good thing for the government to mandate that broadcasters be the underdogs in all major negotiations that impact the quality and availability of broadcasters’ programming. If anything, government policy should encourage broadcasters to grow to a scale that is meaningful in today’s complex television marketplace. Not one of the other major distributors makes its programming available for free.

If independent (non-O&O) broadcasters aren’t permitted to achieve a scale large enough to negotiate effectively with upstream programmers and downstream distributors, you won’t have to wait long see high cost, high quality, high value programming available for free to those who choose to opt out of the pay TV ecosystem. It’s much better to have two, three or four strong competitors in each market, owned by companies that can compete for rational economics in the upstream and downstream markets, than to have eight or more weak competitors, few of which can afford to invest in truly local service or negotiate at arms-length with program suppliers and distributors.

For those who have not been paying attention, the television market has changed profoundly in the past 20 years. The big programmers and the big MVPDs have gotten a whole lot bigger. The largest non-O&O broadcast groups have grown too, but not nearly as much. Fox, Disney/ABC, NBCU and the other programmers are vastly bigger companies with incomparable market power vis-a-vis even the largest broadcast groups. The same is true of the large MVPDs, which together serve the great majority of television households.

There’s nothing inherently bad about big content aggregators and big MVPD distributors. And anyway, they are a fact of life. Despite their size, each is trying to deliver a competitive service and deliver good returns for shareholders. That’s what they are supposed to do, and in general (with a few exceptions) they serve the country well. But again, they are much, much larger than even the largest broadcast groups. If you believe that having a viable and competitive free television option is a good thing, that’s a problem.

So in response to the suggestion that the FCC further limit the scale of broadcasters, I reply: why does the government make it so damn hard for the only television service that is available for free to bargain and compete with vastly larger enterprises that are comparatively unregulated?

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Today, December 13, 2012, is the effective date of the FCC’s rules implementing the Commercial Advertisement Loudness Mitigation (CALM) Act. As a result, all commercial broadcast television stations and multichannel video program providers (“MVPDs”) must have by today either sought a waiver or installed equipment and undertaken procedures to comply with the Advanced Television Systems Committee (ATSC) A/85: “ATSC Recommended Practice: Techniques for Establishing and Maintaining Audio Loudness for Digital Television,” also known as the RP.

For locally inserted commercials, stations must install and maintain equipment and software that measures the loudness of the content and ensures that the dialnorm metadata value matches the loudness of the content when encoding audio for transmission (try saying that three times fast!). For commercials already embedded in the programming, stations must be able to pass through that CALM-compliant programming without adverse changes.

As long as that benign pass-through is accomplished, stations can rely on appropriate certifications from program suppliers to demonstrate compliance with respect to embedded commercials. If a program supplier does not provide the certification, “large” television stations and “large” and “very large” MVPDs (as defined by the FCC) must conduct annual spot checks of the programming. The first spot checks must be completed one year from today, by December 13, 2013. Details on these compliance requirements can be found in Paul Cicelski’s post on the CALM Act earlier this year. We will also shortly be posting a Pillsbury Advisory on ensuring continuing CALM Act compliance.

As noted above, the FCC created a waiver procedure for stations and MVPDs where compliance would be financially burdensome, allowing them up to a year of additional time to come into compliance. Waiver requests were originally due back in October, but the FCC announced two days ago that it would accept waiver applications from small television stations filed through today. “Small” television stations, that is, those with less than $14 million in revenues in 2011 or that are in markets 150 to 210, were not required to submit highly detailed financial data with their waiver requests, and the FCC indicated that waiver requests would be deemed granted upon filing unless the FCC later advises the applicant otherwise.

In response, more than 125 waiver requests were filed. Earlier this week, the FCC granted two of them, including one from a television station in the midst of a studio move that will include installation of upgraded equipment for CALM Act compliance. Stations that do not have a waiver request on file with the FCC by today need to have the equipment and procedures in place to ensure they are operating in compliance with the CALM Act. That means that stressed television viewers will be having a calmer holiday season, while station and MVPD engineers and managers stress out trying to remain CALM.

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The FCC has announced that the preliminary television channel sharing rules in the FCC’s Report and Order in the Innovation in Broadcast Television Bands proceeding will become effective on June 22, 2012. The rules establish the basic framework by which two or more full-power/Class A television stations can voluntarily choose to share a single 6 MHz channel. Channel sharing is integral to clearing the television broadcast spectrum so that the FCC can auction it for wireless broadband as called for in the National Broadband Plan. The rules follow the signing of the “Middle Class Tax Relief and Job Creation Act of 2012”, which we discussed in detail in a previous post. Also called the “Spectrum Act,” that law gives the FCC authority to conduct incentive auctions to encourage television broadcasters to get out of the business or find new business models that rely on less spectrum, such as doubling up with another station on a single 6 MHz channel.

The FCC’s new rules allow a station to tender its existing 6 MHz channel to the FCC, making it available for the “reverse” or “incentive” spectrum auction. The tendering station can set a reserve price below which it won’t sell. To encourage more stations to participate in the auction, the FCC is also permitting stations, in advance of the auction, to agree to share a single 6 MHz channel after the auction. In this scenario, one of the two stations would tender its channel into the auction, and both stations would share the proceeds and operate on the remaining 6 MHz channel after the auction. The FCC’s Order makes clear that channel sharing arrangements will be voluntary, and that stations will be “given flexibility” to control some of the key parameters under which they will combine their operations on a single channel, including allocation of auction proceeds among the parties.

Each station sharing a 6 MHz channel will be required to retain enough capacity to transmit one standard definition stream, which must be free of charge to viewers. Each will have its own separate license and call sign, and each will be subject to all of the Commission’s rules, including all technical rules and programming requirements. Stations that agree to share a channel will retain their current cable carriage rights. Commercial and noncommercial full-power and Class A TV stations are permitted to participate in the incentive auction and enter into channel sharing agreements, but low power TV and TV translator stations are not.

Many more details will have to be resolved prior to the incentive auction. We recently discussed the procedural uncertainties surrounding the auction in a detailed and comprehensive interview conducted by Harry Jessell of TVNewsCheck. The transcript of the interview can be found here. At bottom, we concluded that the largest obstacle facing the FCC will be designing the auction so that a sufficient number of broadcasters find it attractive to participate.

The FCC invited us and other industry experts to participate in a Channel Sharing Workshop earlier this week. In the meantime, other Pillsbury attorneys have been actively helping stations assess the risks and opportunities of the incentive auctions, including spectrum valuation and strategies for the forward and reverse auctions and spectrum repacking. Many of the issues raised at the FCC’s Channel Sharing Workshop dealt with the intricacies of the arrangements broadcasters will have to craft to govern their relationship with a channel sharing partner. These ranged from how multiple channel “residents” will manage capital investments in facilities upgrades, to what might happen if one licensee on a shared channel goes bankrupt, sells, or turns in its license. A recording of the Workshop can be accessed here.

The FCC acknowledged that much work lies ahead of it. To that end, the FCC announced at the Workshop that the first of a series of Notice of Proposed Rulemakings concerning issues raised during the Workshop will be released in the Fall. The FCC did not predict a timeframe for completing the auction design process and establishing service rules.

As these and other issues take the fore, television broadcasters must remain engaged, shaping the process to allow them the maximum flexibility to develop relationships and business models that can thrive in the post-auction environment.

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Following many months of debate and after trying several potential legislative vehicles, the House and Senate finally enacted spectrum auction legislation as part of the bill to extend payroll tax cuts for another year. It was signed by the President last week, and for those following the process for the past two years, the result was somewhat anticlimactic. That is mostly good news for broadcasters, as the NAB was successful in ensuring that the law contains enough protections for broadcasters to prevent the spectral armageddon that it once appeared broadcasters might face.

Having said that, we can’t ignore that there were bodies left out on the legislative battlefield, the most obvious being low power TV and TV translator stations. Under the new law, these stations are not permitted to participate in the spectrum auction, are not protected from being displaced to oblivion in the repacking process, and are not entitled to reimbursement of displacement expenses. It is that last point that may be the most important in rural areas. While it is possible there could be enough post-repacking broadcast spectrum in rural areas for TV translators to survive, they will still need to move off of the nationwide swaths of spectrum the FCC intends to auction to wireless companies. Unfortunately, many if not most TV translator licensees are local and regional entities with minimal financial resources. Telling such a licensee that it needs to move to a new channel, or worse, to a different location to make the new channel work, may be the same as telling it to shut down.

This is particularly true when the sheer quantity of translator facilities that might have to be moved is considered. For example, there are nearly 350 TV translators in Montana alone. Moving even a third of them will be an expensive proposition for licensees whose primary purpose is not profit, but the continued availability of rural broadcast service. Further complicating the picture is the fact that in border states like Montana, protecting spectrum for low power TV and TV translators will inevitably be a very low priority when negotiating a new spectrum realignment treaty with Canada or Mexico to permit reallotment of the band.

While full-power and Class A television stations therefore fared much better in the legislation, for those uninterested in selling their spectrum, spectrum repacking will still not be a pleasant experience. Those of us who endured the repacking process during the DTV transition can attest to how complex and challenging the process can be, and the DTV process had the luxury of fifteen years of planning and execution, as well as a lot more spectrum in the broadcast band with which to work. Having already squeezed the broadcast spectrum lemon pretty hard during the DTV transition, the FCC may find that there isn’t much juice left in it for a second go around. That, combined with a much tighter time frame, could make this an even more complex and messy process.

In addition, while it hasn’t drawn as much attention as it should have, one other changed factor is that after the DTV transition was completed, the FCC opened up TV “white spaces” (spectrum between allotted broadcast channels) for unlicensed use by technology companies seeking to introduce new products and services requiring spectrum. Having enticed companies into investing many millions of dollars in research and development for these white spaces products and services, eliminating the white spaces during the repacking process (which is the point of repacking) could leave many of these companies out in the cold. This is a particularly likely outcome given that the very markets white spaces companies are interested in–densely populated urban areas–are precisely those areas where the FCC most desperately wants to obtain additional spectrum for wireless, and where available spectrum is already scarce. Like low power TV and TV translator licensees, these white spaces companies are pretty much going to be told to “suck the lemon” and hope there are a few drops of spectrum left for them after the repacking.

Still, while there certainly are some obstacles to overcome, the DTV transition gave the FCC staff priceless experience in navigating a repacking, and the FCC already has ample experience auctioning off spectrum. The question is whether this particular undertaking is so vast as to be unmanageable, or whether quick but careful planning can remove most of the sharp edges. Once again, the devil will be in the details, and no one envies the FCC with regard to the task it has before it. However, the chance for an optimal outcome will be maximized if all affected parties engage the FCC as it designs the process. In addition to hopefully producing a workable result for the FCC, broadcasters engaged in the process can ensure that the result is good not just for broadcasters in general, but for their particular stations.

For those interested in getting an advance view of what specifically is involved, Harry Jessell of TVNewsCheck recently interviewed us to discuss some of the pragmatic issues facing the FCC and the broadcast industry in navigating the spectrum auction landscape. The transcript of the interview can be found here. Those comments provide additional detail on the tasks facing the FCC, as well as how long the process will likely take.

While everyone impacted by the spectrum auction and repacking process faces many uncertainties as to its outcome, of this we can be certain: challenging times lay ahead.

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The Commission’s Implementation of the Twenty-First Century Communications and Video Accessibility Act of 2010 Initiates a Two-Year Deadline for Providers of Advanced Communications Services and Manufacturers of Equipment Used in Advanced Communications Services to Comply with Disabilities Access Requirements.

The Federal Communications Commission (the “Commission”) recently adopted a Report and Order (“R&O”) and Further Notice of Proposed Rulemaking (“FNPRM”) implementing Section 104 of the Twenty-First Century Communications and Video Accessibility Act of 2010 (the “CVAA”), codified as Sections 716, 717 and 718 of the Communications Act of 1934, as amended (the “Act”). The purpose of the CVAA is to “ensure that people with disabilities have access to the incredible and innovative communications technologies of the 21st century.”

Prior to the passage of the CVAA, and pursuant to Section 255 of the Act, the Commission imposed disabilities access requirements on manufacturers of telecommunications equipment (including answering machines, pagers and telephones) and providers of telecommunications services. In 2007, the Section 255 requirements were extended to providers of interconnected VoIP services and manufacturers of VoIP equipment. The CVAA expands the Commission’s regulatory authority to historically unregulated providers of advanced communications services (“ACS”) and manufacturers of equipment used for ACS (collectively the “Covered Entities”) and codifies the requirement as it applies to interconnected VoIP.

ACS includes interconnected VoIP, noninterconnected VoIP, electronic messaging service and interoperable video conferencing services, which are defined as:

  • Interconnected VoIP: a service that (1) enables real-time, two-way voice communications; (2) requires a broadband connection from the user’s location; (3) requires Internet protocol-compatible customer premises equipment (“CPE”); and (4) permits users generally to receive calls that originate on the public switched telephone network (“PSTN”) and to terminate calls to the PSTN.
  • Noninterconnected VoIP: a service that (i) enables real-time voice communications that originate from or terminate to the user’s location using Internet protocol or any successor protocol; and (ii) requires Internet protocol compatible customer premises equipment” and “does not include any service that is an interconnected VoIP service.
  • Electronic Messaging Service: “means a service that provides real-time or nearreal-time non-voice messages in text form between individuals over communications networks. This service does not include interactions that include only one individual (human to machine or machine to human communications).
  • Interoperable Video Conferencing Services: services that provide real-time video communications, including audio, between two or more users. This service does not include video mail. The Commission has sought additional comment, pursuant to the Further Notice of Proposed Rulemaking, regarding the definition and application of “interoperable”.

The Commission clarified that the regulations implemented pursuant to the CVAA “do not apply to any telecommunications and interconnected VoIP products and services offered as of October 7, 2010.” The R&O also indicates that any regulated equipment or service offered after October 7, 2010 may be governed by both Sections 255 and 716.

The CVAA established, among other things, a phased compliance timeline due to the financial and technical burdens associated with developing and implementing technological changes required by the CVAA. Covered Entities must comply with Sections 716 and 717 within one year of the effective date. Section 718 compliance must be achieved within two years of the effective date or no later than October 8, 2013. The CVAA also includes long-term reporting obligations, enforcement procedures, limitations on liability for violations and finite compliance deadlines. The Commission decided that the rules, as implemented, would not include any safe harbors or technical standards at this time. Finally, the Commission determined that when implementing the CVAA, its rules should include opportunities for waivers and self-executing exemptions.

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In the past few days, details have emerged from the White House regarding the funding sources being proposed to cover the cost of the American Jobs Act. In the government’s search for cash, it should surprise no one that in addition to broadcast spectrum auction language (which seems to be in every new funding bill these days), spectrum fees are also being proposed. While there is some good news for television broadcasters, who are exempt from the fees in the current draft of the bill, you can never tell if that exemption will survive the rough and tumble legislative process. Radio broadcasters aren’t so lucky–no exemption for them.

One trend is clear–the government’s growing reliance on fees from broadcasters and other FCC license holders. When I started practicing in the 1980s, the FCC did not generally charge fees. Congress later instructed the FCC to collect a fee for each application or report filed, and to set the size of the fee at an amount that would cover the cost of processing that particular application/report. While there was some grumbling about having to pay the FCC to process reports that the FCC had required be filed in the first place, most understood that the government was not going to surrender this newly-found revenue source.

However, when Congress later required the FCC to also collect annual regulatory fees from spectrum users in amounts sufficient to cover the FCC’s total operating budget, spectrum users cried foul. They were already paying a filing fee to have the FCC process their applications, and now were expected to pay a separate annual fee to cover all of the FCC’s operating costs (including application processing). This meant that the government was double-dipping–collecting fees under the guise of “covering costs” that in fact exceeded those costs. To his credit, Commissioner McDowell acknowledged this strange situation in 2009, when he urged the FCC to “take another look at why we continue to levy a tax of sorts of allegedly $25 million or so per year on industry, after the Commission has fully funded its operations through regulatory fees. That money goes straight to the Treasury and is not used to fund the agency.” Despite the protests, the FCC continues to be required by Congress to collect those fees, which increase every year.

So broadcasters and other spectrum users can be forgiven if they are skeptical of calls for yet one more government fee on their existence. Even if the exemption for television broadcasters stays in the bill, that is limited comfort for TV licensees, since any spectrum fee adopted will almost inevitably creep over to television as Congress continues its search for revenue sources that can be called “fees” rather than “taxes.”

Sensitive to these complaints, the White House attempted to bolster its case in a summary of the bill, stating that “it is expected that fees would encourage efficient allocation and use of the radio spectrum, as the opportunity cost of spectrum resources would be reflected to commercial license holders that did not receive authorizations through competitive bidding.” This perennial argument, that broadcasters shouldn’t complain about any governmentally-imposed burden because “they got their spectrum for free,” remains one of the urban legends of Washington. Like most urban legends, however, it has no basis in fact.

Very few current broadcasters “got their spectrum for free.” The FCC has been auctioning off broadcast spectrum for over a decade, and broadcast stations that were licensed before that time have typically been sold and resold at “fair market value” many times over the years. As a result, it is a rare broadcaster that currently holds a broadcast license obtained directly from the FCC “for free”. Most broadcasters have paid dearly for that license, both in terms of the station purchase price and the public service obligations that come with the license.

Still, fee proponents argue that because the original license holder didn’t have to pay the government for the spectrum, the “free” argument still applies, no matter how many times the station has changed hands since then. That argument is eviscerated, however, by a simple analogy. When the United States was settled, the government issued land grants to settlers who “staked a claim” to virgin territory by promising to make productive use of that land (the “Sooners” being one of the better-known examples). Other than the promise to use the land, these settlers did not pay the government for their land grants. The land then passed from generation to generation and from seller to buyer many times in the years since the original grant. However, despite the fact that the original owners “got their land for free”, I would wager there are few homeowners among us who would agree that we received “our” land for free, much less accept a governmental fee premised on that assertion.

How spectrum/licenses were originally assigned by the FCC (or its predecessor agency) many years ago bears no more relevance to today’s broadcaster than 19th century land grants relate to the modern homeowner. In both cases, the original owner lived up to its commitment to the government to make productive use of the asset, and was therefore permitted to eventually sell its claim to others. To assert that these buyers are somehow suspect beneficiaries of land or spectrum ignores reality. Today’s broadcasters are merely the spiritual descendants of a different kind of settler–the pioneers of the airwaves.

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The FCC today announced a freeze on the acceptance of any petitions for rulemaking seeking to change a station’s assigned channel in the Post-Transition Table of DTV Allotments. While application freezes were once relatively rare at the FCC, they became quite common as a planning mechanism during the years when the FCC was creating a new Table of Allotments to initiate and complete the transition to digital television.

Given the FCC’s announced intent to begin reclaiming broadcast television spectrum for wireless broadband as part of the National Broadband Plan, and to then repack the remaining television stations into a smaller chunk of spectrum, today’s announcement was not a surprise. The Commission’s brief announcement stated that the freeze is necessary to “permit the Commission to evaluate its reallocation and repacking proposals and their impact on the Post-Transition Table of DTV Allotments….”

The freeze will put a stop to the steady migration of stations from the VHF to the UHF band, where reception is generally better and the opportunities for successful mobile DTV operations greater. While not discussed in the FCC’s announcement, proponents of transferring broadcast spectrum to wireless broadband have no interest in VHF spectrum, so each station that moves from the VHF band to the UHF band makes the FCC’s efforts to clear UHF spectrum for broadband that much more difficult. The FCC noted in its announcement that since the lifting of the last freeze in 2008, it has processed nearly 100 television channel changes, and that it therefore believes most stations interested in making a channel change have had sufficient time to do so. The FCC indicated that it would continue to process channel change requests filed before the new freeze commenced.

And so it begins. While the prospects for legislation to implement the National Broadband Plan’s broadcast spectrum incentive auctions remain murky, the FCC does not need the blessing of Congress in order to commence the process of spectrum repacking. Now well over a year old, the National Broadband Plan remains mostly that–a plan. Today’s freeze marks one of the first concrete steps by the FCC to implement at least some aspects of that plan. Setting aside the issue of whom the ultimate winners and losers in the spectrum debate will be, the painful and expensive process of implementing a new Table of Allotments for digital television is still far too fresh a memory for many broadcasters to want to be subjected to a similar process now.

At least with the transition to digital, broadcasters could see the benefits of enduring the difficult process in order to be able to garner the benefits of high definition programming, multicasting, and datacasting. Unfortunately, for broadcasters not interested in selling spectrum in an incentive auction, repacking means all pain and no gain. The best case scenario for a television broadcaster in a repacking is just to survive the disruption and distraction without losing signal coverage of viewers and cable headends. That doesn’t leave broadcasters with much light at the end of the tunnel to guide them through the difficult days ahead.

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On February 22, 2011, US District Court Judge Naomi Reice Buchwald of the Southern District of New York issued a 59-page decision enjoining ivi TV, Inc. from streaming the programming of various network-affiliated television stations on the Internet without their permission. The judge’s opinion articulates a basic principle of copyright law — that the creator of the content holds a bundle of rights which, with very few exceptions, it alone controls. Therefore, even in this age of proliferating distribution platforms, the fact that the copyright owner has made its content available via a number of different technologies does not diminish its ability to control whether and how to make it available on a new platform. The case will likely yield more examination of this issue, as ivi TV has sought a stay of the injunction.

Background
ivi TV began Internet streaming of the signals of several network affiliated television stations located in Seattle and New York in September 2010, and thereafter announced plans to add stations from Chicago, Los Angeles and San Francisco in the future. It offered subscribers located throughout the United States the ability to receive these television signals via an Internet connection for a monthly fee. Subscribers downloaded a player, chose the signals to watch, and the signals were delivered in an encrypted form. In anticipation of the content owners’ lawsuit, ivi TV sought a Declaratory Ruling from a US District Court in Seattle that the company was not infringing the copyrights in the programming, but the court dismissed that case as an anticipatory filing. A consortium of television stations, the producers of programming shown on the stations, and Major League Baseball later commenced a lawsuit for copyright infringement in New York, seeking an injunction to prevent any further retransmissions of their content by ivi TV.

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More than two months after the FCC released a Notice of Proposed Rulemaking proposing preliminary steps to reallocate and reassign television broadcast spectrum for wireless broadband, the government machinery has finally announced comment deadlines: March 18 for initial comments and April 18 for replies. This is the first of several proceedings the FCC intends to pursue in its goal to repurpose broadcast spectrum.

The notice makes three proposals and asks a number of questions about each. It proposes:

  • To add new fixed and mobile service allocations to the TV bands and give them co-primary status;
  • To permit two or more stations to share a single 6 MHz channel; and
  • To take steps to improve the performance of broadcast signals in the VHF band.

Almost everyone interested in the topic of broadcast spectrum repurposing has a strong view, and opinions differ even among broadcasters. With station transactions at all time lows, some welcome the prospect of another possible exit. Those that don’t want to sell are worried about transition costs, being moved to less desirable channels, losing coverage area, or being coerced to sell by threat of hefty spectrum fees. Many broadcasters don’t know where they stand. For those, here are two things to keep in mind.

Timing. Regardless of what you read about timetables, it is extremely unlikely that auctions of any reclaimed broadcast spectrum will take place within the next three years. Congress has not authorized incentive auctions. Even if it does so this year, it will be later in the year, and the FCC will then have to adopt implementing rules. Only then can the FCC schedule an auction and can stations determine whether they want to sell. If Congress doesn’t permit incentive auctions, the FCC has other options, but those take time to develop too. Right now, there’s no coherent Plan B.
The FCC is breaking new ground here, and even without political pressures these are hard questions. They’ll take a lot of time and thought to resolve. Almost a year after the release of the National Broadband Plan, we still haven’t seen the model the FCC is using to figure out how broadcast spectrum can be cleared and stations repacked.

Apparently, the FCC is having a hard time finding daylight even without second-guessing by outsiders. Assuming everything goes smoothly for the FCC’s agenda, it’s conceivable auctions could take place in late 2014, with settlements and transition in 2015.
Eligibility and appeal. Most stations either won’t be eligible to participate in incentive auctions or the prospect won’t be very enticing. The FCC will almost certainly draw some bright lines. It might offer incentives only in the most densely populated areas, or it may preclude certain classes of stations from participating altogether. It might offer bigger incentives to higher band UHF stations, or it might offer better incentives to those stations, and it may preclude VHF or lower UHF stations from participating, or it may offer weaker incentives to them. Much depends on what the yet-unreleased “optimization” models show and what Congress does or does not authorize.
Among eligible stations, only a few are likely to find incentive payments to be attractive. At least today, even the most aggressive projections show spectrum shortages only in a handful of the most densely populated areas. It is not clear that the FCC will seek to clear broadcast spectrum in every market, and even if it does, auction proceeds (and thus, incentive payments) will be progressively lower as market size declines. In the 2007 auction of vacated TV spectrum, some markets commanded more than $3 per “MHz/pop” (one MHz covering one person), while others sold for about a tenth of that.
Except in the very largest markets, incentive payments probably won’t exceed the enterprise value of a profitable television station. Auction proceeds have to be split at least three ways. The U.S. Treasury will take its pound of flesh (Congress needs incentives too!) and transition costs will have to be paid. As an example, about two million people live in the Kansas City Metropolitan Statistical Area. Assuming a Kansas City station is credited with covering them all, auction of its 6 MHz channel at $1/MHz/pop would yield $12 million. A lot of this would be spent on whatever transition mechanism is used and the Treasury will keep a substantial portion of the remainder. Perhaps $1 million to $3 million would be available as an “incentive” payment to the station.
Of course, the FCC has time and means to create negative incentives. Stations that don’t sell may be moved to much less attractive channels, or forced to reduce power or coverage, or (if Congress approves) assessed substantial spectrum fees.
The FCC’s rulemaking notice doesn’t ask questions about these sorts of issues, but broadcasters should keep them in mind as they formulate their comments in response to the notice.