The FCC Giveth, The FCC Taketh Away…

Next March marks a defining moment in the history of broadcasting: The Federal Communications Commission (FCC) will hold an auction to see if TV stations really want to stay on their UHF channels, or sell their spectrum space off to the highest bidder and either (a) move to another UHF channel, (b) move to a VHF channel, high- or low-band, or (c) just throw in the towel and be done with broadcasting for good.

I’ve been alive for enough decades to remember when UHF TV reception was mostly black magic, and stations located in that band (originally from channels 14 through 83) were desperate to get a few hundred viewers. Some TV markets found the only way they could get licenses for broadcasts was to use these forlorn, unwanted channels. Scranton PA is one example.

For my senior thesis in college in the mid-1970s, I wrote about the FCC’s All Channel Receiver Act (ACRA) of 1962, which mandated “…that apparatus designed to receive television pictures broadcast simultaneously with sound be capable of adequately receiving all frequencies allocated by the Commission to television broadcasting.”

In an era where the major networks (ABC, CBS and NBC) had the “plum” low-band VHF channels and some high-band VHF channels locked up, UHF was the only place to go. It cost twice as much to operate a UHF station and achieve comparable signal coverage, but without enough viewers, it was difficult if not impossible to attract enough advertising.

A year later in graduate school, I followed up on this topic to see how effective the ACRA had been to accomplish parity between VHF and UHF TV stations. Truth be told, the picture didn’t start to look rosy for UHF stations until the 1980s, by which time the band had been truncated to channels 14 to 69. But TV tuner performance had improved markedly, and many public TV stations started lighting up, as did some high-power independent stations, translators and repeaters.

With the advent of digital TV in the early 1990s, interest in UHF broadcasting picked up because it was discovered that UHF DTV signals penetrated into buildings much better than VHF signals. And UHF signals didn’t require large antennas: Even a small bowtie loop antenna was sufficient to do the trick.

As the digital TV transition wound on, successive generations of DTV receivers came to market, employing ever-more powerful adaptive equalizers to overcome the effects of multipath. When the time came to make the move to DTV and abandon analog NTSC forever in 2009, many stations also abandoned the once-prized low-band VHF channels (2 through 6) in favor of high-band channels, or “low” UHF assignments.

So, in a period of about 50 years, UHF channels went from being worthless real estate to prime property. (Just like fracking!) And it wasn’t just broadcasters who coveted it: Mobile phone companies, led by the CTIA (Cellular Telephone Industry Association), CEA (Consumer Electronics Association) and service providers, including Verizon, AT&T and Sprint, were also casting a covetous eye on these frequencies.

Their case was bolstered by former FCC Chairman Julius Genachowski, who claimed as the DTV transition was happening that we were facing a “wireless spectrum crisis” and that at least 120MHz of broadcast spectrum had to be freed up for “wireless services” to solve the problem. (Never mind that TV channels 52 through 69 had just been returned to the government by broadcasters as the 2009 transition took place.)

Depending on who you talk to, the percentage of Americans who still watch over-the-air (OTA) television measures as low as 8% and as high as 20%, and that skews differently by geographic location and ethnic group. Still, if you accept a practical number of 15%, it’s easy to see why there is increasing demand by wireless companies for those UHF channels.

Accordingly, seven years after the DTV transition, we will see an open auction during which broadcasters can entertain bids for their channels, or conduct a reverse auction by setting a minimum bid and see who antes up. A few days before I wrote these words, the National Association of Broadcasters (NAB) released the list of minimum bid prices posted for TV stations (many of which are on VHF channels, surprisingly!).

And the buy-in prices are staggering. Want to buy CBS’ flagship channel 2 (physical channel 33) TV station in New York City? A cool $900,000,000 (that’s $900 million) is the opening reverse-auction bid. Down the street, Comcast’s WNBC-4 (physical channel 28) starts at $869 million. And both those prices are to take the stations off-air for good: To relocate WCBS to a UHF channel (if one can be found) will cost a bit less; just $675M, while WNBC would require about $652M.

How about Los Angeles? You can kick KABC-7 off the air for just $305M, although no one is exactly pining for high-band VHF channels to provide mobile phone service. KCBS’ UHF channel can be vacated completely for a minimum bid of about $545M, or moved to another UHF channel for around $218M.

There are also some relative bargains out there. KXGN in Glendive MT will pull the switch on its UHF station for just $1.2M. (That’s the #210 and smallest TV market in the 50 states.) In Watertown NY (near where my father grew up), there are several VHF and UHF stations that make up the #177 TV market. You can move any of them off the air for $45M to $88M, with the highest reverse bid being that of the local PBS station.

What do these prices tell us? First off, it would appear that many major-market broadcasters aren’t all that interested in shutting down operations, based on their astronomically high reverse-bid prices. That is good news for cord cutters and automobile dealers, the latter being the #1 source of ad revenue for TV stations. The prices for relocating channels are much lower than those for turning off the switch, which means that both independent stations and network-owned stations still see quite a bit of value in holding onto a 6MHz digital channel someplace.

Second, at a time when just about every American has a mobile phone and price erosion is the story of the day in the mobile device industry (two-year contracts are going the way of the dodo, and voice and text plans are basically free these days), the likes of Verizon and AT&T aren’t likely to shell out hundreds of billions of dollars to expand LTE services. But we may see new companies coming in to offer wide-area WiFi service, although that didn’t work out in the past with WiMax.

Third, anyone whose living depends on wireless audio operations could be in real trouble if more UHF TV channels disappear. In some worst-case studies I’ve seen, we could lose everything above channel 26. Or maybe just everything above channel 44. Or, we might see some TV broadcasts relocated to open UHF channels, intermixed with LTE, WiFi and white space devices. And there will be new “duplex” guard bands in the reallocated spectrum. (In any case, the sacrosanct nationwide channel 37 will remain so…for now.)

The truth is, no one really knows how any of this is going to play out. Will media giants like CBS decide they don’t need to be in the TV station business anymore? How about CBS affiliates? Would ESPN decide to do subscription DTV broadcasts, direct to viewers? Would Comcast continue to operate its owned NBC TV stations? How will public broadcasters be affected? Can we really dovetail TV broadcasts and LTE networks together?

And what happens if the FCC doesn’t get enough stations to participate? How much spectrum are they really looking to recover from broadcasters? Have we seen the last of these TV spectrum auctions for a while? (Bear in mind that the current FCC Chairman, Tom Wheeler, once ran the National Cable Telecommunications Association (NCTA) and CTIA. Food for thought!)
Talk about March Madness! Stay tuned….

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