Sen. McCain’s Plan to Liberate the Broadcast Spectrum

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Last week, Sen. John McCain (R-AZ) introduced an important new bill dealing withthe digital television (DTV) transition and the vexing question ofhow to get broadcasters to return their old analog spectrum. Thebill, S. 2820, proposed a controversial new policy($1 billion in subsidies for set-top converter boxes to help somehouseholds convert to DTV) to correct for a controversial oldpolicy (the misguided giveaway of $10-$100 billion worth of freespectrum to the broadcast industry). The bill also demanded thatbroadcasters return their old analog spectrum by 2009, two yearsafter the original deadline. While not the optimal policy approach,the new McCain bill offered a quick way out of the DTV industrialpolicy fiasco and would have helped free up massive amounts ofvaluable spectrum for other important wireless uses. Unfortunately,however, the Senate Commerce Committee has already voted 13-9 towater-down the McCain bill and let broadcasters hold onto most thespectrum they were suppose to return.

A Misguided Giveaway. By way of background, aspart of the Telecommunications Act of 1996, every broadcaster inthe U.S. was loaned free of charge a second 6 MHz block ofspectrum to help them make the DTV transition. (Every broadcasteralready possessed a 6 MHz license which they use to transmit analogbroadcast signals to rooftop antennas). What was so scandalousabout the award of the second 6 MHz license was that so many otherhigh-tech companies were salivating at the prospect of biddinglarge sums for that spectrum and putting it to alternative uses.America might already have had a wireless broadband infrastructureif Congress had not given all this beach-front spectrum to thebroadcasters for little more than a promise that they would returntheir old analog spectrum licenses by 2007.

But even the return of that old analog spectrum remainsuncertain. A subsequent DTV decision gave broadcasters the right totransmit analog signals on their old 6 MHz license until 2007,or until 85 percent of Americans had made the migration todigital television. Only then would they have to return theold spectrum to the government. Getting to that 85 percentthreshold is taking longer than most policy makers expected, withfewer than 10 percent of American homes possessing DTV receivingequipment. Consequently, barring additional government interventionto correct for this previous mistake, it is going to take a lotlonger-some experts estimate perhaps until 2020-before the 85percent threshold is met.

Meanwhile, the opportunity costs associated with this giveawayhave grown larger with each passing year. Countless other wirelessservice providers are being denied the opportunity to use that samespectrum for alternative applications. Consequently, Americans arebeing denied access to important wireless services of both thecommercial and public safety variety. Equally troubling is thatfact that in an attempt to keep the DTV transition from derailingentirely, Congress and the FCC keep imposing additional mandates onother industries. For example, in August 2002, the FCC mandatedthat television set manufacturers include digital tuners in all their new setsby 2006, even though the tuners will add more than $200 to the costof each new television. Likewise, there's talk of new "digitalmust-carry" mandates on cable providers. And a new "broadcast flag" regulatory mechanismhas been mandated by the FCC in the name of protecting digital TVsignals from copyright infringement.

The Necessity of an Escape Plan. With thisindustrial policy fiasco spiraling out of control, Congress mustfind a way to get out of this mess. Policymakers need to realizethat it is vital they find a way to free up at least some of thevaluable spectrum they have given to the broadcasters as quickly aspossible. Countless other wireless providers are starving foraccess to any spectrum they can get, and the broadcast spectrum isa mother lode of beach-front quality spectrum. But getting it backwill be tricky since most broadcasters are now making a good faitheffort to make the digital transition and many consumers havepurchased the hardware (TVs, set-top boxes, antennas) needed toreceive DTV. Congress can't just pull the rug out from underneaththe transition.

The good news is that there are two very reliable alternativeDTV delivery paths available to which both broadcasters and thepublic can turn: cable and satellite. Almost 90 percent of Americanhomes already subscribe to cable or satellite systems and theseproviders made a natural digital migration many years ago.Consequently, the DTV signals that traditional broadcasters want toget to the public can be delivered via those cable and satellitesystems once retransmission deals are cut voluntarily.Must-carry mandates should not be imposed for this to occur. Cableand satellite operators want that valuable DTV programming thattraditional broadcasters offer, so they will find a way to contractfor carriage.

But there remains one big problem: What should Congress do aboutthe small percentage of households, many of which are elderly orlow-income, that do not have a cable or satellite subscription?Politicians will be extremely sensitive to the needs of this group,which continues to rely on over-the-air broadcast signals androoftop antennas to receive television signals. And broadcasterswill likely employ "leave no TV viewer behind" rhetoric to strikefear in the heart of Congress.

McCain's Practical Solution. Sen. McCain-along-standing critic of the DTV spectrum giveaway-is eager toreclaim the old spectrum for both commercial and public safetyuses, but he understands the political problem of leaving someviewers stranded. Few members of Congress will sign off on anyspectrum take-back plan that results in some homes losing their TVsignals. To account for this, McCain's bill would provide set-topbox (STB) subsidies to low-income households who continue to relyon analog over-the-air signals, allowing them to move over to cableand satellite systems immediately. The price tag for the STBsubsidy is steep-$1 billion-but the money would ultimately comefrom the revenues generated from auctioning the returned spectrum,which will generate tens of billions.

It is regrettable that it has come to this, but the McCain planmay be the only way out of an industrial policy fiasco that hascost America untold billions in terms of lost wireless innovation.Again, Congress' top priority should be liberalization of thebroadcast spectrum band to open up a vast new frontier of spectrumfor wireless innovation. The only other realistic alternative issimply to let the broadcasters keep both licenses and use them-andmore importantly, sell them-for whatever purpose they wish. Such apolicy would encourage the broadcasters to eventually release muchof their valuable spectrum on the secondary market. But manycritics will find this additional giveaway to the broadcastersunconscionable, especially considering the princely sums sale ofthe spectrum will net. Just surrendering and giving thebroadcasters all the spectrum will be viewed by many as an unjustwindfall. But giving the broadcasters the equivalent of propertyrights in both licenses would allow them to realize the opportunitycosts of hoarding that spectrum and then move it to its highest andbest use.

The McCain bill offered a second-best way out of the DTV mess,but the Senate Commerce Committee's recent vote to force only a fewstations to return their old spectrum largely guts McCain's effort.Consequently, the open-ended DTV transition remains intact andcountless companies and consumers are again denied access tovaluable spectrum needed for other purposes.