On February 17, both the House and the Senate passed the Middle Class Tax Relief and Job Creation Act of 2012. Among other things, the Act provides for the extension of the payroll tax holiday and unemployment benefits and prevents cuts in Medicare physician payment rates. To help offset the cost of the Act, the legislation includes significant spectrum provisions centered around preparations and details of a future auction of spectrum currently held by broadcast television licensees to other users, likely including commercial wireless carriers. This process is ultimately expected to raise billions of dollars for the Treasury, while also helping to fund the creation of a nationwide public safety broadband network for emergency first responders, another subject of the Act.
Implementation of the Act’s spectrum provisions will be a complex process that will unfold over the next several years. The Act provides for the reallocation and auction of some federal spectrum, with auctions to be completed within the next three years, and for the auction of broadcast television spectrum to be conducted within 10 years. In the event the auction of broadcast television spectrum fails to raise a minimum amount of proceeds sufficient to compensate broadcasters who volunteered to participate in the incentive auction, cover the costs of the auctions, relocation costs and other costs specified in the Act, then there will be no assignment of spectrum and broadcasters will retain their licenses. Proceeds from this auction that exceed the amounts specified in the Act will be used for general deficit reduction purposes starting in 2022.
Broadcast Spectrum Incentive Auctions
The creation of the first nationwide interoperable public safety broadband network, and the offset for the extension of tax benefits, will be paid for by the expected auction of some of the television broadcast spectrum. The auction is complicated by the fact that the spectrum is currently used by the television broadcast service, including full power and low power licensees. The individual decisions these broadcasters make to participate in the process will be critical to its success.
To clear a critical mass of spectrum that could then be auctioned, likely to provide wireless broadband services, Congress gave the Federal Communications Commission the ability to conduct incentive auctions. The incentive auction is unique, as no other Commission auction to date provided the opportunity for incumbent licensees to voluntarily turn in their license in exchange for a portion of the proceeds of the auction of that license. The incentive auction will include two separate steps — the “reverse” auction, by which the television licensees articulate their interest in relinquishing some or all of their current broadcast rights in exchange for payment, and the “forward” auction, by which the Commission auctions the spectrum made available to wireless carriers. The Act requires that the television licensee receive from the forward auction the amount the Commission accepted as the licensee’s bid in the reverse auction, otherwise none of the licensee’s spectrum may be assigned.
In the context of the “reverse” incentive auctions, current television licensees, which will include those low-power licensees that have Class A status, will be able to elect to participate in the auction in one of three ways:
- The licensee voluntarily returns its license to the Commission and relinquishes all future rights to operate as a television licensee;
- The licensee voluntarily returns its license to the Commission and elects to share a channel with another licensee in the market. In this scenario, the sharing parties retain all programming carriage rights as if they each were stand-alone licensees; or
- The licensee voluntarily agrees to change its channel assignment from a UHF channel (14-51) to a VHF (2-13) channel, which provides less than optimal coverage for digital television service.A
s discussed below, if a television licensee does not elect to take one of these three options, it will likely be repacked into the smaller television spectrum band that results from the changes required to accommodate those that do intend to participate and to create sufficient 700 MHz spectrum to auction.
The “forward” portion of the auction will constitute the auctioning of the available spectrum for flexible use, likely to wireless carriers or would-be wireless service providers. In the event that the proceeds available for a television licensee from the forward auction are less than the amount the licensee specified in the reverse auction, the Commission may not assign that licensee’s spectrum. The final version of the Act prohibits the Commission from preventing any entity from participating in future auctions as long as the entity complies with auction procedures and is otherwise qualified to hold a license. However, the Act also states that this prohibition does not affect the Commission’s authority to enforce rules of general applicability, including rules concerning spectrum aggregation limits.
Effect of the Act on Broadcasters
The Act’s framework and legal authority for the auction of surrendered television licenses will have significant effects on television licensees. First, television licensees will need to determine whether they desire to change their status and/or exit the broadcasting industry in whole or in part. Second, those that chose to remain will more than likely experience upheaval as the Commission must “repack” the television spectrum to provide wireless carriers or other new entrants the contiguous amounts of 700 MHz spectrum that is sufficient for their use.
For those licensees that are “repacked,” a fund of $1.75 billion is set aside from the auction proceeds to cover all reasonable engineering costs experienced by those licensees that remain in the business. Alternatively, licensees can elect not to receive reimbursement, and, instead, be granted the right to use their spectrum for mixed purposes, so long as they maintain one free over-the-air signal to the public.
While Class A Low Power televisions stations can participate in the incentive auctions, the Act specifically did not provide the same rights to other low-power television licensees. Instead, those licensees will retain the same interference protection rights currently provided under the Commission’s rules.
Incentive Auction Implementation
The Commission will need to initiate and conclude numerous proceedings to implement the spectrum provisions of the Act. While the Commission had initiated a rulemaking proceeding in December 2010 on the subject of incentive auctions, it did not adopt final rules in that proceeding, and the proceeding did not cover all of the issues implicated by the Act.
Thus, we can expect that the Commission will move swiftly to seek comment on many of the issues that require attention, including the timing and procedures for a two-step auction. While the Act gives the Commission the right to hold both the reverse and forward portions of the auction at the same time, it is unlikely that interested bidders will want to bid on uncertain spectrum rights.
Instead, it is likely that the Commission will need to obtain information from current licensees as to what election they will make, and then take steps to repack the spectrum prior to holding the “forward” auction. This should eliminate most of the uncertainty for forward auction participants, and inform the Commission as to the estimated costs associated with the repacking.
Complicating this approach, though, is a provision in the Act that forbids the Commission from informing the public of the elections made by broadcast licensees. If the identities of broadcasters are to remain unknown, the Commission will need to devise an approach to identify blocks of spectrum available in geographic areas for auctioning, without identifying which licensees made which election.
Next, with respect to the repacking itself, the Act instructs the Commission to make all reasonable efforts to maintain the current population and service areas of television licensees as of February 17, 2012, for those electing to remain in the broadcast service. As of today, the Commission has not provided to the public the engineering models it developed to repack the spectrum. Despite congressional inquiries asking for such disclosures, the Commission has declined, indicating that the models are a work in progress. However, at some point, the Commission will have to finalize those engineering models and release them for public review.
Last, but certainly not least, the election process afforded to broadcast licensees raises its own questions. During the DTV transition, which took more than 10 years, the Commission faced a similar election problem with television licensees — in that case determining the channel on which each station would operate at the end of the transition. The Commission went through three rounds of elections at that time, narrowing down the number of independent challenges to be resolved at each step.
The Act provides broadcast licensees with only one bite at the election apple and provides the Commission with only one bite at the repacking apple. However, the DTV Table will still need to be redrawn in light of those giving up their channels. While the Act eliminates the ability for licensees that are repacked to object under Section 316 of the Communications Act, mistakes will occur, and in light of the fact that further tweaks to the final DTV Table were occurring up until the end of the DTV transition, the Commission will need to develop an opportunity to allow those remaining in the industry to find their optimal channels.
Thus, there are many moving parts to the planning and implementation of the incentive auctions. Television broadcasters will need to be aware of the steps taken by the Commission to implement the Act, and properly determine the likely effects on each licensee, and identify the steps to be taken to protect their interests.
Public Safety Broadband Network Provisions
The legislation reallocates 10 MHz of spectrum in the 700 MHz band, known as the “D Block,” to public safety which, together with spectrum in this band already allocated to public safety, will provide 20 MHz of contiguous spectrum for the deployment of a nationwide public safety broadband network based on a single national network architecture. The Act directs that $7 billion raised from the expected auctions be reserved for the construction of this network. Minimum technical requirements must be adopted, but the Act requires that these minimum standards be based on commercial standards for Long Term Evolution service. The legislation directs the Commission to allocate the D Block to a single national licensee, the First Responder Network Authority (FRNA), for an initial 10-year term. The FRNA will be an independent authority established within the National Telecommunication and Information Administration. The FRNA is directed to try to leverage existing commercial and government wireless infrastructure to the extent it is economically desirable to do so, and may enter into roaming agreements with commercial network providers to allow roaming by public safety network users with provisions for prioritization of public safety communications in times of emergency. The FRNA may also lease access to the network or network equipment to non-public safety entities on a secondary basis in order to help fund the national public safety broadband network, as long as the FRNA is not directly selling or leasing to commercial users. The FRNA is required to limit its administrative costs and to charge public safety users fees for use of the network.
The FRNA’s authority sunsets after 15 years, although the Act does include a provision requiring the Comptroller General to submit a report to Congress within 10 years on what action Congress should take concerning the sunset provision. Individual states will have the option of either participating in the deployment of the nationwide network or deploying their own networks. In the event a state elects to opt out, it must submit an alternative plan for the deployment of a state network that meets minimum technical requirements and is interoperable with the nationwide network. Each state plan is subject to Commission review and approval.
Clearing the Other Spectrum
The legislation also provides for the reallocation of the “T Band” (470-512 MHz) from eligible public safety users through spectrum auctions. Proceeds from these auctions may be used to cover the relocation costs of public safety entities moving out of the T-Band. Further, the legislation directs the clearing and auction of certain spectrum in the 1915- 1920 MHz, 1995-2000 MHz, and 2155-2180 MHz bands, as well as 15 MHz of spectrum in the 1675-1710 MHz band currently authorized for federal government use and 15 MHz of contiguous spectrum to be identified by the Commission.