MVPD Issues Punctuate FCC’s Broadcast Spectrum Auction Plan

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Deep within the FCC’s broadcast spectrum incentive auction plan are frequent sections affecting cable and satellite operators or, in FCC parlance, Multichannel Video Programming Distributors (MVPDs). 

The potential implications for cable operators – on issues ranging from a share of the expected $1.75 billion auction funds to future retransmission agreements – will be scrutinized as lawyers evaluate the 205-page Notice of Proposed Rulemaking (NPRM), which seeks industry input by December 21.  The FCC wants to complete its deliberations by next year and begin the spectrum incentive auction by 2014.

For example, the “TV Broadcaster Relocation Fund” will make available unspecified funds to MVPDs “that incur costs in order to carry the signals of reassigned [TV] licensees.”   They payments will complement the fees paid to TV station owners to “reimburse costs reasonably incurred” by reassignment to new channels.” The FCC plan is mandated by Congress’s Spectrum Act adopted earlier this year, which among other things, requires all such payments must be made within three years of completion of the auction process that is at the core of this plan.

“The reimbursements are for the costs of relocating television service from one channel to the other, not for lost revenues,” the NPRM emphasizes.

But the reallocations – and offshoots such as channel sharing – could have long-term impact on broadcast availability and the shape of future retransmission deals.  Although major market, network-affiliated stations are not expected to submit their frequencies to the auction, the entire process may change the landscape of broadcast availability nationwide, according to many observers.

In its proposal for “channel sharing” by broadcasters, the FCC points out that in some cases, such sharing may affect carriage by MVPDs.  It quickly adds that such sharing should have minimal “potential impact on MVPDs,”  noting that a “ television licensee’s satellite and cable carriage rights on a particular MVPD system generally depend on the DMA (Designated Market Area) assigned to the station.”  Nonetheless, the Commission invites comments on any situations that could be affected by channel sharing.

In its verbiage, the FCC asks, “Should we allow MVPDs to elect to be reimbursed by an advance payment based on estimated costs...?  If so, how should we estimate costs?  Should all MVPDs be eligible for reimbursement based upon the same estimated amount per station change?  If so, should there be one estimated rate or rate tiers?”

The NPRM’s questions continue, including requests for input on how to identify tiers and procedural issues about use of funds from the “Relocation” budget.

A fundamental feature of the incentive auction is “repacking” of the broadcast channels – that is realignment of TV channel frequency assignments in each market to free up sections of the UHF band for other mobile and wireless broadband services in contiguous spectrum segments.  As part of the NPRM, the Commission is seeking ideas about whether all MVPDs should be eligible for reimbursement of costs associated with TV channel repacking, including a possible cap on actual expenses.

Elsewhere in its discussion about potential interference caused by repacking of broadcast stations, the FCC asks, “Should we limit any new interference that we decide to allow only to geographic areas with high MVPD penetration rates?  If so, what should the required level of MVPD penetration be?  Would 70% penetration by MVPDs be sufficient?”

Such quantitative new standards represent the kinds of issues that could complicate the FCC’s rocket-docket, which seeks to begin auctions by 2014.  The aggressive timetable does not seem to mesh with the FCC’s invitation for “commenters to submit appropriate economic studies to support their views or proposals on these issues.” 

In a separate discussion of “potential disruption to current operations” to MVPDs – especially alerting subscribers about channel changes – the FCC seeks comments about whether to require such notices and, if so, what form they should take. The Commission also wants comments about a timeframe for notices to MSOs, satellite and other operators, especially to give MVPDs “reasonable opportunity to prepare for any necessary carriage or technical changes.”  In particular, the FCC seeks information about “the relative costs and benefits of any such notice requirements.”

While the accolades for the NPRM keep pouring in, regulatory realists question if the massive plan can move so quickly – especially with its complex simultaneous reverse- and forward-auction structures and the fierce lobbying expected from broadcasting and telecom interests.  The tantalizing $25 billion auction bonanza (presumably to be used for tax reductions and unemployment benefits) is urgent. But, for example, Steven K. Berry, president/CEO of the Competitive Carriers Association (representing smaller telcos) wonders how the FCC can meet its 2014 target with such a plan.

"If they hold both the reverse auction and the forward auction at the same time, I'm just not sure how it can be done," Berry said. "I'm not sure who will be able to bid on spectrum without knowing how much they will get and whether or not the spectrum is contiguous".