Washington— The Federal Communications Commission last Monday gave final approval for a plan to clear a large block of television spectrum — a move that could both boost the wireless phone industry and pour billions of dollars into the coffers of broadcaster Paxson Communications Corp.
The plan allows wireless phone companies to pay TV stations with licenses for channels 60 to 69 in order to move them from that band. The UHF band has about 99 analog licensees and 42 digital TV licensees. The FCC's clearing plan is also intended to free up spectrum for public-safety organizations.
The FCC unanimously approved the plan on Sept. 7, but it withheld public release for 10 days. In one of her final acts at the agency, Democratic FCC member Gloria Tristani — who stepped down Sept. 7 — voted for the plan.
Paxson's 17 analog stations in the 60-to-69 block give the company control of at least 10 percent of the spectrum in that band, Paxson said. Some analysts have valued that spectrum at between $30 billion and $35 billion, based on the results from a similar spectrum auction in Europe.
If those estimates are accurate, Paxson — which is 32-percent owned by General Electric Co., parent of NBC — could be looking at a $3 billion payday for vacating its analog channels. By contrast, Paxson has a current market capitalization of $580 million, according to Multex.com Inc.
Paxson chairman Lowell W. Paxson, reacting to the FCC's decision, disagreed that his company was staring at a financial windfall in the $3-billion range.
"I think the highest amount you are going to wind up getting is a little over a billion — just us," said Paxson, who spent more than a year lobbying the FCC. "There's a lot of money involved, but I don't believe, in my opinion, you are going to see anywhere near $38 billion."
Paxson organized a group called the Spectrum Clearing Alliance, which represents 65 percent to 70 percent of the analog broadcasters in the 60-to-69 band. The SCA has hired investment banker Allen & Co. to negotiate compensation on its behalf and to arrange a time frame for vacating the spectrum. Paxson said his company could vacate the spectrum as soon as 2003.
The FCC was eager to establish a spectrum-clearing plan, but had to confront the reality that bidders were unlikely to commit billions of dollars to the U.S. Treasury if dozens of TV stations weren't required to exit by a fixed time.
Under the FCC's digital-TV transition rules, analog TV stations may operate in the 60-to-69 band until 85 percent of households in their markets can see DTV signals. After making the transition to digital-only service, the TV stations would be required to give their analog licenses back to the FCC for future auction.
But in an effort to free up spectrum for wireless carriers on an expedited basis, the FCC decided that TV stations with 60-to-69 spectrum licenses may sell them instead of surrendering them to the FCC, a move that didn't sit well with one consumer advocate.
"This is a wealth transfer from the public to the broadcasters, absolutely," said Mark Cooper, research director of the Consumer Federation of America.
Ken Johnson, spokesman for Rep. Billy Tauzin (R-La.) — chairman of the House Energy and Commerce Committee — said Tauzin's staff needed time to study the FCC's 19-page order.
"It's a rather lengthy order and our staff is reviewing it right now to determine whether or not we have any policy concerns," Johnson said. "It is an unusual policy step and we need to analyze its possible implications."
Paxson dismissed claims that he would reap a windfall due to federal government's need to allocate large chunks of spectrum to wireless companies desperate to provide consumers with new mobile services.
"This is all being done with government backing, government approval, government sanction," Paxson said.
"The commission could have told us, 'Get your butt off,' " Paxson added. "But they didn't. They said: 'You can get the compensation, and here's how you get off, and we'll help you do it.' "
The FCC cancelled the 60-to-69 auction five times while developing its spectrum-clearing plan. A new auction date was not set last week, but the agency is expected to announce a date soon.
"Anything that brings more certainty to the 60-to-69 band and facilitates the clearing of the band is good news," said Cellular Telecommunications & Internet Association spokesman Travis Larson. Its members are likely to bid in the 60-to-69 auction.
The FCC's Monday decision means wireless companies can sit down and bargain with TV-station owners, said Paxson, though he was unclear as to how the two sides would determine the selling price. Paxson also wouldn't speculate on whether the federal government or the TV stations would receive the lion's share of the money.
The wireless companies "are going to come and negotiate will us and we are going to negotiate. Then they can decide what they want to pay the government. I don't care. That's up to them," Paxson said.
Under the FCC's plan, TV stations in the 60-to-69 block that sell their spectrum can use their digital licenses to continue broadcasting in analog in order to reach their current audience. Those stations don't have to convert to digital until Dec. 31, 2005 and they are entitled to seek extensions if less than 70 percent of TV households in their markets have digital reception equipment. The FCC said extensions would be granted almost automatically.
Paxson and the other 60-to-69 TV stations could potentially turn off analog service to 30 percent of households in their markets after making the switch to digital-only service — a development that rattled some FCC members.
"I write separately to emphasize that in our quest to move incumbent broadcasters off this band, we must not lose sight of the value of free, over-the-air broadcast television services," said Republican FCC member Kevin Martin in a statement.
Michael Copps, the FCC's lone Democrat, said he was "troubled by a conversion schedule that could leave Americans without access to broadcast services."
This FCC's policies in the 60-to-69 band were a departure from rules that affect all other commercial TV stations, which must begin operating in digital by next May. But based on a recent survey, the National Association of Broadcasters expects about 30 percent of commercial stations to miss the May deadline.
The NAB has asked the FCC to establish a simple waiver process for those stations.