Lost Spectrum Could Be Cable’s Gain

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Most of the attention in the big push to reclaim broadcast-TV spectrum has been given to TV stations, their owners and the private-equity firms involved that could be looking for an exit strategy — but cable operators have plenty of skin in the game as well.

That includes billions of potential dollars from new subscribers and a possible new model for retransmission-consent negotiations that could give multichannel TV providers more leverage.

According to a source familiar with the conversations, Federal Communications Commission staffers have been talking to cable-industry representatives about spectrum reclamation, but those conversations have been about technology rather than broader policy issues.

“Staff has talked to cable operators, asking them technical questions, but there have not been the broad conversations they have had with broadcasters,” the source said.

According to broadcast sources, one such conversation the FCC will need to have is on extending the must-carry rules to signals no longer delivered over the air, or now transmitted in a different format.

“The historic legal justification for must-carry was … to preserve an over-the-air service for the non-cable home,” said cable attorney Daniel Brenner of Hogan & Hartson. “But if you eliminate that service, then that justification goes away.”

According to broadcast sources, one take on the spectrum-reclamation proposal being floated by FCC broadband adviser Blair Levin in talks with broadcasters and others would have the stations maintain at least a standard-definition over-the-air signal, with cable operators required to carry an HD feed of that station to their customers.

Under another scenario, outlined by economist Coleman Bazelon in an FCC filing, broadcasters would give back all their spectrum, becoming essentially another cable or satellite channel.

Cable would find upside in Bazelon’s proposal that the government subsidize multichannel video service to the 10 million or so households that still rely on over-the-air TV. “You are offering them 10 million new customers, so that’s worth something,” Bazelon pointed out. Such lifeline service would be subsidized for life, he said.

But is that worth enough for cable operators to accept a continued must-carry regime, perhaps for stations that don’t even deliver an over-the-air signal? “Maybe not, but must-carry is going to be in the bargain,” he said. Bazelon figures that subsidized service would mean an additional $9.3 billion in cable subscriptions (see box).

The industry has long argued that forced carriage of stations that actually deliver a signal over the air is an unconstitutional taking of property and a violation of their First Amendment right to have editorial control over their own networks. Trying to extend that to stations no longer on the air could, as Brenner points out, be tough sledding.

Comcast executive vice president David Cohen would not comment directly on any of the proposals, but told reporters at a briefing two weeks ago that any attempt to extend must-carry would almost certainly wind up in court. (Comcast and the FCC are already locked in court battles over the agency’s retention of rules capping a pay TV provider’s footprint at 30% of the U.S. multichannel market, as well as the BitTorrent decision finding Comcast in violation of agency network-openness guidelines).

For pay TV providers, the advantage of a spectrum-free system of local TV stations goes beyond the additional 10 million or so homes that would sign up for subsidized service, said one veteran cable attorney who asked not to be identified. It would also give operators a leg up in terms of retransmission consent.

What is now a system that benefits a few broadcasters at the expense of cable operators, the attorney said, could become one in which an MSO could cut out the TV-station “gatekeepers” and deal directly with such broadcast networks as NBC, ABC or Univision, as they do with national cable networks.

If an affiliate-station owner such as Sinclair Broadcast Group has only local news to offer an MSO such as Mediacom Communications, said the attorney, “the affiliate loses a lot of its influence.”


THE COST OF CONVERSION

Excerpted from Coleman Bazelon’s paper The Need for Additional Spectrum for Wireless Broadband: The Economic Benefits and Costs of Reallocations, submitted by the Consumer Electronics Association in comments to the Federal Communications Commission.

Assuming an initial one-time cost of $50, an annual cost of $120 (12 monthly payments of $10), a cost of funds of 10% per year and a rate of exit from a subscription broadcast service of 5% per year, the present value of such a subscription would be on average $930.48. This estimate likely overstates the actual cost of purchasing a lifetime subscription for broadcast channels for several reasons. First, if large numbers of currently over-the-air households were to take subscription services, subscription video-service providers would likely offer less-expensive packages as they compete with each other to gain access to this market segment. Second, as households develop relationships with video-service providers, it is likely that a number of them will upgrade to more robust subscription programming packages, thus reducing the average expected life of a broadcast only subscription. Nevertheless, to be conservative in this analysis, I use $930 as the cost of providing a broadcast-only subscription service to a current over-the-air-only [television household]. This implies a total cost of about $9.3 billion.

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