Television’s Beachfront Auction

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With mobile telephone service on their drawing boards, MSOs are keeping an eye on one particularly interesting regulatory development that’s expected to occur in the next few years.

Within that time frame, the federal government is likely to reclaim a huge block of analog TV spectrum.

These channels are considered beachfront property because the propagation characteristics yield excellent indoor reception over long distances. Good signal quality over many miles also reduces network construction costs.

High-Tech’s Deep Pockets

If cable is interested in that spectrum for mobile offerings, it will likely need to compete with an array of deep-pocketed high-tech companies, including Dell Inc., IBM Corp., Cisco Systems Inc., Intel Corp., Microsoft Corp. and Qualcomm Inc. Several of those firms supply cell-phone companies.

Underscoring keen interest in the broadcast spectrum, Senate Commerce Committee chairman Ted Stevens (R-Alaska) recently observed: “There’s really not a lack of spectrum for use if you really want to develop it. There’s a lack of better spectrum.”

Of course, whether or not cable companies will even be interested in — or able to — participate in that process remains to be seen. A decade ago, cable invested billions of dollars in PCS spectrum but eventually withdrew from the market. One of the last to leave was Cablevision Systems Corp., when it sold off its wireless licenses to Verizon Wireless in December 2002 for about $750 million.

And the Federal Communications Commission, which will supervise the auction of broadcast spectrum, might decide to bar cable and phone companies from acquiring licenses inside their local service territories. A possible issue for both industries is their involvement in the broadband subscription market.

The exclusion of incumbents is not unheard of. In 1997, the FCC banned cable and phone companies from holding in-region Local Multipoint Distribution Service (LMDS) licenses for three years in order to promote competition in video and data markets.

MVDDS Restrictions

In 2002, the FCC adopted similar cable-telco restrictions with regard to Multichannel Video Distribution and Data Service licenses. MVDDS spectrum, which shares the band used by direct-broadcast satellite providers, was auctioned to providers of data and video over terrestrial facilities.

Former FCC chairman Reed Hundt says cable’s eligibility to vie for the analog television spectrum would likely be governed by the amount of spectrum available.

“I think if there is enough spectrum, you don’t have to do that, and I think the goal of government policy ought to be to put so much spectrum out there that you don’t have to worry about that,” Hundt says.

Precursor media and telecommunications analyst Scott Cleland says an FCC cross-ownership ban is “a real potential risk” but not “necessarily likely.”

The FCC is expected to reclaim 108 MHz from broadcasters, though 24 MHz won’t be auctioned. That slice of the airwaves will be given to public-safety groups to solve interoperability problems during time of crisis involving multiple jurisdictions.

A spectrum auction could also be too pricey for cable. A recent estimate provided to Congress by a private company predicts that just 60 MHz could net the federal government between $20 billion and $30 billion.

When the FCC can auction the spectrum is unclear. House Energy and Commerce Committee chairman Rep. Joe Barton (R-Texas) wants to reclaim the airwaves by Dec. 31, 2006, hoping to free up the spectrum quickly.

Analog Widows

But broadcasters are fighting Barton. They claim that cutting off analog TV would widow 45 million TV sets in 21 million homes that rely exclusively on free, over-the-air broadcasting and another 28 million in homes that subscribe to cable or satellite.

Aware that access to the analog TV spectrum could be many years away, cable companies are unlikely to map plans hoping for an early auction, Cleland says.

“The reason they won’t do that is that the timing of that spectrum is incredibly uncertain. Time to market is much more important strategically than total control,” he adds.

That being the case, Cleland sees cable pursuing wireless alliances. “If you are Comcast [Corp.], you are going to do a deal with Sprint-Nextel,” he says.