CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

OET-69 – real name: “OET Bulletin No. 69 Longley-Rice Methodology for Evaluating TV Coverage and Interference” – is, of course, the how-to guide developed by OET over the years for predicting, through use of the Longley-Rice propagation model, TV service coverage and the likelihood of interference. By a complex set of computerized calculations, which incorporate a detailed database of terrain variations, Longley-Rice facilitates “predictions of radio field strength at specific geographic points based on the elevation profile of terrain between the transmitter and each specific reception point.” Predictions generated through Longley-Rice are generally deemed to be more accurate than those produced by the Commission’s traditional methods. (Those traditional methods first relied on hand-cranked charts and tables; they later migrated to a relatively crude computerized method that produced only a statistical prediction of signal strength over a broad geographic area rather than at any individual location.)

The greater precision provided by OET-69 was central to the vast transition of the U.S. television industry from analog to digital, a process that stretched over decades and wrapped up in 2009. The currently authorized service areas of all full-service TV stations were determined, directly or otherwise, through operation of OET-69.

That’s important here because, in directing the Commission to conduct incentive auctions, Congress recognized that TV licensees who opted not to turn in their licenses – and who would thus be subject to possible channel reassignment – should be assured that, when the dust settles on the auction/reassignment process, they will still be able to serve the areas and populations they had previously been authorized to serve. Also, knowing with certainty what will await them post-auction could induce some licensees to participate in the auction.

If the method of predicting service areas and populations changes in mid-stream, stations could end up with less than they thought they would have once the re-packing process is completed. You may recall that a fixed reduction in service area for all stations was considered by the FCC at one time as a way to pack stations closer together, but Congress nixed that idea, instead directing that:

[i]n making any reassignments or reallocations . . ., the Commission shall make all reasonable efforts to preserve, as of the date of the enactment of this Act, the coverage area and population served of each broadcast television licensee, as determined using the methodology described in OET Bulletin 69 of the Office of Engineering and Technology of the Commission.

(Those are our italics, not Congress’s.) Congress seemed clearly to be saying that existing licensees should be entitled to keep their existing OET-69-determined service areas and populations.

But now OET has unveiled TVStudy – which the Commission “plans to use in connection with” the incentive auctions. According to OET, TVStudy, when compared with OET-69-related software, “runs much faster, provides greater accuracy in modeling and analysis, and is easier to use and more versatile”. Wow, what’s not to like about that?

Maybe a lot, if you’re a TV broadcaster.

Focus, please, on the notion of “greater accuracy in modeling and analysis”. That suggests that, by using TVStudy, the Commission could come up with service areas/populations different from – and possibly smaller than – those generated by the long-accepted OET-69 software. Smaller areas/pops calculations could diminish broadcasters’ expectations, whether they plan to (a) stay in the business (in which case their service areas might be reduced) or (b) participate in the auction (in which case the auction payment they could expect to receive might be reduced).

Suspicious folks may be wary of back-door, fine-print devices by which the FCC might be planning, on the QT, to disadvantage broadcasters in the auction process by achieving the reduced service areas that Congress rejected. Such folks might view the development and anticipated implementation of TVStudy with some skepticism. After all, when Congress mandated the use of OET-69, wouldn’t you think that they had a specific method in mind and not just the title of a program that the FCC could then change however it wanted?

That is not to say that OET is completely off-base in thinking that OET-69 might need some spiffing up. Some of the software underlying the current OET-69 process was developed three decades ago, which alone suggests that some updating might be useful. Moreover, as detailed in OET’s request for comments on TVStudy, other intervening developments – the availability of a more recent census and more accurate terrain data, determinations of errors in the existing software, to name a few – may also justify an updating effort. We can all stipulate that, in a perfect world, the Commission could probably improve on its existing OET-69 software, at least by updating the underlying data used in the calculations, and TVStudy might do just that in all the right ways.

But consider the timing. OET’s notice and request for comments about TVStudy was issued ten days after the deadline for comments on the overall incentive auction plan. Comments in response aren’t due to be filed until a couple of weeks after reply comments are due in the incentive auction proceeding. How can anyone reasonably be expected to comment on the incentive auction plan when an important element of that plan – i.e., the method to be used to calculate services areas and populations – is still up in the air?

And bear in mind, too, that OET-69 methodology in its current form was good enough to use in the DTV transition completed in 2009. (OET-69 has been around in one form or another since 1977. The current version of OET-69 is dated 2004.) If the underlying software is now unreliably old and flawed, how come the Commission didn’t update it for the DTV transition?

If the Commission plans to use TVStudy instead of its standard OET-69 approach when the auction rolls around, why didn’t the FCC include TVStudy as a component of the incentive auction NPRM? And while, with all due respect, we doubt that anyone on the Eighth Floor would ordinarily be capable of producing anything as technically complex as TVStudy – that’s why, after all, the Commission has an OET in the first place – why aren’t the details of TVStudy and its anticipated implementation being overseen by the full Commission (as opposed to OET) as part of the run-up to the incentive auctions?

There may be perfectly rational, arguably credible, answers to these questions, but it’s hard to see what they might be. The Commission has known since the passage of the Spectrum Act that OET-69 calculations would be central to the auction process. And don’t forget that, three years ago, in connection with the National Broadband Plan, the agency described an “Allotment Optimization Model” (AOM) it was then working to develop. Since the AOM (which was never released to the public) did not incorporate OET-69, it can’t be used for incentive auction purposes thanks to Congress’s specific insistence on OET-69 methodology. 

We’re guessing that the Commission has been looking at alternatives to the AOM, including the TVStudy idea, for a considerable time, probably since well before the issuance of the incentive auction NPRM. The fact that we’re only hearing about TVStudy now, and from OET rather than the Commission itself, raises legitimate concerns about what exactly the FCC’s game plan here might be.

The NAB has already weighed in, at least preliminarily. In response to OET’s request for comments, the NAB has argued that now is not the time to patch together a quick fix to OET-69 methodology. The NAB acknowledges that OET-69 might be improved on . . . just not now, with so many other loose ends still to be tied down relative to the incentive auctions.

Back in the day, accuracy in signal prediction was often a function of the sharpness of the pencil being used to draw contour lines on a paper map. The pencil was sharpened some when the first computerized contour calculations were introduced, although those used crude terrain data limited to a 2-10 mile donut shaped circle. OET-69 sharpened the pencil further by introducing more detailed data over a wider area. TVStudy may be just a modern-day means of sharpening the pencil even more. 

While, as a general rule, greater accuracy is the preferred course in most situations, there are times when the desirability of some arguably greater accuracy may be outweighed by other factors. Here, the Commission is apparently committed to conducting incentive auctions at the earliest possible time with maximum participation from broadcasters. Introducing uncertainty relative to an essential aspect of that participation – i.e., the calculation of relevant service areas and populations – could result in delay of the auctions and/or significantly reduced broadcaster participation. Further, Congress itself specified use of OET-69 without indicating any concern about possible inaccuracies. And finally, let’s not lose sight of the fact that we are talking about predictions of signal coverage. Neither OET-69 nor TVStudy will guarantee absolute precision in any event.

Those factors being the case, perhaps the Commission should stick with the pencil as it is.

Comments on TVStudy are currently due to be filed by March 21, 2013; reply comments are due by April 5, 2013.

It’s actually simpler than you might imagine. If you’re filing comments the old-fashioned way (i.e., on paper, through the office of the FCC Secretary), you just don’t bother to tell the FCC who you are. (Alternatively, you could presumably use a pseudonym – John Doe, f’rinstance, or maybe Publius, or a personal favorite, L’Angelo Misterioso.) 

Things are a bit trickier if you want to file electronically. The FCC’s rules require that electronic filers identify themselves unless they are represented by counsel. If you’ve lawyered up (and, as card-carrying members of the Federal Communications Bar Association, we certainly encourage you to do so), no ID is required – although the lawyers will have to identify themselves.

Lawyer-less electronic commenters are not entirely out of luck. Under the rules, they’re supposed to include their names and mailing addresses, but the Bureau’s public notice observes that folks in that position can still request a waiver of the ID requirement – although the notice doesn’t explain exactly how you can file a waiver request anonymously.

The Bureau encourages anonymous filers to provide “sufficient basic information” to let the Commission and the public “understand and evaluate the positions” spelled out in their comments. Particular items of interest mentioned by the Bureau: the commenter’s market tier, and whether it’s a network affiliate or independent.

Whether the Bureau's invitation to anonymous commenters will indeed lead to a "robust" record, as the Bureau hopes, or an arguably unreliable record (after all, how can the FCC rely on input whose source is unknown?) is not clear.  But the Bureau has put the word out, so we thought we'd pass it along.

Remember, comments in the incentive auction proceeding are currently due to be filed by January 25, 2013, and reply comments by March 12.

• Utility: The Commission is proposing to auction the newly-available mobile spectrum in 5 MHz “building blocks”, which can support a variety of wireless mobile technologies (including Wideband-Code Division Multiple Access (W-CDMA), High Speed Packet Access (HSPA) and Long Term Evolution (LTE)). To the extent possible, the Commission will seek to pair the blocks, consistent with the prevailing practice in many existing mobile networks.
• Certainty: The Commission proposes methods to minimize interference between broadcasters and wireless, as well as harmonizing the band plan with international treaty obligations to Canada and Mexico. Notwithstanding the FCC’s best intentions on this front, though, border-related issues will complicate the reconfiguration process, particularly in view of the disparate plans for DTV conversion in Mexico and Canada.
• Interchangeability: The FCC intends to assure that the reconfigured band will permit “enhanced substitutability” of the spectrum blocks.  The idea there is that, the more interchangeable the blocks are, the less important it will be to bidders that the particular frequencies up for auction can’t be known at the time of the auction – since whatever blocks they may buy will in any event be “interchangeable”. Technical solutions such as effective guard bands should assist in this regard.
• Quantity: By providing varying amounts of uplink spectrum in different geographic regions, the Commission will ideally be able to take maximum advantage of whatever spectrum becomes available through the “reverse” auction. Different uplink amounts will permit the Commission to vary the total amount of spectrum per geographical area, which should provide greater efficiency than would a nationwide standard. Also, the Commission plans to maximize new unlicensed spectrum both by allowing such use in the guard bands between TV and wireless and by supplementing the guard bands with “remainder” spectrum from the conversion of 6 MHz blocks (i.e., the standard for television stations) to 5 MHz.
• Interoperability: The Commission’s “proposed band plan would allow for wide band radio operations using common radio components and improvements as technology evolves over time.”

With all the caveats about unknowns and the like, this is what the FCC has in mind for the reconfigured band.

The Primary Proposal. Under the Commission’s primary proposal (see Figure A), the uplink band would begin at channel 51 and extend downward toward channel 37. Exactly how far down the uplink band might extend will be determined by how much spectrum becomes available through the “reverse” auction and consequent repacking.

On the far side of channel 37, the downlink band would begin at channel 36 and, as with the uplink band, extend downward. How far down it goes would, again, depend on how much spectrum is freed up through the broadcast repacking.

The uplink and downlink bands would be placed with an eye towards limiting interference, thereby minimizing the need for guard bands. The new uplink band would be adjacent to the 700 MHz uplink band; these bands are harmonized so there is no anticipated need for a guard band. The downlink band beginning at channel 36 would effectively utilize channel 37 as a guard band – the current services in channel 37 (radio astronomy and wireless medical telemetry) have been operating adjacent to broadcast television bands without interference. But note the Commission indicates a willingness to consider relocation of the current channel 37 services, of which the FCC has historically been highly protective.

The Commission seeks comment on the proposed spectrum block size. The suggested size is 5 MHz, but the Commission would consider maintaining the 6 MHz block structure used for television operation; it might even look at larger units, e.g., 10 MHz blocks. The Commission is interested in a structure that will allow the aggregation of 5 MHz blocks, both at the initial licensing stage and through the secondary market and channel aggregation. The Commission proposes to auction and license paired blocks of spectrum. Where there is spectrum that cannot be paired, the Commission proposes to make such unpaired spectrum available for downlink purposes.

Alternative Band Plan Approaches. While the proposal described above is the FCC’s “lead proposal”, the NPRM includes a few alternative visions for the band plan. 

Down from Channel 51(see Figure B): The Commission could attempt to clear broadcast channels from channel 51 downward without regard to the natural separation of the channel 37 services. A downside would be the need to create a duplex gap between the uplink and downlink bands. The wider the duplex gap the better the mobile performance, but in a smaller licensed band.

One concern with this alternative is that if more than 84 MHz is cleared through the “reverse” auction/TV repacking process, channel 37 would be located in the downlink band – which would require the Commission to address, as part of the reconfiguration, what to do with the radio astronomy and medical telemetry services currently operating at channel 37. (See Figure C.) If radio astronomy and wireless medical telemetry were moved from channel 37, the Commission might seek to place the downlink band at channel 32 rather than channel 36 thereby creating symmetry between the total uplink and downlink spectrum.

In from Channels 51 and 21 (see Figure D): Another alternative would be to maintain the 51-down approach for the uplink band, but start the downlink band up from channel 21.  That would avoid any need to move channel 37 services. There would be no need for a duplex gap, since TV broadcasters would operate between the uplink and downlink bands. However, guard bands would have to be created – one on each side of the downlink band and the lower edge of the uplink band (as in the lead proposal). There is also the question of whether the pass band size would require multiple band plans. 

Prioritizing Paired Spectrum. The Commission may consider a plan based around the pairing of spectrum nationwide instead of on a market-by-market basis. Rather than a series of asymmetrical markets where the uplink varies, the spectrum would be equally divided between paired downlink and uplink spectrum. Where there is residual spectrum it would be used for one block of unpaired downlink spectrum. The obvious downside is that it would be limited to the “lowest common denominator” market availability of spectrum.

Another alternative would involve the creation of two families of paired spectrum, one nationwide and another in smaller markets. The goal here would be to try to balance the desire to offer as much paired spectrum as possible with the need to maximize the total amount of spectrum reallocated.

Different Amounts of Spectrum in Different Markets. By allowing the conversion of different amounts of broadcast spectrum in different geographic areas, the Commission would hope to maximize the total amount of broadband spectrum available. However, the prospect of multiple band plans gives rise to technical complications, since such plans would create a need for different filters and/or duplexers in mobile devices. To address that problem, the Commission is considering a compromise solution involving “families” and “extended families” of related band plans. (See Figure E.) This way, mobile devices could be manufactured with common receive filter components to fit the common nationwide downlink spectrum, while the need for different receive filters could be addressed through operators’ base stations. 

A further complicating factor: if broadcasters relinquish an unexpectedly large amount of spectrum, technical requirements might necessitate two downlink band plans as an initial matter. The Commission seeks comment on these issues, as well as interoperability concerns.

Geographic Area Licensing. The Commission intends to utilize an intermediate geographic area licensing approach, offering mobile spectrum to serve particular Economic Areas (EAs) rather than broader service areas. Auctioning the spectrum based on nationwide, or broad regional, service areas would be less than desirable because, depending on the results of the TV repacking, spectrum would likely not be available in uniform amounts in all markets. The amount of spectrum that could be available for a nationwide license, then, would be limited to the amount available in the market with the least spectrum relinquished. On the other extreme, a more granular licensing approach – based on, for example, Metropolitan Statistical Areas/Rural Statistical Areas (MSAs/RSAs) that are smaller than EAs – would risk complications in auction design and implementation, as well as in the service roll-out. 

The Commission therefore is looking to the mid-sized, “Goldilocks zone” of licensing based on EAs. The Commission seeks comment on this approach, as well as what additional concerns to consider with respect to areas outside the lower 48 states (i.e., Alaska, Hawaii, U.S. territories, Gulf of Mexico).

The Commission also seeks comment on possible early and voluntary resolution of issues related to broadcast protections affecting lower 700 MHz A Block licensees.  The Commission would seek to facilitate channel relocation requests.

Unlicensed use. With all this band reconfiguration rearranging space for licensed operations, the Commission must still identify those areas of the spectrum which will be available for unlicensed use. The NPRM identifies three types of spectrum suitable for unlicensed use: guard bands, TV white spaces, and channel 37.

Guard bands: The Spectrum Act authorizes guard bands “no larger than [are] technically reasonable to prevent harmful interference between licensed services outside the guard bands.” The Commission is proposing 6 MHz guard bands between mobile broadband use and broadcast use. (See Figure F.) Those would be supplemented with the leftover bits from the relinquished broadcast spectrum – 1 to 4 MHz segments which are too small to be licensed as 5 MHz blocks. These guard bands would be available for unlicensed use. 

Of course, Congress’s insistence that guard bands be “no larger than technically reasonable” frames an obvious question: what is “technically reasonable?” Is a 6 MHz guard band enough to provide the necessary interference protections? Also, could the “remainders” from converting 6MHz television channels into 5MHz broadband channels be properly added to this band?

White Spaces:  In its repacking efforts, the Commission is also seeking to maintain a “substantial amount” of TV white space available for unlicensed operations. The Commission seems to think there will be plenty of white space left after the repacking, but that’s not intuitively obvious. After all, with TV broadcast channels being repacked even more tightly than has historically been the case (and with wireless service filling up most of the space freed up by the TV repacking), “white space” could ordinarily be expected to be in shortened, if not short, supply post-reconfiguration.

Channel 37:The Commission proposes unlicensed use in channel 37 “whether or not we relocate the WMTS and the Radio Astronomy Service.”  Every radio astronomy band is related to specific emissions from some cosmological event of interest to scientists. The channel 37 frequencies are particularly important in studies of the stuff between stars, distant pulsars, and our own Sun. The frequencies are protected by international treaty and used by radio-telescopes worldwide, so it will be interesting to see how commenters and the FCC address this issue.

If these services stay in channel 37, won’t they suffer interference from the on-rush of unlicensed operations? The Commission hopes to avoid this problem by establishing protection areas around the limited number of medical telemetry and radio astronomy sites, thus opening up this slice of spectrum for unlicensed use outside those limited areas.  The NPRM specifically solicits comment on the best protection criteria for medical telemetry and radio astronomy. 

Finally, it’s important to recognize that the voluminous NPRM poses many other questions addressing a wide range of critical issues, including pass band size, the possible authorization of TDD service in the band, and technical rules applicable to spectrum use. We strongly suggest that anyone with an interest in any of these areas review the full text of the NPRM carefully.

Again, comments are currently due no later than December 21, 2012 with replies due on February 19, 2013.

[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]

Bid Collection Procedures. The Commission proposes a “dynamic auction design format” with two alternative approaches: the typical “simultaneous multiple round ascending (SMR) auction” and, in this instance, the more favored “ascending clock auction.” 

The SMR design may be the more traditional auction approach. It involves a sequential series of rounds in which bidders specify what they would be willing to pay for each license to be acquired; the last provisional winning bid for any license becomes final when the next round does not produce any additional bids for that license. 

In the ascending clock format, by contrast, at the beginning of each round the Commission would announce prices for generic licenses in each category in each geographic area; bidders would then submit quantity bids for the number of licenses they would be willing to acquire at the FCC-established price for that round. Prices may differ depending on the category of license and the geographic areas to be served, but prices would remain the same within each category of a specific geographic area. Prices would be raised for each round until there is no longer demand. The hope is that bidding for generic blocks would actually speed up the process. (The NPRM includes a proposal for “intra-round bidding” in order to avoid a situation in which the FCC-set price for a given round does not attract enough bids.)

In addition to the above, the Commission seeks comment on the possibility of “package bidding”, which would afford bidders the opportunity to make an “all-or-nothing” bid for a group of licenses. The upside of “package bidding”: the bidder could avoid going home with a handful of licenses insufficient to meet its business needs, since its “package bid”, if successful, would give it the totality of necessary licenses. The downside, of course, is the same downside as any “all-or-nothing” proposition: the bidder could end up with nothing.

Assignment Procedures. Details of exactly how successful bidders will be matched with particular licenses are a bit fuzzy. As discussed in our separate post describing the reconfiguring of the UHF band for mobile operation, the Commission is tentatively figuring that it may sell spectrum in the “forward” auction in 5 MHz blocks, paired where possible. The Commission would assign contiguous blocks to bidders that bid for multiple blocks in the same geographic area; the assignment process could take into account the need to coordinate frequencies across adjacent areas

Bidders would thus be bidding on spectrum blocks without knowing precisely what frequencies they might ultimately acquire – since the frequencies to be available won’t be known for sure until the “reverse” auction process and consequent TV repacking have been completed. 

The NPRM contemplates that, at the conclusion of the initial “forward” auction, an additional “auction phase” might be used to assign specific frequencies. (Such an additional “phase” would likely involve additional bidding.) If “package bidding” is allowed, the Commission will need to take these bids into consideration in the final matching up of licenses to successful bidders. If the Commission goes forward with the generic blocks approach, “the assignment procedures would assign contiguous blocks to bidders that bid for multiple blocks in the same geographic area and could take into account the need to coordinate frequencies across adjacent areas.” 

Procedures to Determine License Prices. Naturally enough, the final prices will be the highest amounts bid in the initial “phase” of the “forward” auction (regardless of which particular format the FCC ultimately settles on). But as noted, those final prices may be increased through a second “auction phase” to assign specific frequencies to specific successful bidders. The structure of any such additional phase is at this point up in the air; the NPRM solicits comments on any additional procedures that might be necessary.

Again, comments are currently due to be filed by December 21, 2012 and reply comments by February 19, 2013.

[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]

As envisioned in the Incentive Auction Notice of Proposed Rulemaking (NPRM), stations requiring modification of their existing authorizations in order to conform to their post-auction channel assignments would be required to file a Form 301 or 340 construction permit application.  This would not apply to licensees who will simply be sharing a channel with a station that is not otherwise modified. The NPRM requests comment on how much time should be allowed for the filing of such applications. (Hint: the NPRM recognizes that more than 30 days would likely be appropriate, since any changes may not be ones the licensee has previously had any reason to anticipate, much less prepare for.) Whatever deadline is established, the NPRM requests comment on whether any extension procedures should be adopted and whether an early deadline should be established that would entitle applicants to expedited processing. 

Stations that will be participating in a channel sharing arrangement without any technical changes would have to file a Form 302 license application; if the station whose facilities are to shared is itself going to have those facilities modified in the repacking, the NPRM proposes that both the sharer and sharee licensees would need to file license applications for the shared station’s original channel. That will cover their sharing arrangement until the new channel facility is constructed. 

How long would licensees have to effectuate the changes in their facilities? The Commission is looking for input on the range of issues underlying that important question. Should there be a uniform, one-size-fits-all, nationwide deadline, or a series of deadlines determined geographically or based on the subsequent use (i.e. continued broadcast use or wireless) of the channel being vacated. The Commission indicates that it does not believe that a full three years should be required to implement changes, suggesting instead a possible 18-month timeframe. The NPRM asks whether any deadlines should be tied to its procedures for reimbursement of relocation expenses (discussed below), and whether advance payments from the Relocation Fund should be allowed. 

With respect to stations that will be terminating operations entirely – as to whom the issue of additional construction is obviously irrelevant – the Commission asks whether earlier deadlines should be imposed. Finally, the NPRM requests comment on whether it would be appropriate to adopt tolling criteria, and/or allow flexibility for temporary operations, as was done during the DTV transition. 

As noted above, licensees will not be able to protest channel modifications. But the NPRM does propose some limited relief for stations unhappy with their reassigned channels. The FCC suggests that such stations could request alternative channel assignments, but only after all initial construction permit applications implementing the repacking have been processed. Such alternative assignments would have to be technically feasible. Additionally, stations that successfully bid to relinquish a UHF channel in favor of a VHF would not be allowed to request a return to UHF. 

Reimbursement of Costs. The Spectrum Act establishes a $1.75 billion “TV Broadcaster Relocation Fund” from which the Commission must reimburse television stations’ “reasonable” relocation costs. Consistent with the chicken-and-egg complexity of the Incentive Auction process (including, particularly, implementation of the repacking process), cash for that fund is to come from the proceeds of the “forward” auction. The Act provides that such costs cannot be paid until after the end of the forward auction, and must be paid within three years. Since some reimbursements may need to be made before those proceeds roll in, the Act authorizes the FCC to borrow up to $1 billion from the Treasury to get things started. 

As the Commission reads the Spectrum Act, reimbursement from the Relocation Fund would be available only to those stations that are involuntarily reassigned to a new channel. According to the FCC, that universe does not include licensees who opt to participate in the “reverse” auction. The FCC figures that successful “reverse” auction participants should pay for any relocation expenses out of the payout they get from the auction. With respect to “sharer” stations that participate in a channel sharing arrangement but do not submit winning bids in the reverse auction, the FCC would permit reimbursement of relocation costs in the event of a new channel assignment for the shared facility.

The NPRM proposes rules that would allow relocated broadcasters to elect reimbursement of their actual costs or estimated costs. Broadcasters electing estimated costs would be able to collect payment before implementing its channel change. The Commission requests comment on how to calculate estimated costs, and what station characteristics should be considered in any such determination. Stations electing to be paid their actual costs would, under the Commission’s proposal, be required to submit documentation showing the amounts claimed, and that such amounts were reasonable.

Since the Act limits reimbursement to “reasonable” costs only, the Commission must come up with some way to establish “reasonableness”. With that in mind, the NPRM requests comment on whether reimbursement should be provided for equipment that must be replaced, but where the newer equipment also represents an upgrade from the station’s existing equipment. In light of the Spectrum Act’s prohibition on reimbursing lost revenues, the Commission proposes no reimbursements for lost advertising while a station is off-air, but requests comment on whether reimbursements could be made for refunds to advertisers, the costs of make-goods, or other expenses. 

Other reimbursement questions on the table: What happens if total requested reimbursements exceed the statutory $1.75 billion cap? Is there anything the Commission can do to reduce the costs of relocation? As to that last question, could the FCC maybe obtain discounts by purchasing equipment in bulk, or somehow encourage stations to exchange and repurpose equipment, or possibly agree to waive certain rules in lieu or monetary reimbursement? If such waivers were offered, the NPRM asks what rules could be waived and what types of flexible use of spectrum could be allowed. 

The Act also provides for reimbursement of costs incurred by multichannel video programming distributors (MVPDs) as a result of the repacking. While such costs are not likely to be terribly extensive, the NPRM requests comment on what types of costs may arise, whether reimbursements should be based on estimated or actual costs, and how to determine what costs are reasonable. 

Finally, the Commission requests comment generally on how to prevent waste, fraud, and abuse in the reimbursement program. 

Consumer Education. Harkening back to the DTV transition and concern that arose then about the need to increase public awareness of the changes involved there, the Commission asks whether a similar consumer education effort is warranted now. Since the repacking is, from a consumer standpoint, likely to be much less complicated than the DTV transition, the Commission asks whether less complicated consumer notification requirements might be appropriate. Also, because viewers will primarily need simply to rescan their receivers, the NPRM requests comment on whether it would really be necessary to establish viewer call center(s), require stations to broadcast on-air notifications, and require reporting to the FCC on any such efforts. The NPRM also requests comment on what type of notification stations should be required to provide to cable operators, and whether a simple letter notification of the station’s new channel and transition date would be sufficient. 

Post-Auction Licensing/Operating Rules. The Commission recognizes that the repacking process will raise some ongoing post-auction regulatory issues. It’s looking for input on a number of specific issues along those lines, as well as on any issues that may not have been considered. 

Recognizing that the removal of one or more stations from a market could affect remaining stations’ compliance with the multiple ownership rules, the NPRM proposes grandfathering any existing station combinations. (Other ownership issues are to be addressed separately in the Commission’s quadrennial review of its ownership rules.) The Commission also recognizes that removing some stations from operation, particularly where those stations are likely to be ones that served niche markets, will have a negative impact on diversity. The NPRM requests comment on how to address this loss of diversity, including possible ways to encourage multicasting or alternative delivery of niche programming that may disappear as a result of stations relinquishing their licenses.

The concept of channel-sharing arrangements (CSAs) raises another set of rule-compliance issues. While recognizing the Commission’s traditional reluctance to involve itself in private contractual relationships, the NPRM requests comment on whether CSAs should be required to address certain matters, such as: access to station facilities; operation, maintenance, repair, and modification of those facilities; and transfer or assignment of either or both licensee’s rights in the station. Comment is also requested on how to address future terminations of a shared license, particularly where one of the two sharing licensees were to have its license terminated, either voluntarily or involuntarily. 

The Commission notes a number of particular difficulties that may arise with respect to CSAs involving a Class A station and a full power station. While such CSAs would be permitted, any such shared license would be subject to the technical rules applicable to the station that did not relinquish its channel. The Commission notes, however, that such a sharing would not grant the Class A station any enhanced MVPD carriage rights, nor would it diminish the full power station’s carriage rights, except to the extent that the full power might no longer delivery a good quality signal to an MVPD headend. 

For stations involved in channel sharing, the NPRM requests comment on how compliance with technical rules should be enforced. The Commission proposes generally to require each licensee individually to comply with all technical rules, but requests comment on whether certain responsibilities, such as preparation of station logs, compliance with the RF exposure rules, and EAS compliance, should be shared responsibilities. 

Finally, the Commission proposes rules to address treatment of noncommercial educational licensees. While such licensees may, following repacking, end up on an “unreserved”, or commercial, channel, the NPRM proposes that such licensees would still have to satisfy all of the existing noncommercial educational licensing requirements. Such licenses could be assigned only to another entity satifying those requirements, and if terminated, such a license could be reassigned only to a noncommercial licensee. The NPRM also proposes allowing noncommercial and commercial licensees to enter into CSAs, although each licensee would remain subject to the applicable noncommercial or commercial licensing rules.

Again, comments are currently due to be filed by December 21, 2012 and reply comments by February 19, 2013.

[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]

The FCC very politely told Congress it had asked the wrong questions. Users in these bands are licensed on a link-by-link basis. A would-be applicant must successfully complete frequency coordination, establishing that the proposed link will neither cause nor receive interference, before it submits an application to the FCC. So by the time an application for this spectrum arrives at the FCC, it will already have passed the no-interference test at the coordination stage, said the FCC.  This means the FCC's “rejection rate” for applications is necessarily zero. But even rejections by frequency coordinators are extremely rare, if they happen at all; the FCC estimated their occurrence at “well under one percent.” The FCC does not know how many of those are common carrier applications, it said, because frequency coordinators typically don’t know if a given application is for common carrier or private use.

The FCC noted that its current procedures allow for heavy re-use of frequencies in areas where demand is high, resulting in highly efficient use of the spectrum.

Much of the GAO report deals with basics of radio-frequency communications, licensing, and frequency coordination. Of course these matters are second nature to the FCC, although perhaps new to GAO (and possibly new to Congress as well).   GAO went on to concur with the FCC that rejections due to frequency congestion are rare. Doing its best with Congress’s query on auctions, GAO struggled at length over the difficulties of auctioning spectrum that already has many thousands of users in place. It considered whether imposing “spectrum fees” instead might provide suitable incentives. But in the end, GAO found the FCC’s current approach in fact has encouraged spectrum efficiency. GAO concluded there is no clear need for either auctions or spectrum fees.

We think both agencies reached the right result. The FCC’s licensing and coordination procedures for fixed microwave services have evolved over many decades in response to the technical and economic realities of an industry that forms an essential part of the U.S. telecommunications infrastructure. The procedures are working well. We hope Congress gets the message and leaves them alone.

(Disclosure: FH&H represents the Fixed Wireless Communications Coalition, which provided substantial input to both the FCC and GAO in the preparation of their respective reports.)

In the NPRM, the Commission proposes protecting full power stations’ “service area” as currently defined in Section 622(e) of the Commission’s rules. For Class A stations, the coverage area for purposes oepacking would be the station’s “protected contour”, i.e., the area within which the station’s signal is protected under the rules from interference. That “protected area” is frequently smaller than the area in which the station can actually deliver a signal. 

Since propagation characteristics vary from channel-to-channel, changes in channels may necessitate modifications to facilities in order to replicate the original “service area”. The FCC has software that should be able to calculate any necessary changes. Along those lines, the Commission suggests that it may not require construction of new antennas to precisely match the pattern that the software might specify; in those cases, the station would be permitted to continue to use its existing antenna pattern, with appropriate adjustment to its power level. Under the NPRM’s proposals, licensees would also be permitted to propose “alternate transmission facilities” to those specified by the FCC’s software. But such alternate facilities would not be permitted to (a) extend the coverage area in any direction beyond those specified by our replication software or (b) cause new interference. And any reduction in coverage area and/or population served would have to be de minimis.

To protect a station’s population served, the NPRM requests comment on three alternative proposals. First, the Commission could refuse to allow any new overall interference to any station’s population served – although if interference were removed in one area, new interference could be created in another. As was the case in the DTV transition, the Commission proposes that interference up to 0.5% would not count as “new interference”. 

As a second, stricter, option, the NPRM suggests that no new interference could be created to any specific population. This would be more difficult to implement but, in the FCC’s view, might be preferable because it would protect individual viewers from losing service. 

The third option would allow creation of up to 2% new interference, but only if the new interference were created by another station that already caused interference to the subject station. 

The NPRM requests comment on these three proposals, as well as various other considerations. Among those other considerations: whether greater interference should be allowed; whether new interference should be allowed only in areas with high MVPD penetration; and whether the Commission should amend its rules to allow stations to accept additional interference voluntarily.    

As a final part of the repacking process, the NPRM also sets out the Commission’s proposals regarding what facilities are to be protected. While the Spectrum Act requires the Commission to protect only facilities that were licensed (or for which a license application was pending) as of February 22, the Commission reads the Act to allow it to protect certain facilities that were not licensed at that time. 

First, in a move of very limited application, the NPRM proposes protecting new full power stations whose original construction permits had been issued as of February 22, 2012. The Commission notes that there are only three such stations. Other unbuilt full power construction permits would generally be unprotected. 

Unbuilt Class A digital permits, by contrast, could find themselves protected in some situations. The Commission proposes protecting only a single facility for each Class A station. However, to encourage the continued digital transition of Class A stations, it proposes allowing stations to notify the Commission in advance of the auction which facility (licensed analog or digital or a granted digital construction permit) they wish to protect. The NPRM also requests comment on whether the repacking should protect stations that hold construction permits to implement channel changes previously approved through a rulemaking proceeding. However, channel changes which have merely been proposed in, say, a petition for rulemaking would not receive protection if a notice of proposed rulemaking regarding the change has not yet been issued.

A second major post-auction regulatory issue is the treatment of LPTV and translator stations. As noted above, such stations are not eligible to participate in the auction, and their existing service will not be protected during the repacking process. As a result, many LPTV stations may be forced to relocate to alternative channels – even though, with the smaller number of channels available, it is likely that at least some displaced LPTV and translator stations will not be able to find alternative over-the-air channels. The NPRM requests comment on potential approaches to minimize the impact on LPTV and translator stations. These include:

• authorizing voluntary channel sharing among LPTV and translator stations;
• taking steps to encourage the use by LPTV and translator stations of extra digital capacity on Class A and full-power stations; and
• taking steps to encourage distribution on MVPD providers or the internet. 

The NPRM also requests comment on whether it should adopt any rule changes governing the displacement of LPTV and translator stations. For example, new rules might prioritize such applications over other LPTV and translator modifications. Alternatively, a “window” period might be established during which LPTV stations might be allowed to file displacement applications after the full-power and Class A repacking applications have been processed, but before any actual interference has occurred to the LPTV stations. Recognizing the likelihood of competing displacement applications from LPTV and translator stations, the NPRM also asks for comment on whether it should adopt any set of priorities to govern the processing of such applications. LPTV and translator licensees, particularly in congested areas, should consider these options. Again, comments are currently due to be filed by December 21, 2012 and reply comments by February 19, 2013.

[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]

For instance, full power licensees’ bids must be based on their stations’ licensed facilities as of February 22, 2012. In other words, you can’t apply to modify those facilities now in some way that might improve your posture in the auction.  

Class A licensees, by contrast, would be treated slightly differently, based on the status of the Class A station’s digital conversion. If the Class A station held a digital license on February 22, those facilities would determine the licensee’s options as far as spectrum relinquishment go. But if the Class A station was licensed as analog on February 22 and thereafter obtains a digital license prior to the beginning of the auction, the station’s licensed digital facilities as of the beginning of the auction would be considered. (In the latter case, if the digital license isn’t in hand by the time the auction starts, the Class A’s bidding options will be based on its licensed analog facilities as of February 22, 2012.)

The NPRM also proposes that any station whose license has been revoked or cancelled or has expired would be ineligible. Also ineligible would be any station that failed to file its license renewal application by the expiration date of that license (although apparently eligibility could be maintained if a licensee filed its renewal application after the filing deadline, but prior to expiration).

The mere fact that a station has a license renewal application pending would not ordinarily prevent it from participating in the auction. But the Commission is proposing an important gotcha on this score. How, the Commission asks, should it deal with licensees whose renewals are being held up because of enforcement actions (or who are otherwise subject to such actions). In other words, imagine that a TV licensee’s renewal has been held up because of indecency complaints or concerns about inadequate sponsorship IDs. (That shouldn’t tax anybody’s imagination too much – historically, hundreds of license renewals have been deferred for years because of such matters.) The FCC suggests in the NPRM that any licensee looking to turn in its license through the “reverse” auction process should have to pony up, in advance, an escrow payment to cover the fine that might result from any pending enforcement actions.

That proposed escrow scheme raises a number of questions, not the least of which involves the scheme’s fundamental legality. The Communications Act (that would be Section 504(c), to be precise) flatly prohibits the Commission from using a pending notice of apparent liability (NAL) “to the prejudice” of the subject of the action unless and until the forfeiture has been paid or a court of competent jurisdiction has ordered it to be paid. Here the Commission appears to be proposing that, even in the absence of an NAL establishing (a) an apparent violation and (b) a proposed forfeiture amount, the Commission might bar otherwise eligible licensees from participating in the “reverse” auction unless they fork over a wad of cash to cover some indeterminate fine covering some violation that may or may not have occurred. 

Such a proposal is plainly problematic. It is even more so in view of the Commission’s well-established history of placing “enforcement holds” on a significant percentage of TV license renewal applications, often for unannounced reasons. (Side note: we have recently learned that the FCC has quietly lifted, without notice or explanation, some enforcement holds on some stations. This could be a harbinger of more sweeping efforts to clear away the holds that have stalled action on hundreds of TV renewal applications for years. But, since a new round of TV renewal applications is currently underway, it would not be surprising to see new enforcement holds cropping up, even if the old ones disappear.)

In any event, it seems to us that prospective “reverse” auction participants may want to oppose this element of the NPRM aggressively – unless they prefer to face the prospect of a potentially steep admission price for the privilege of participating in the auction.

One final eligibility note of truly limited impact: any newly licensed full power station will be eligible only if its initial construction permit had been granted by February 22, 2012 (the date on which the Spectrum Act was adopted) and the station has received a license by the time it submits its initial “short-form” auction application. Since there were a total of only three outstanding CP’s as of February 22, this particular condition is not likely to have far-reaching effect. 

While we’ll be addressing the practical aspects of the “reverse” auction bidding process in greater detail in another installment in this series of posts, we’ll shed some light on that here, too. The NPRM proposes three options regarding what rights a licensee may offer up in exchange for a possible pay-out. A licensee’s bid could vary based on what it’s willing to do. In particular, it could offer to:

• cease broadcasting entirely (i.e., the licensee would in effect be turning in its license and leaving the broadcasting business);
• operate on a VHF channel (assuming that the station is a UHF licensee). In this case, the licensee would be signaling that, for a price, it would be willing to have its operation relocated to the VHF band; or
• share a 6 MHz channel with another station. 

The NPRM also requests whether bidders agreeing to move from a UHF to a VHF channel should be allowed to limit that move to only a high-VHF channel, and whether licensees currently on high-VHF channels should be allowed to bid to move to low-VHF channels. 

With respect to channel-sharing arrangements, the Commission proposes that stations entering into such deals would not be permitted to change their DMAs or communities of license. Although sharing a channel with a station in an adjacent DMA could be acceptable, neither station’s DMA assignment would be changed, and each would be required to continue to serve its respective existing community of license.

In addition to these broad-brush elements, the Commission solicits comments on a number of finer points.  For example, should the FCC adopt a policy favoring waivers of existing power and height restrictions for stations agreeing to move to VHF channels? Should bidders be permitted, as part of their bids, to agree to accept additional interference, either from broadcast or wireless users, or to accept a reduced or modified service area?

To some degree, the auction eligibility requirements are set in stone, thanks to Congress – so LPTV and translator licensees need not apply, period. But the majority of auction niceties addressed in the NPRM are wide open for comment. Potential auction participants would do well to review the NPRM carefully and let the Commission know about points that are important to them. Again, comments are currently due to be filed by December 21, 2012 and reply comments by February 19, 2013.

[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]

Of course, the design phase of the Incentive Auctions is necessarily complex because of the extraordinary complexity of the ultimate goal. That goal includes encouraging as many TV and Class A licensees as possible to surrender their spectrum for repurposing in the most efficient manner possible while what’s left of the TV industry is repacked into less spectrum. And then there’s also the goal of reconfiguring the freed-up spectrum and selling it to wireless providers. The NPRM provides all interested parties an opportunity to attempt to shape the auctions’ final design.

With that in mind, we present the first of a series of posts summarizing various elements of the NPRM. Our series will not address all of the NPRM. Rather, we will attempt to highlight aspects that appear to us to be particularly prominent and worthy of consideration by folks likely to be affected by the process. Comments in response to the NPRM are currently set to be filed by December 21, 2012; reply comments are due by February 19, 2013. We encourage all parties interested in the Incentive Auction program to take a careful look at the NPRM and weigh in with their thoughts.

Auction Design Overview – A chicken-and-egg problem, on steroids, in three dimensions

The Incentive Auction process will include two separate-but-interrelated auctions: a “reverse” auction in which TV and Class A licensees will agree to relinquish some or all of their spectrum rights in return for cash, and a “forward” auction, in which prospective mobile licensees will bid for the right to use portions of the spectrum freed up by the “reverse” auction. 

Sounds simple, but wait. 

The precise spectrum to be bid on in the “forward” auction won’t be known until the “reverse” auction is completed. And Congress has mandated that the proceeds from the “forward” auction must cover all the payments to successful “reverse” auction bidders, plus a number of other administrative and reimbursement costs.  So there’s a threshold interdependence between the two that poses conceptual problems (sort of a regulatory equivalent to M.C. Escher’s Drawing Hands).

But that chicken-and-egg problem is further complicated by the fact that the value of any particular broadcaster’s to-be-relinquished spectrum is likely to be different from any other broadcaster’s. The differences arise from a host of factors, some of them easily calculable (e.g., population covered, perhaps whether any particular relinquishment would create “white” or “gray” areas), some not so much (e.g., extent to which that particular spectrum will facilitate (a) repacking of the TV band and/or (b) repurposing of the spectrum). And, of course, the value of the spectrum available in the “forward” auction will depend on how much spectrum is available and where it can be used.

With respect to determining the value of to-be-relinquished TV spectrum, the FCC is considering a couple of computer programs that might serve to update the likely value of each participant’s to-be-relinquished TV spectrum constantly through the course of the “reverse” auction. Remember, while participating broadcasters will want to keep that value up, it’s in the Commission’s interest to keep it down, so as to minimize the overall pay-out (and, thus, maximize the government’s ultimate take from the “forward” auction).

One of the two computerized approaches under consideration (the “Integer Programming Algorithm Approach”) “would, for a specified amount of spectrum to be cleared, minimize the sum of the reverse auction bids accepted and the relocation costs of stations that are reassigned to new channels.” But that particular approach would not necessarily lead to “optimal” results – although the Commission advises that results would be “within a certain tolerance of optimality” that the Commission, at least, could find acceptable. Oh yeah, and those results might not be easily reproducible and, thus, “less than fully transparent”.

The second computerized approach – the “Sequential Algorithm Approach” – would, as best we can understand it, assess for each auction participant prior to each auction round the feasibility of assigning that participant’s station to some channel in its pre-auction band. As long as the station can be assigned to the pre-auction band, the participant can opt to continue in the “reverse” auction. (Alternatively, of course, it could bail from the auction at any time as well – but heads up: a decision to exit the auction would be irreversible.) The program would determine for each participant the “least-cost” move (“least-cost”, that is, to the Commission). If no re-assignment within the participant’s pre-auction band is possible, then that participant’s compensation would be set at the last price offer it accepted for its last preferred relinquishment option. This approach may be more easily replicated than the Integer Programming Algorithm, but it’s apparently more complicated and less efficient.

As far as operation of the “reverse” auction goes, the Commission is looking at two alternatives: either (a) a single round, one-and-done, put-your-final-bid-forward approach, or (b) a somewhat more conventional multiple round clock format.  In the latter, in each round a progressively lower bid amount would be presented by the Commission and each bidder would indicate its willingness to accept that amount. It appears that each FCC-set bid would be unique to each auction participant (based on the particular attributes of that participant’s to-be-relinquished spectrum) and disclosed confidentially only to that participant. The idea is not to have broadcasters bidding against each other, but rather to enable the FCC and each broadcaster to arrive at a mutually agreeable cash value for the relinquishment of that broadcaster’s spectrum.

Another interesting point: the Commission is considering establishing “reserve” prices, i.e., a maximum that it would be willing to pay for the relinquishment of spectrum rights. The maximum would likely vary from broadcaster to broadcaster, depending on the relevant characteristics (e.g., audience served) of the broadcaster’s station.

The “forward” auction would be considerably simpler, but still not without its quirks. The Commission is tentatively planning on using a standard multiple round ascending auction typical of other spectrum auctions. Bidders would be bidding on “generic” categories of licenses (e.g., paired or unpaired) in particular geographic areas, probably in 5 MHz blocks. Specific frequencies would not be involved; those would be assigned once the “forward” and “reverse” auctions have been completed and the repacking process has permitted the identification of specific frequencies available in specific areas. We’ll be posting a separate installment addressing in more detail “forward” auction issues.

For those readers who find the NPRM’s description of the auction process a bit too daunting, you may be better off by starting with the “Incentive Auction Rules Option and Discussion” included as Appendix C to the NPRM.   Prepared at the FCC’s request by Auctionomics and Power Auctions, it provides a somewhat more accessible view of what the FCC has in mind. It’s still not quite “FCC Incentive Auctions for Dummies”, but we found it helpful.

Even those who are not interested in participating in the auction may want to take the opportunity to comment.  Whether or not they choose to participate, all TV broadcasters will be affected by the Incentive Auction.  That’s because, in order to package more desirable spectrum blocks for the “forward” auction, the FCC will likely be forcing most, if not all, remaining full power broadcasters to change channels or implement other modifications.  While the Commission is required to take “all reasonable efforts” to protect full-power stations’ existing service areas, and to reimburse relocations costs (to be paid from the forward auction proceeds), the mechanics and implementation of the repacking are, not surprisingly, rather complicated.  For low power television licensees, the situation is much worse, as their services will not be entitled to any protection during the repacking process.

Obviously, there remain plenty of questions relative to all auction mechanics. Comments on any and all such questions are invited in the NPRM. Again, comments are currently due to be filed by December 21, 2012 and reply comments by February 19, 2013.

[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]

But even that generous re-phrasing still poses problems.  The answer to the re-phrased question probably is also zero, or close to it. That’s because, in our experience, frequency coordinators usually find a way to meet their customers’ needs. Plus, if in fact coordinators have received requests they could not fulfill, they may not be able to tell the FCC much about them, since nothing requires coordinators to keep records of those (or any) customer requests. And if the coordinators do have records of rejected applications, they are unlikely to know which ones were intended to become common carrier applications. And even if they had all those data (which we doubt), the frequency coordinators may not want to disclose them via a public docket, in a competitive environment.

Comments in response to the public notice are due on July 20, 2012. There is no provision for reply comments. In a rare move, the FCC will allow parties to submit information without also posting it in the docket. But be careful: information sent to the FCC remains subject to disclosure under the Freedom of Information Act, unless it qualifies for confidential treatment and the submitter makes a proper and timely request for FOIA non-disclosure.

The Commission followed up its March, 2011 inquiries with more inquiries in August, 2011. By then, of course, Mr. Lopez was long gone, although, in fairness, the Commission may not have been aware of the licensee’s unfortunate demise at that point.

But the Commission was for sure aware of his demise by November, 2011, when the executor of gone-but-not-forgotten Mr. Lopez’s estate filed an application (FCC Form 316) for consent to the assignment of the license to the executor. Such applications are standard operating procedure; they are routinely granted in a matter of days.

Not so in this case. According to CDBS, that 316 is still pending, more than five months after it was filed.

Of course, until that application is granted, Mr. Lopez technically remains the licensee, and his executor (who is not the licensee) is technically not in a position to respond to inquiries directed to the licensee.

So what does the Video Division do? Knowing that the licensee is dead, and knowing also that the licensee’s executor is not in a position to formally respond to Commission inquiries addressed to the licensee, the Video Division issued show cause orders to Mr. Lopez in February, 2012. Those orders proposed to reclassify the two Class A stations to LPTV status. 

To no one’s great surprise, Mr. Lopez, being dead and all, did not respond to those orders.

And now the Division has held that, because of his lack of response, the Division will “deem him to have accepted the modification of [his licenses] to low power television status”.

We understand that the Commission is on what it perceives to be a desperate quest for TV spectrum. And we get that Class A stations that no longer qualify for Class A status may look like low-hanging fruit in that quest. But really, is the Commission so desperate that it has to engage in grave-robbing?  Since Mr. Lopez had been dead for nearly a year by the time the Division issued its show cause orders, isn’t it more than a little inappropriate for the FCC to draw any conclusions from his failure to respond to those orders?

It may be true that the late Mr. Lopez failed to file KidVid reports. But that doesn’t necessarily mean that he didn’t air the programming or place appropriate reports in his public files. Wouldn’t it be at least fair (not to mention decent) to grant the Form 316 application and then accord the new licensee a reasonable time to investigate the situation and respond accordingly? 

In the alternative, shouldn’t the Commission try to check – maybe with a Ouija board – exactly what the licensee meant by not responding?

The 2007 FM auction raked in an impressive $21 million for 111 permits. But that was less than half the $54 million haul (for 163 permits) in 2006. And let’s not talk about the 2004 auction, in which the Commission struck gold, selling 258 FM permits for a whopping $148 million. This year’s bottomline is even worse than the 2009 auction conducted in the throes of the Great Recession. There the Commission still netted more than $5 million, 25% more than this year.

The considerable downturn in proceeds may be attributable to any number of factors, including  the rough economic times and the fact that a number of the permits this year were re-treads that had already gone unsold (or, in some cases, sold but unbuilt) in previous auctions. Whatever the reason, the high rollers (and their bankrolls) stayed away in droves this year. 

Only seven of the winning bids broke $100,000. The highest winning bid, by far, was $309,000 for a Class C3 in scenic Tishomingo, Oklahoma (about midway between Dallas and Oklahoma City). A Class A in Cloverdale, California (80 miles or so up the 101 from San Francisco), was the second highest at $261,000. Coming in third was a Class A in Culver, Indiana (halfway between Ft. Wayne and Gary) – winning bid, $200,000. By contrast, even last year’s auction saw six permits go for more than $500K each.

On the other end of the spectrum, nearly a third of this year’s permits were sold for the lowest possible bid, each attracting only one bidder. And we can look for more re-tread opportunities in future auctions, since more than two dozen permits had no bidders at all.

During the next few weeks the FCC will release a public notice formally announcing the winning bids and procedures that winning bidders must follow. That notice will trigger payment and paperwork deadlines, and will establish the date at which the anti-collusion restrictions will be lifted.

Last year, the FCC started checking its own files to see whether Class A stations had been filing their quarterly Children’s TV Reports (FCC Form 398).  Licensees who hadn’t filed their reports received inquiry letters from the Commission in March, 2011. Follow-up inquiries to licensees who didn’t respond to the March letter were sent in August.  Now the FCC has proposed to revoke the Class A status of 16 stations that neither responded to the FCC letters nor filed their Children’s TV Reports. (Here’s a link to one of the 16 “Orders to Show Cause” issued; the other 15 are essentially identical to this one.)  If the threatened downgrades are implemented, the stations won’t be shut down, but will be downgraded to LPTV status. That may or may not end up as a one-way ticket to the gallows in light of the fact, noted above, that a downgrade to LPTV status could ultimately cause the LPTV to become a station without a channel as a result of the spectrum repurposing effort.

At least some Class A stations who received the Commission’s inquiries did respond and did bring their Children’s TV Reports up to date. As far as we know, involuntary downgrades have not as yet been proposed in any of those situations, but the 16 stations singled out so far may just be the beginning of a larger band-clearing initiative by the Commission.

Experienced FCC licensees know that it is never a good idea to ignore an inquiry from the agency.  And of course, failure to file required reports is inviting trouble.  Class A stations should be careful to do their paperwork within 10 days after the end of each quarter: 

1. File a Children’s TV Report on Form 398 on the FCC’s website, with a paper copy in the station’s public file. 
2. Place a list of significant community issues and responsive programs in the public file.
3. Place in the public file records sufficient to demonstrate compliance with limits on commercial matter in children’s programs.  

Class A stations must also place in their public file sufficient documentation to demonstrate compliance with the requirement that they broadcast 18 hours a day (including at least three hours of locally produced programming per week), although there is no specific requirement to renew this documentation every calendar quarter.

Class A licensees derive important regulatory benefits from their status – the additional measure of protection accorded them in the spectrum auction law may be the most important such benefit. It is only a matter of common sense that routine steps – including regular filing of required reports – should be taken diligently to protect those benefits.

• Stations that agree to forego reimbursement for relocation costs may make flexible use of their spectrum, including non-broadcast uses, as long as they continue one free television program stream. It isn’t clear how such flexible modulation schemes can be implemented consistent with maintaining one free TV program stream, unless the free stream need not be in ATSC format – that presumably is among the details the FCC will have to sort out. Note that the act speaks only of such flexible use as an alternative to relocation reimbursement costs; it says nothing about such use either by stations that do not relocate and thus can’t claim relocation costs, or by LPTV stations that are not entitled to reimbursement under the act. Whether flexible spectrum use by all TV broadcasters will be a possibility remains to be seen.
• Stations that agree to share a channel retain their current cable carriage rights.
• No stations may be permitted to move from VHF to UHF unless they filed a request by May 31, 2011, so most VHF DTV stations will remain in VHF.
• Stations’ rights to protest license modification under this bill, otherwise available under Section 316 of the Communications Act, are suspended.
• Nothing in the bill is intended to “prevent” the FCC from implementing "white space" rules, but nothing requires "white space" rules either.  The new law does provide for unlicensed use in the 5350-5470 MHz  band, but only if (a) it is determined that licensed users will be "protected by technical solutions", and (b) the "primary mission" of federal spectrum users in that band won't be "compromised". An NTIA study of the impact of unlicensed use in the 5.4 and 5.9 GHz ranges will be conducted. Also, unlicensed use will be permitted in “guard bands [that] shall be no larger than is technically reasonable.” What the FCC determines is “technically reasonable” will be interesting to assess come implementation of this section.
• Public safety operators using TV Channels 14-20 in the top 10 markets will have to give those frequencies back after 11 years.
• No mention is made of the 1755-1780 MHz band, the portion of the spectrum now occupied by government users and among the most coveted by prospective mobile broadband operators.

One major question left unanswered is precisely how much money is likely to be paid to any TV licensee opting to make its spectrum available for repurposing. 

At least three different repurposing scenarios are possible. A TV licensee could simply turn in its spectrum, essentially bowing out of the over-the-air TV business. Or it could agree to move to a different channel. Or it could choose to buddy-up with another licensee, sharing a common channel. To determine what the pay-out will be, the Commission will have to conduct a “reverse auction” in which any licensee interested in repurposing may “submit bids stating the amount it would accept for voluntarily relinquishing some or all of its broadcast television spectrum usage rights”. 

Meanwhile, the Commission will also conduct a “forward auction” to sell off the spectrum made available by the repurposing. The proceeds from that auction will provide the pot from which payments will be made; the amount to be paid to participants will be based on the results of the reverse auction, although it’s not clear from the act how much of any participant’s reverse auction bid will be paid out to that participant. To avoid potential embarrassment, the reverse auction may not be held unless there are at least two participants; additionally, the pay-out to TV broadcasters may not exceed the proceeds of the forward auction.

So while the outlines of the auction processes have been set in very general terms, there remain a ton of nitty-gritty details that will have to be resolved before any of this becomes reality.

On the non-broadcast side, Congress decided the FCC may not exclude participants from the “forward auction”, which means that the Big Guys (i.e., AT&T and Verizon) will be permitted to bid. However, the FCC may implement policies to promote competition, presumably authorizing limits on spectrum holdings (either nationally or on an individual market basis) by any one entity. This reflects the outcome of a battle between those (mostly Democrats) who sought to provide the FCC latitude in formulating auction rules and others (mostly Republicans) who were less sanguine about the impact of such policy leeway for the Commission.

In addition to authorizing the voluntary auctions, the act reallocates the 700 MHz D-block to public safety and creates a Public Safety Trust Fund of up to $7 billion to construct a national public safety network. While this comes more than a decade after the September 11 attacks, this is a case of better late than never. The new network will be managed by a First Responder Network Authority, created within the National Telecommunications and Information Administration – a compromise arrangement that was not specifically proposed by any interested party.

So after much anticipation, incentive auctions have now been authorized – but what does it all mean? 

The FCC now must develop the rules for the auction. With the number of practical loose ends left unresolved in the act, that poses a major chore for the Commission. And once that’s done, we’ll have to see who among the broadcasters actually chooses to participate. Then who will bid? Time will tell. And time is a key consideration: estimates range from four, to five, to six years, possibly, before any actual availability of spectrum. Indeed, the bill recognizes how long all this will take: under the act, auction proceeds are not required to be deposited into the Treasury until 2022.

Beyond those administrative questions, there are others. What are the chances that efforts will be made to challenge one or more aspects of the auction process in court? For example, what if broadcasters find, after the repacking has been completed, that the FCC did not make “all reasonable efforts” to preserve their coverage area and populations?  Or will LPTV players seek judicial remedies for the likely loss of much of their spectrum? 

Time, again, will tell.

[Blogmeister note: Peter Tannenwald and Robert Gurss contributed to this post.]

For one thing, although auctions have succeeded for mobile spectrum, such as the bands used for PCS voice and 3G and 4G data, they have never worked well for fixed point-to-point applications. The bands previously auctioned for that purpose, including 24, 28, 31, and 39 GHz, are all severely underused. They did raise some cash for the Government, but make poor examples of spectrum efficiency. At least according to historical precedent, auctioning off a fixed point-to-point band is almost tantamount to removing it from productive use.

For another, the bill looks primarily to common carrier uses of the three bands. Although we don’t have hard data, we strongly suspect that non-common-carrier applications account for the large majority of licenses.

Finally, the focus on failures of frequency coordination is curious, considering that most coordination efforts ultimately succeed, thanks in large part to the skills of the companies that provide this service.

The current system of regulation, in short, has worked well for decades. We respectfully suggest that Congress should have left it alone.

Both reports are due in nine months. No doubt the FCC will soon have to seek public comment on the issues raised in the bill. We will let you know when that happens. In the meantime, the relevant text from the bill appears below.

SEC. 6412. DEPLOYMENT OF 11 GHZ, 18 GHZ, AND 23 GHZ MICROWAVE BANDS.

 (a) FCC REPORT ON REJECTION RATE.—Not later than 9 months after the date of the enactment of this Act, the Commission shall submit to the Committee on Energy and Commerce of the House of Representatives and the Committee on Commerce, Science, and Transportation of the Senate a report on the rejection rate for the spectrum described in subsection (c).

 (b) GAO STUDY ON DEPLOYMENT.—

 (1) IN GENERAL.—The Comptroller General of the United States shall conduct a study to assess whether the spectrum described in subsection (c) is being deployed in such a manner that, in areas with high demand for common carrier licenses for the use of such spectrum, market forces—

(A) provide adequate incentive for the efficient use of such spectrum; and  

(B) ensure that the Federal Government receives maximum revenue for such spectrum through competitive bidding under section 309(j) of the Communications Act of 1934 (47 U.S.C. 309(j)).

 (2) FACTORS FOR CONSIDERATION.—In conducting the study required by paragraph (1), the Comptroller General shall take into consideration—

 (A) spectrum that is adjacent to the spectrum described in subsection (c) and that was assigned through competitive bidding under section 309(j) of the Communications Act of 1934; and

(B) the rejection rate for the spectrum described in subsection (c), current as of the time of the assessment and as projected for the future, in markets in which there is a high demand for common carrier licenses for the use of such spectrum.

 (3) REPORT.—Not later than 9 months after the date of the enactment of this Act, the Comptroller General shall submit a report on the study required by paragraph (1) to—

 (A) the Commission; and

 (B) the Committee on Energy and Commerce of the House of Representatives and the Committee on Commerce, Science, and Transportation of the Senate.

 (c) SPECTRUM DESCRIBED.—The spectrum described in this subsection is the portions of the electromagnetic spectrum between the frequencies from 10,700 megahertz to 11,700 megahertz, from 17,700 megahertz to 19,700 megahertz, and from 21,200 megahertz to 23,600 megahertz.

 (d) REJECTION RATE DEFINED.—In this section, the term ‘‘rejection rate’’ means the number and percent of applications (whether made to the Commission or to a third-party coordinator) for common carrier use of spectrum that were not granted because of lack of availability of such spectrum or interference concerns of existing licensees.

 (e) NO ADDITIONAL FUNDS AUTHORIZED.—Funds necessary to carry out this section shall be derived from funds otherwise authorized to be appropriated.

The biggest changes from last Congress are on the House side, where the agenda will be determined by Commerce Committee Chairman Fred Upton (R-MI-6th) and the Chair and Vice-Chair of the Subcommittee on Communications, Technology and the Internet Greg Walden (R-OR-2nd) and Lee Terry (R-NE-2nd). The new Chair of Commerce’s Subcommittee on Oversight and Investigations, Cliff Stearns (R-FL-6th) will have a strong impact on the Committee’s telecom policy too, since he served as the Communications Subcommittee’s Ranking Member last Congress.

Chairman Upton enjoys a reputation as solid, pro-business Congressman who is reasonable to deal with. He has chosen to hire former Ranking Member Joe Barton’s (R-TX-6th) well-respected telecom aide, Neil Fried, as his Chief Counsel for telecom matters which gives his staff bench the depth and institutional memory critical for real legislative negotiations.

Upton jumped into the telecom policy fray early when he co-issued a strongly worded release – along with Reps. Walden and Terry – denouncing the FCC’s rules on net neutrality. His communications on that front tend to focus, directly or otherwise, on the agency’s process (or lack thereof), especially the lack of transparency in its decision-making.

Look for this concern about FCC process to color much of the Committee’s telecom work this year. Complaints about the agency’s lack of responsiveness are common, and Committee Republicans consider a lack of orderly process an impediment to investment and a barrier to job growth. In addition to the consumer and budget-related issues discussed in an earlier column, specific FCC reform legislation could be introduced this year. If so, it could resemble H.R. 2183, a bill introduced by Reps. Barton and Stearns in the last Congress. That bill called for a modified “shot clock” – deadlines by which the FCC would have to issue decisions – and statutorily-required processes for the issuance of FCC decisions.

On the Senate side, where Chairman Rockefeller (D-WV) still reigns, work has begun on spectrum allocation. As predicted, this issue is a top priority because Congress can use auction proceeds to pay down the debt or pay for other funding priorities. Rockefeller’s bill, which was introduced with no support from fellow Republicans, would set aside the D-block for public safety use (thus removing it from the pool of auctionable spectrum) and would give the FCC incentive auction authority.

It is the opening shot in the debate over spectrum allocation policy, which is sure to move more quickly than usual through Congress given the strong incentives for all involved to come to a common understanding. Look for Communications Subcommittee Chair Walden to have a strong hand in the negotiations here on the House side. His background as an owner and operator of radio stations makes him a natural ally for the National Association of Broadcasters (NAB) and its efforts to get its members to give up as little spectrum as possible for as much as possible.

The cast of characters is now set: let the play begin!

Since DE status is supposed to be reserved for the Little Guy (relatively speaking), the Commission wanted to prevent Big Guys from using corporate sleight of hand to try to garner undeserved DE status. [We say “relatively speaking” because we’re not really talking about mom-and-pop operations here: the smallest companies entitled to the largest bidding credit are those with no more than $3 million in average revenues over the three years preceding the auction. Even companies with annual gross revenues of up to $40 million are entitled to the low-end DE 15% credit.] The Commission uses various attribution mechanisms to discourage such folderol. Several such mechanisms, adopted in 2006, were the target of the recent Third Circuit appeal.

The targeted provisions (which appear in Sections 1.2110 and 1.2111 of the FCC’s rules) included:

The 25% Attribution Rule, which provides that a bidder’s DE status depends not only on its own revenues, but also on those of any other single entity which happens to lease or resell 25% or more of the bidder’s spectrum capacity.

The 50% Impermissible Relationship Rule, which renders licensees ineligible for DE status if they lease or resell (including at wholesale) more than 50% of their spectrum capacity. So, for example, if a concededly “small” (by any measure) bidder elected to lease 5.1% of its capacity to each of 10 other concededly “small” entities, the bidder would be absolutely barred from DE status.

The 10-Year Repayment Schedule, which kicks in if a successful bidder, having used DE-based bidding credits, happens to lose its DE eligibility at some point after the auction. As the name implies, this provision calls for repayment of the bidding credit amount if DE eligibility is lost. The 2006 amendment of the rules extended the time, from five to 10 years, during which loss of eligibility would trigger repayment. (Full repayment of credits is required if eligibility is lost in the first five years after the auction; the percentage required to be re-paid then decreases over the next five years.) Importantly, the new time frame would apply to DE eligibility arising not only from the newly-adopted rules, but also from previously-established DE standards.

These new rules imposed significantly greater limits on DE wannabes. Accordingly, a number of DE-related entities – an investor in DEs, a small wireless carrier owned by Alaskan natives, a trade group representing minority-owned telecom companies – asked the Third Circuit to take a look at the FCC’s proceedings that resulted in the adoption of the rules.

The Court concluded that the 25% Attribution Rule was OK. According to the Court, the new rule was properly within the scope of the FCC’s rulemaking proceeding (that is, anyone interested in that proceeding could have reasonably guessed that the FCC might adopt the 25% Attribution Rule, or at least something like it). Even though the rule does have a damping effect on the ability of DEs to secure financing, and even though the Commission barely even alluded to the likely adverse effects of the rule on DEs, and even though the Court felt the lack of any supporting findings made this a “close question”, the Court ultimately deferred to the agency and let this one slide.

Not so with respect to the other two rules. 

As the Third Circuit read the record, the FCC hadn’t bothered even to suggest, much less formally propose, the gist of what became the 50% Impermissible Relationship Rule. For decades, however, the Administrative Procedure Act has provided that, before an agency can impose new rules, it must afford reasonable notice and an opportunity to comment on them. Since the Commission hadn’t done so here, the 50% Impermissible Relationship Rule was toast. 

Because the Court tossed that rule on procedural grounds, the Court didn’t have to address the rule’s substantive shortcomings in that rule which had been called to the Court’s attention by the petitioners. But the Court did take the opportunity, in a footnote, to “commend . . . to the Commission’s attention on remand” a number of questions about the rationale supposedly underlying the rule.

With respect to the 10-Year Repayment Schedule, the Court reached a similar conclusion. While the Commission had indicated in its initial proposals that a new repayment schedule might apply to any new eligibility criteria it might adopt, the Commission never let on that that new schedule could also apply to existing criteria. That lack of notice was fatal here. Accordingly, the Court sent the new schedule back to the Commission for further consideration. Again, though, the Court inserted a footnote in which it raised serious questions about the validity of the FCC’s analysis of this issue and, again, “commended” the issue to the FCC’s attention on remand.

The real drama in this case was not in the Court’s analysis of the arguments above. Rather, it was in the practical issue that confronted the Court once that analysis had been completed. Back in 2006, having rushed through the new DE eligibility rules, the Commission conducted the wireless auction pursuant to those rules. But now that, in 2010, two of those rules have been vacated by the Third Circuit, what should be done about the 2006 auction. That auction was, after all, conducted pursuant to rules which have now been declared invalid. Doesn’t that mean that the auction should be rescinded?

That’s what the petitioners urged. They stopped short of urging rescission of all other intervening auctions which have been conducted subject to the DE rules adopted in 2006. . . BUT the petitioners did note that, logically, those other auctions would be equally subject to rescission.

Not surprisingly, the FCC – joined by at least some of the winners in the 2006 auction – “vigorously” opposed touching the results of the auction. And in an apparent triumph for the tried-and-true 21st Century precept of “Too Big To Fail”, the Court sided with the Commission.

In the Court’s view, rescinding the auction

would involve unwinding transactions worth more than $30 billion, upsetting what are likely billions of dollars of additional investments made in reliance on the results, and seriously disrupting existing or planned wireless service for untold numbers of customers. Moreover, the possibility of such large-scale disruption in wireless communications would have broad negative implications for the public interest in general.

So the auction results will not be upset, but the FCC is still left with the chore of revisiting its DE provisions. The Commission hasn’t announced how it plans to proceed with that chore, but in the meantime, the 50% Impermissible Relationship Test and the 10-Year Repayment Schedule have been vacated, and the previous version of Section 1.2111(d)(2) of the rules – i.e., the section which contains the repayment schedule provision – is to be reinstated until further notice.

The FCA first snuck into the FCC’s back yard several years ago, when allegations of misconduct were directed against a number of bidders in FCC auctions. The claim was that each of the targeted bidders – who had claimed entitlement to bidding credits – were in fact fronts for a real party in interest who would not have been entitled to such credits. As a result, according to the allegations, the government was underpaid for the spectrum to the tune of tens of millions of dollars. The case was litigated over several years. It was finally resolved in a settlement in which the accused party did not admit any guilt, but still coughed up about $130 million to put the whole thing behind him. Mr. Whistleblower, i.e., the guy who initially invoked the False Claims Act, took home more than $30 million.

Very shortly after that settlement was reached in 2006, two more cases were brought. They targeted completely different parties and deals, but the litigation approach was strikingly similar: the plaintiffs alleged that successful bidders in certain FCC auctions had improperly claimed to be entitled to bidding credits and had, thus, cheated the Feds out of a bunch of money.

These most recent cases were placed “under seal”, meaning that the proceedings have been withheld from the public eye. But a couple of months ago, the presiding judges agreed to lift the seal just enough to permit the FCC, on behalf of the government, to publicly disclose the complaints and to request the targeted applicants to respond to the allegations. In the letters recently released by the Commission, it did just that.

At this point it is impossible to say what will come of these cases. It is entirely possible that the bidders are being wrongly accused, and that they will ultimately be vindicated. It is also possible that they are guilty as charged. And, as was the case in the earlier qui tam case, it is possible that the case will be settled without any admission of guilt, but with a sizable payment to make it all go away.

But however these cases shake out, one thing is clear: the availability and potential profitability of qui tam actions are no longer hidden secrets. Word has obviously started to get around, doubtless in large measure because of the impressive pay-outs that await successful plaintiffs.

Because of this development, anyone claiming bidding credits in a spectrum auction should take special care to avoid any circumstances which could trigger suspicions and accusations of impropriety. Even if you deal is squeaky clean, the filing of a qui tam suit can drag you into long, stressful and expensive litigation. Remember, in the 2006 settlement, the alleged wrong-doer admitted no guilt, but still had to suffer through several years of litigation and still ended up paying more than $100 million in settlement.

Remember, too, that qui tam suits can be brought by pretty much anybody, including former spouses, disgruntled former employees, disappointed former business associates, etc., etc. You get the point. Anybody with a big grudge and a little knowledge can cause major problems even if the grudge is unjustified and the “knowledge” turns out to be completely inaccurate.

So if you plan to claim bidding credits in a spectrum auction, proceed with caution.

Happy April Fool’s Day!!!