With passage of the Middle Class Tax Relief and Job Creation Act, incentive auctions for spectrum repurposing take a great leap forward.

After more than a year of back-and-forth, it looks like our friends on Capitol Hill have finally come to terms on a plan to encourage – through “incentive auctions” – the so-called “repurposing” of spectrum now occupied by TV broadcasters to make it available for wireless broadband services. Snuggled in the middle of the payroll tax cut extension act, the long-awaited spectrum auction authority has been enacted and sent to the President who has said that he will sign it promptly.

(In signature Washington style, the curiously-named “Payroll Tax” bill – formal name: the Middle Class Tax Relief and Job Creation Act of 2012 – dedicates a mere three sentences to tax issues and more than 250 to other matters, like Medicare reimbursements, unemployment benefits, federal employee retirement rules . . . and the federal spectrum policy and telecommunications funds.)

Title VI of H.R. 3630 of the Act includes the particular provisions authorizing incentive auctions of broadcast spectrum and creating an interoperable public safety network. (We plan to provide a link to the Act as finally signed by the President when it’s available.)

The good news is that most, but not all, parties with some stake in the game received at least part of what they were hoping for. Of particular interest to broadcasters: the act requires the FCC to make “all reasonable efforts” to preserve existing coverage of TV stations; prohibits the involuntary moving of broadcasters from UHF to VHF, or from high-band VHF to low-band VHF; provides for a one-time auction and a relocation fund of $1.75 billion; and requires coordination with Canada and Mexico on border concerns.

The bad news, at least for low power TV licensees: the definition of “broadcast television licensee” for the purposes of incentive auctions is limited to full-power television stations and “Class A” television stations. LPTV licensees get only a single provision stating that nothing alters their spectrum usage rights. That language will provide little comfort to some in view of the secondary nature of LPTV operations. Still, the language can be cited by LPTV interests as a Congressional directive to the FCC not to ignore the fate of LPTV stations if and when the TV broadcast spectrum is truncated.

Also of note:

  • 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.]