Three years ago, the FCC authorized deployment of a new IP-based broadcast TV standard, ATSC 3.0, with the hopes that TV broadcasters would implement innovative new data transmission services. That has not yet happened to any significant extent; so today the FCC voted to issue a Declaratory Ruling (“Ruling”) that it hopes will remove what may be a regulatory barrier to wide-spread implementation: the FCC ruled that a broadcaster’s lease of spectrum to a third party for provision of ancillary, non-broadcast services does not trigger attribution for the FCC’s broadcast ownership rules. This comes with support from a wide group of stakeholders and trade associations including the National Association of Broadcasters (NAB), America’s Public Television Station (APTS), the Consumer Technology Association (CTA), Public Media Group, and of course the Advanced Television Systems Committee. It is unclear if that Ruling will significantly speed the implementation of ATSC 3.0; and perhaps for that reason, the FCC also issued a Notice of Proposed Rulemaking (“NPRM”) in the same document, seeking comments on other proposals intended to enhance implementation of ATSC 3.0.

Background on ATSC 3.0 and the Ownership Rule

ATSC 3.0, an Internet Protocol (IP)-based broadcast transmission platform, is the newest TV transmission standard developed by Advanced Television Systems Committee. As the FCC stated in 2017, the ATSC 3.0 standard will allow broadcasters to “offer exciting and innovative services, including superior reception, mobile viewing capabilities, enhanced public safety capabilities (such as advanced emergency alerting capable of waking up sleeping devices to warn consumers of imminent emergencies), enhanced accessibility features, and now for the first time in broadcasting technology, localized and/or personalized content, interactive educational children’s content, and other enhanced features.” These new offerings over broadcast spectrum were originally referred to by the FCC as “Next Generation” TV, and now by some as “Broadcast Internet” services, to distinguish them from traditional over-the-air video services. The FCC’s Media Bureau began accepting applications for ATSC 3.0 licenses on May 28, 2019. So far, broadcasters in only about a half dozen markets have implemented the new standard, although conversion of some stations to ATSC 3.0 is planned in some 60 markets in 2020. As the demand for broadband Internet services continues to grow, the FCC is turning over every stone to find ways to “unleash” additional spectrum.

But while ATSC 3.0 holds great promise for broadcast and Internet services alike, there are various technological and business reasons why initial implementation has been slower than anticipated. The FCC may not be able to control those factors, but it can address regulatory issues that may have been a barrier to implementation.   One possible regulatory issue may be the requirements in the FCC’s ownership rules, and concerns that a lease of TV spectrum to another party to be used for non-broadcast services could result in that outside party’s media ownership interests being attributed to the host broadcaster, thereby limiting the broadcaster’s ownership options as well as the ability of a third-party to lease spectrum from multiple stations. So-called “ancillary services” using broadcast television spectrum have been permitted since the DTV transition that began more than a decade ago, but the available data capacity before ATSC 3.0 was not sufficient to attract financial investment, and the ownership question was a further deterrent. The technology advance may have resolved the economic part of the equation, but the ownership cloud has remained. Thus, the FCC has issued the Ruling, to eliminate that concern:

“Specifically, we clarify that the lease of excess broadcast television spectrum to a third party, including another broadcaster, for the provision of ancillary and supplementary services does not result in attribution under our broadcast television station ownership rules or for any other requirements related to television station attribution (e.g., filing ownership reports). That is, our attribution rules do not confer a “cognizable interest” solely by the existence of a lease agreement to provide ancillary and supplementary services over the station’s spectrum.”

So, TV licensees and spectrum-based service providers, go forth and lease.   Hopefully, the new regulatory relief will encourage the leasing of spectrum for Broadcast Internet services and foster local competition in the provision of Internet-based services – whether that be for commercial wireless broadband or more niche uses such as autonomous vehicle support, Internet of Things, and smart agriculture – even though for now, broadcast signals can still travel in only the one-way outbound direction. Time will tell whether this ideal will be realized or if the elimination of the ownership uncertainty will instead further solidify the power of the top players. For example, a single entity could use this Ruling to acquire the rights to offer Broadcast Internet services on multiple broadcast channels in the same market or to put together a nationwide footprint for the provision of Broadcast Internet services. The Commission under Chairman Pai seems content to allow the marketplace to sort it out.

It should be noted that this ruling will apply to the ancillary capacity under both the ATSC 1.0 and ATSC 3.0 technical standards, so stations that have not yet adopted the 3.0 standard may still take part. Consistent with existing Commission rules and policies, a broadcaster using either ATSC 1.0 or 3.0 must continue to provide at least one over-the-air video program signal at no charge to viewers and remain in compliance with all other applicable Commission broadcast rules for that signal. Existing rules that determine the applicability of attribution to Time Brokerage or Local Marketing Agreements (“TBAs” or “LMAs”), Joint Sales Agreements (“JSAs”), and Shared Services Agreements (“SSAs”) will remain unchanged.

Noncommercial stations will also continue to be subject to the tougher requirement that they devote a “substantial majority” of their spectrum capacity to noncommercial services. Once they meet the substantial majority requirement, they may provide commercial non-broadcast services, including subscription-based video and non-broadcast data, using their remaining capacity; but any service that meets the definition of “broadcasting” must remain noncommercial.

Questions Raised for Comment

Recognizing that its Ruling may not suffice to drive the implementation of ATSC 3.0, the FCC also issued an NPRM seeking comments on other steps that it could take to facilitate that implementation, including:

How much capacity and what grade of service should be the minimum broadcast requirement? Should noncommercial stations have to devote more capacity to conventional broadcasting than commercial stations?

How should spectrum leases be regulated? The FCC currently requires that the term of a lease not extend beyond the license term of the host station, although automatic renewals are permitted. Should any other lease provisions be regulated?

The FCC suggests that broadcasters will be held liable for content transmitted by their lessees, but that is not the scheme that has been promulgated in the past for ancillary services like FM radio subcarriers. Past rules have applied regulatory schemes appropriate for the type of service provided; for example, if the service is common carrier in nature (rare in practice), neither the host station nor the spectrum lessee is liable for the content of end-user messages.

Should any regulatory schemes from other types of services apply, such as wireless service regulations? Might wireless spectrum caps then come into play and negate the initial conclusion that there should be no limit on how much spectrum one party may lease?

Should Class A and Low Power TV stations have as much leasing freedom as full power stations – and maybe even more, by being freed from minimum broadcast capacity requirements?

Is the statutorily mandated fee on ancillary services a barrier to implementation? If so, should it be reduced, keeping in mind that the statute requires that fee payments approximate the value the Government would receive if the spectrum capacity were auctioned? If the fee is a barrier, should it be imposed only when ancillary service revenues exceed a certain threshold? Should revenues from services with high public interest value, such as telehealth and homeland safety, be completely exempt? Should the fee be variable, depending on the type of service provided and/or the host broadcaster’s revenues?

How should the FCC calculate the revenue on which the fee is based? Currently, the ancillary service fee is set at 5% of the broadcaster’s gross ancillary services revenue, without regard to the revenues of any spectrum lessee, which may be much greater. What happens if broadcasters invest in spectrum lessees and derive revenues from both the lessor and lessee sides? How should the FCC treat like-kind consideration, such as a lessee paying for all the equipment needed for a TV station to implement ancillary services? When and how should broadcasters report their revenues and pay their fees?

Finally, what about the elephant in the room – who is going to design, manufacture, and market receivers for broadcast ancillary services? If the FCC hopes that TV ancillary operations will help to close the digital divide and make Internet access more universal, the public will need access to inexpensive receiving equipment. Most of the major cellphone handset providers refuse to activate FM radio receiver chips in their phones. Will anything motivate them to accommodate TV Internet chips?

Comments on the NPRM will be due 30 days after publication in the Federal Register, which has not happened yet.   Please contact us if you are interested in filing comments, or would like further information on this matter.