The CCA Voice - Spring/Summer 2014 - (Page 23)

THEME: ON THE EDGE: MEETING CONSUMER DEMAND Putting the "Incentive" in Incentive Auction How the FCC's Broadcast Regulations Will Be a Key Factor in Determining the Success of the Landmark 600 MHz Auction By: Matthew A. Brill, Partner, Latham & Watkins LLP Amanda E. Potter, Associate, Latham & Watkins LLP M any economists and policy advocates have argued that the beachfront 600 MHz spectrum currently licensed to broadcast television stations would generate far more economic value and social utility if reallocated for use by wireless broadband providers. To that end, the Middle Class Tax Relief and Job Creation Act of 2012 directs the FCC to design and implement an unprecedented "incentive auction," which will give broadcasters the opportunity to relinquish spectrum in exchange for a cut of the proceeds derived from auctioning the freed-up spectrum to broadband wireless providers. The FCC hopes to clear as much as 120 MHz through the incentive auction (now scheduled for 2015) and related "repacking" of remaining broadcast licensees. Unfortunately, there are significant doubts about how many broadcasters will show up for the big dance. Many large station groups have signaled that they have no plans to participate in the incentive auction. It is not especially surprising that, in the largest markets, station owners intend to retain their licenses, given the profits they derive from serving cities like New York and Los Angeles. But to the extent that broadcasters in smaller markets are unwilling to participate, that will present a serious threat to the auction process, as the auction cannot succeed without a large number of stations willing to contribute spectrum. To date, the FCC understandably has focused on designing procompetitive and efficient auction rules - establishing a band plan, setting appropriately sized geographic licensing units, and considering spectrum aggregation limits. But an equally important - and underappreciated - priority should be reviewing the existing rules applicable to broadcast stations with an eye toward identifying any artificial regulatory barriers that create disincentives to participation in the auction. In our view, the FCC's current broadcast regulations and enforcement practices (or the lack thereof) create significant marketplace distortions that, if not corrected, are likely to impede the success of the incentive auction. Foremost among these concerns is the FCC's retransmission consent regime. For many years after the 1992 Cable Act's creation of a new right to bargain for retransmission consent compensation, broadcast stations received relatively modest (and typically in-kind) payments from multichannel video programming distributors (MVPDs) in exchange for the right to retransmit over-the-air signals. But in recent years, broadcasters have made growing demands for cash compensation, backed by threats of programming blackouts and an increasing willingness to resort to actual blackouts. That approach has resulted in dramatic increases in so-called "retrans" payments; total fees have grown from $215 million in 2006 to more than $3 billion last year. Perhaps more importantly, fees are projected to exceed $7 billion within the next five years. With such revenue increases boosting profit margins and with the THE promise of continuing fee hikes, it is hardly surprising that many broadcast stations are reluctant to give up the FCC license that confers the right to demand retransmission consent payments. But the stakes are huge: A recent study by the American Consumer Institute concludes that heightened profits produced by the retransmission consent rules threaten the viability of the incentive auction and "estimates the resulting consumer welfare loss from auction failure to be roughly a half trillion dollars." A broad coalition of MVPDs, consumer groups, and other public interest organizations proposed a series of reforms designed to slow the runaway train of retrans payments and to protect consumers from blackouts. The FCC's response to those proposals may turn out to be as important to the incentive auction process as to the MVPD industry, given the powerful disincentives to relinquishing spectrum created by the existing rules. Moreover, critics of the FCC's media ownership rules have argued that the Commission's lax enforcement of the restrictions applicable to local television station ownership may be creating VOICE * * Spring/Summer 2014 23

Table of Contents for the Digital Edition of The CCA Voice - Spring/Summer 2014

Chairman’s Letter by Jonathan Foxman
A Message from the President and CEO by Steven K. Berry
CCA’s 2013 Annual Achievement Award Winners
Staying Ahead of “The Next Big Thing”
Near Tragedy in Nevada Demonstrates Need for Rural Investment
Competition – The Foundation for a Healthy Industry
Putting the “Incentive” in Incentive Auction
Beat ’Em or Join ’Em: Data Roaming in a 4G LTE World
2014: The Year of Small Cell Deployment
Band Class 12 – Beyond Broadband
Chat Mobility Utilizes Multi-Faceted Plan to Attract & Retain Customers
Blurred Lines: Reinventing in the Rural Market
Regional Carrier Bridges Digital Divide with Massive Network Upgrade
Wireless Challenges and Solutions for Competitive Carriers
Expanding America’s Wireless Networks: It Takes a Village
Lead with Location
Giving Your Customer Their Preferred Choices in Billing: Paper, Electronic, and Mobile
Monetizing Data Demand with Personalized Services
Making Sure Long-Distance Calls Reach Rural Subscribers
Mobility Growth with Emerging Devices
Mobile Broadband and the Rise of Mobile Security Challenges
On the Verge: Fulfilling 4G-LTE Consumer Demand in America
Transform Your Business by Making It Simpler
Lessons Learned on the Road to LTE
Let’s Get Personal
Even If the Voice Packets Make It, Does the Lack of Quality Ruin It?
Our Connected World: The Necessity of NFV for Telcos
Ten Hot Consumer Trends in 2014 and Beyond
Gain Your Edge: Effective Edge Out Strategies with 4G LTE
Reaching Consumer Demand Through Marketing in the Rural Driven Markets
Tips for Improving the Customer Experience
Creating a Super High-Capacity Network in Rural America
Your Competitors Are Coming for Your Customers
Index of Advertisers
Congressional Spotlight: Representative Robert “Bob” Latta

The CCA Voice - Spring/Summer 2014