Bill Lake and Gary Epstein will have a lot to do with how the FCC eventually creates and implements a framework for incentive auctions, which in turn will help determine the fate of the broadcasting business in the months and years ahead.
Lake is chief of the FCCâ€™s Media Bureau, and Epstein is senior adviser and co-lead on the FCCâ€™s Incentive Auction Task Force.
While the exact outlines of that framework have yet to be determinedâ€”a tentative framework was put out for comment in Septemberâ€” the pair agreed to an on-the-record conversation with B&C Washington bureau chief John Eggerton about the unprecedented effort to reclaim spectrum from broadcasters and auction it to the highest biddersâ€”which would be, presumably, spectrum-hungry wireless carriers. An edited transcript follows.
Will extending the deadline for final comments on the auction frameworkâ€”from Feb. 19 to March 26â€”set back your timetable for voting the item mid-2013?
Gary Epstein: Weâ€™re on track. We have said publicly that we are still on track for rules in 2013. The auction is going to be a 2014 event.
When is the â€œJune 2009â€ moment for this next DTV transition, by which we mean, when will broadcasters actually have to give up their channels and/or move to new ones?
Bill Lake: We havenâ€™t set a date for that. We asked in the notice of proposed rulemaking what the transition arrangements ought to be. This is different from the DTV transition, where the June  event was basically just turning off the analog signal if you already had the DTV signal up. This is one where we will have a slightly different transition and we donâ€™t know exactly what the timing ought to be.
But letâ€™s say the auction is completed by the end of 2014, roughly how long after that? A year? Five years?
Lake:Weâ€™ve put out for comment whether it could be done in 18 months. And, of course, we will see if people say whether that is feasible or not. We want to be aggressive on all of these things, to try and do them as quickly as we can.
Could there be a third DTV transition, where you have to come back to the well again if this auction isnâ€™t successful?
Epstein: Our view is that Congress gave us this authorization, we put out this notice and we are doing everything we can to make this auction a success. We are designing it to make it relatively simple for broadcasters to participate. We are spending a lot of commission resources and time on it, and we donâ€™t have a plan B at this point. We are focusing our efforts on making this auction a success. We think that broadcasters are being, and should be, cooperative because they have a stake in this. This Congress has authorized certain protections for broadcasters with respect to reimbursement costs and preserving coverage areas.
But, totally separate from this auction, the FCC has the authority to grant or take away a license if it concludes it is in the public interest. So, the FCC still has the power after the auction, if it does not get spectrum where it needs to, to go back and simply take it, right? It would be politically difficult, obviously, but the FCC could, theoretically, do it?
Lake: We have authority with respect to licenses. We havenâ€™t thought about using that outside of the context of this auction because this is one that we expect to be a success, and we think broadcasters have a strong interest in making it a success. As [Gary] says, there are special protections in this auction. If we were to do another auction under the statute five years from now, those protections wouldnâ€™t be there. So we have an incentive to make this work, and the broadcasters have an incentive to make this work, and we fully expect it to work.
What percentage of stations are involved? From how many stations do you actually want spectrum?
Epstein: What we have said is that we are not in the business of predicting how many stations are voluntarily doing this. What we're in the business of doing is designing an auction that will really make it easy for them to participate and laying out as simply as possible the three options Congress gave us [for auction participation], which are going off the air completely, sharing spectrum and going from a UHF to a VHF channel.
So, maximizing spectrum while maintaining a viable broadcast industry. But Bill, haven't you said you are really only looking at the top 30 to 50 markets.
Lake: I would distinguish two things. One is where we expect contributions. Clearly the greatest need for spectrum is in the largest markets. So that is where we would expect to get the greatest number of contributions. There will be some other smaller markets where we will need some spectrum as well, particularly in markets adjacent to major markets.
When we get to repacking, stations in smaller markets may also have to move, for example; if they are on one of the frequencies we are moving over to wireless service they may have to move. Now, in smaller markets, there may be plenty of places for them to move and it will be an easy matter for them to move to another channel. Stations in any market in the country may be subject to repacking depending on what channel they might be on.
Epstein: That is an important point-As far as repacking goes, we are trying to clear spectrum on a nationwide basis and maybe on a regional basis in some markets. That means in some of the smaller markets there will be some repacking.
So, the space is there, but they may be in the wrong place and you have to move them to the right place.
It says in the notice of proposed rulemaking: "We interpret [the statute] to require provision of a channel for each eligible station that will remain on the air following the completion of the incentive auction, i.e., each station that does not participate in the reverse auction, participates but does not submit a winning reverse auction bid, or submits a winning bid to move to another band. The statutory preservation mandate is limited to such stations." That seems to say that only people who move from UHF to VHF-or theoretically from V to U-would be covered, not anyone moving within either one of those bands. Should it have said "channel," or what are we-and some concerned broadcasters-missing?
Epstein: What we meant by that for stations that do not participate in the auction at all, or for stations that participate in the auction but don't win, is they will be assigned to the band where they were. They may be repacked, but a U will be a U, and will be in that band. What we meant in that last situation is a station that chooses to go from U to V.
Lake: One of the options in the auction is to be able to move from U to V for a share of the auction proceeds. No one will be involuntarily moved from one band to the other.
This is like a second spectrum downsizing for broadcasters.
What kind of interest have you seen from broadcasters? Has Preston Padden-who is representing broadcasters willing to give up spectrum-approached you with actual potential bidders?
Lake: We have had a lot of anecdotal, individual expressions of interest. Some station owners have come to us and said they plan to participate in the auction. We have had other contacts by lawyers for stations that haven't been identified. Preston has not identified the stations that are members of his coalition. But certainly indications that we have are of substantial interest in contributing. There is no way that we can quantify that at this point.
The NPRM proposes compensating broadcasters for voluntarily accepting additional interference. The FCC potentially boosting interference doesn't seem very consumer friendly.
Lake: I don't think that is the case. In fact, this is the sort of thing that broadcasters did in the DTV transition and that they do simply as a private matter between them. Two stations that are butting up against each other will sit down and decide exactly how much interference each will accept from the other as a way of defining the boundary between them. And they do that obviously with the interest of serving viewers as best they can.
So, we don't see this as anything harmful to consumers at all. It is an option that stations might take if they thought it was in their interest, and their interest is in serving their viewers, to say they would accept some interference for auction proceeds. We have asked whether we should afford that option. It is not in the statute and we may decide that it is not something that is a good idea or works. We just basically asked the question.
What about the argument that much of the spectrum you are targeting for contribution will wind up coming from smaller, urban stations who have been providing diverse programming?
Epstein: I think it would be really difficult for us to think about not allowing all stations to participate in the reverse auction, no matter who owns them. And so we have that premise. In addition, there are a number of attractive options for stations participating in the auction to not go off the air, including in particular the sharing of stations where they can get a good capital infusion and remain on the air as broadcasting or moving from a U to V. Especially in an area where there is a lot of cable and satellite coverage, they can maintain their audience and again get a capital infusion.
Lake: If our interest is in making sure that viewers don't lose important niche programming, there are ways that Gary described for participating in the auction and staying on the air. There are also other ways in this modern economy to reach viewers. Someone who has been an independent today could arrange to be a ["multicast" channel] on another station. It might actually get greater coverage that way. The Internet is available for niche programming. We're very interested in trying to make sure the auction makes programming available to viewers that they want to receive. And we have actually asked whether there is anything the commission should to do encourage the use of these other media if that is necessary in order to assure consumers get what they want.
Broadcasters are concerned about an FCC proposal to make wireless a co-primary user of the broadcast band.
Lake: We originally made the proposal to allocate the entire band as a co-primary between the two services. Broadcasters said they did not like that proposal. So what we have done is basically table it. We don't anticipate that when the auction is finished there will be any part of the band in which there will be both broadcasters and wireless companies participating. We will end up with a band plan where certain parts of the spectrum will be available for broadcast and other parts for wireless. The concern that broadcasters won't be considered to sort of belong where they are is not going to really exist. I think that was maybe a broadcaster misunderstanding of what we were about.
What we have assured them is that we are going to create a band plan in which the wireless carriers are in one part of the band and broadcasters in another and we will create guard bands as needed to make sure they don't interfere with each other.
Shouldn't you conduct a comprehensive spectrum inventory before you conduct the auction?
Epstein: We did a spectrum inventory as part of the National Broadband Plan and we have the Spectrum Dashboard. But the practical answer is we are looking for a large, contiguous swath of low band spectrum. Whether we do a spectrum inventory or not, there really isn't another potential for low-hanging fruit or any opportunity other than the incentive auction in this band.
It is a matter of record that we are looking for frequencies below one gigahertz here. We know what they are. And the incentive auction is the broadband plan's, Congress', the president's and now our way to repurpose some of that spectrum.
What is the status of treaties with Mexico and Canada?
Epstein: We've started discussions both with Canada and Mexico. We have treaty obligations with respect to them whether there is anything in the statute or not. We have a long history of cooperation. We're getting some good initial indications back. We intend to address the border issues before we come out with a report and order. But a couple of key points are that the statute does not require us to complete negotiations before we go to a report and order. And second, the lead band plan proposal that is in the NPRM is flexible enough to be able to accommodate differences in spectrum along the border if we actually need it. We are optimistic and positive that we will be able to clear more spectrum through those negotiations, but we have given ourselves the opportunity through the flexible band plan to be able to do the auction.
What are broadcasters worried about?
Lake: They may not have appreciated during the legislative phase that we would be accepting different amounts of spectrum in different markets. There was one NAB concern, for example, that if we got 120 MHz in Detroit there wouldn't be any stations left. But that is sort of starting at the wrong end of the issue. The question is how many stations in Detroit will contribute its spectrum. I am absolutely confident that every station in Detroit is not going to contribute its spectrum.
I think they were reasoning backwards from 120 MHz rather than forward from individual decisions of broadcasters, which is going to be what drives this.
So, every broadcaster could remain if none were willing to give it up?
Epstein: Yes, that is what the statute authorizes, but we do not think it a likely outcome.
E-mail comments to firstname.lastname@example.org and follow him on Twitter: @eggerton
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