After the Incentive Auction: Reimbursing Broadcasters for Channel Relocation Costs
On March 29, the Federal Communications Commission (FCC) will kick off a much-awaited incentive auction that could reshape America’s airwaves. The auction, which Congress instructed the FCC to conduct, is outlined in Title VI of the Middle Class Tax Relief and Job Creation Act of 2012. Accordingly, the agency has spent much of the last four years planning the auction, in which mobile carriers and other companies will bid to acquire spectrum licenses that are currently occupied by broadcast stations. Broadcasters are not required to participate—the auction is voluntary—but if they do, they are entitled to a share of the proceeds of the sale of the spectrum. Hence, the incentive.
What motivated lawmakers to task the FCC with conducting this incentive auction? In 2012, the Congressional Budget Office estimated the overall auction would generate net proceeds of roughly $16 billion over ten years, helping offset the budgetary costs of the payroll tax reduction extension through the end of 2012. Although deficit reduction is desirable in its own right, the incentive auction’s greatest upside is its potential to greatly benefit consumers by putting spectrum to more valuable use—leading to better service and lower costs for mobile device users. If you own a smartphone, tablet, or other wireless gadget, this auction may mean faster load times, higher-quality video, more lenient data usage caps, and lower prices.
But challenges will remain. The auction hasn’t even started, but the process of migrating spectrum from bands currently used for broadcast television to other uses, such as advanced mobile data service, has already proven quite cumbersome. After the auction concludes, many broadcasters will remain on-air, not all broadcasters will participate in the auction, and not all broadcasters whose spectrum is up for auction will find a suitable bidder. Some stations that stick around after the auction will continue with business as usual, but other stations will be required to change the spectrum on which they broadcast their television signal. The need to relocate some broadcasters to new channels, or “repack” their spectrum, arises from contiguous spectrum bands being more useful—and, hence, more valuable—to carriers and their customers.
Once the auction ends, broadcasters will have 39 months to migrate to the new airwaves to make room for auction winners to deploy services on their newly acquired spectrum licenses. Because this process will be costly for broadcasters, Congress appropriated $1.75 billion to establish a TV Broadcaster Relocation Fund to reimburse broadcasters for costs they “reasonably incur[]” in relocating to a new channel. Yet, according to some broadcasters, this amount may not be sufficient to cover costs for every broadcaster whose spectrum is repacked. Rep. Frank Pallone, D-N.J., ranking member of the House Energy and Commerce Committee, has proposed legislation to provide reserve funds in case of such a shortfall.
If broadcasters are correct in predicting a shortfall in the TV Broadcaster Relocation Fund, Congress should explore how to address it to ensure broadcasters are made whole for their reasonable repacking costs. Given that the incentive auction is now projected to generate as much as $60 billion in proceeds—an amount far greater than Congress’s 2012 projection—lawmakers should consider allocating a small portion of auction revenues in excess of original projections to broadcaster reimbursement.
This will not be the FCC’s last spectrum auction. Many valuable frequency bands are still allocated based on decisions made long ago by bureaucrats and politicians, rather than the marketplace. Market-friendly alternatives to spectrum auctions exist—such as according broadcast TV stations strong property rights in their spectrum, which they can sell to mobile carriers at a negotiated price. Yet, Congress is enamored of auctions because of the revenue they raise. As long as that remains the case, making legacy spectrum users whole for the costs of spectrum migration is a reasonable and fair means of addressing longstanding investment-backed reliance interests and neutralizing political opposition to spectrum auctions.