for those interested in the spectrum issues re the Markey bill Spectrum: MIT Answers to Markey bill

[David Farber <farber () central cis upenn edu>]

Posted-Date: Thu, 10 Mar 1994 07:29:16 -0500
Memo to: The Hon. Rep. Edward J. Markey,
U.S. House of Representatives


From: David Carver, Tom Hargadon, Jr., Clark E. Johnson, Jr., Lee McKnight,
Russell Neuman, Suzanne Neil & Richard J. Solomon


Research Program on Communications Policy
Center for Technology, Policy & Industrial Development
Massachusetts Institute of Technology
Cambridge, Mass. 02139




Date: March 10, 1994


The following are our answers to Mr. Markey's questions relating to the
Section 203 Amendment to HR 3636:


Q1- Currently, broadcasters fall outside of the class of spectrum users
that are required to bid competitively for spectrum under Section 309 (j)
of the Communications Act of 1934 since they do not receive compensation
from subscribers for the principal use they make of their license.


A - Should broadcasters bid and pay a fee for the use of spectrum currently
assigned to them if they provide new services apart from their main channel
signal?


B - In the event broadcasters are assigned additional spectrum (e.g.,
spectrum to be assigned for so-called high definition television (HDTV)
service) and seek to use it to provide services beyond their main channel
signal, should they be required to bid at public auction for the use of
this spectrum? In either case, how might allowing broadcasters use of
spectrum that they have not bid for affect the underlying rationale and
fairness of the spectrum auction process?


Q2. If broadcasters are allowed to use spectrum to offer services apart
from their main channel signal, how should the federal government establish
the fees they should be charged? Should the calculation of the fee be based
solely on a measure of the market value of the spectrum or should other
factors be considered? How might the government accurately estimate a
market price for the spectrum in the absence of an auction?


A1&2. The first two questions are closely related, so we will answer them
together. In short, not only should broadcasters be required to bid on
spectrum licenses they would use to provide services outside their existing
license, but this is in the public's best interests to protect the value of
spectrum and encourage broad participation in the bidding process:


Under the Federal Communications Act of 1934 as amended, Congress has
charged the FCC, as the representative of the public, with deciding how the
spectrum should be used. The FCC creates licenses to use spectrum for a
specific function. After creating a license, the FCC has decided, "in the
public interest" and following an established process, that licenses for
uses of new spectrum should be put up for auction. Only licenses are given
out, not spectrum. The spectrum belongs to the public.


As a matter of equity, a public trust is given to private enterprise to
develop spectrum for delivering specific services. The TV spectrum public
trust has been given for broadcasting television. If services other than
broadcast television are to be provided, it is in the public's best
interest to encourage others besides the existing broadcasters to bid on
its use including telephone carriers, personal communications providers,
cable networks, minorities, and other entrepreneurs and non-profit
enterprises.


Under this logic, if the FCC wants to re-allocate spectrum for new services
then the licenses should be auctioned. Broadcasters, if they are qualified
under the rules associated with that license, can bid like anybody else. If
this is not done, fairness of the auction process and market value of
licenses are seriously compromised.




Q3. What impact might there be on Federal government receipts from spectrum
auctions if broadcasters obtained the use of spectrum for services apart
from their main channel signal at less than market rates?


A3. Without serious study and public debate, we cannot even begin to
determine the market rate.


> From a technical perspective, television spectrum is more valuable than the
spectrum being assigned for Personal Communications Services. Therefore,
the licenses to be auctioned for PCS would lose significant value if TV
spectrum licenses are permitted to be used for similar services at an
indeterminate, non-competitive  market rate. On the other hand, new
services made possible by advancing technology and the superior
characteristics of television spectrum, may make the television spectrum
more valuable than current estimates.*




Q4. Section 309 (j) of the Communications Act of 1934 requires auctions
only for spectrum whose principal use involves compensation from
subscribers. Should this distinction also be applied to the types of
services offered by broadcasters on additional spectrum to be assigned to
them? If this distinction is applied here, how should subscription or pay
video services be treated? If consumers must pay for set top converters in
order to receive even non-subscription services, should fees be applied for
those services as well? If, over time, broadcasters changed the nature of
the service they were providing over newly assigned spectrum, should the
fee for the spectrum be adjusted accordingly ? By what process?


A4. While there may be distinctions today between users who pay directly
and those who pay via advertising (or taxes), the boundaries are becoming
less clear. We can assume that services will be paid by the users one way
or another in the future. Service charging for the national information
infrastructure is a wide open issue. Therefore, whatever is established for
spectrum licenses may set precedents for pricing on the NII. This should be
handled carefully.




Q5. The amendment would allow radio and television broadcasters to use the
spectrum assigned to them to provide a wide variety of services outside of
their main channel signal. The only limitation that appears to exist in the
amendment is the requirement that these services be "ancillary or
supplementary to the programming services which they are authorized to
provide." What is the effect of this limitation? What practical limits do
the terms "ancillary" and "supplementary" impose on broadcasters? What
services apart from the main channel signal are broadcasters currently
authorized to provide and how would the amendment change that authority?
What limits would be appropriate to set on the kinds of services
broadcasters can offer over the spectrum assigned to them?


A5. This "limitation" is too vague and ambiguous.


Supplementary or ancillary could be interpreted as anything the license
owner chooses, as long as it does not interfere with primary television
broadcasting and net income. Broadcasters would be motivated to take the
broadest interpretation of such language to maximize their revenue.


Q6. Pursuant to the Federal Communications Commission's (FCC's) proceeding
on advanced television systems, each television broadcaster has tentatively
been allocated an additional 6 megahertz in order to broadcast an
HDTV-quality television signal. How would the amendment in questions affect
the FCC's efforts to encourage the development of HDTV and other advanced
television systems? Does the amendment fully preserve the FCC's authority
to establish standards and regulations for the transmission of HDTV?


A6. Each UHF TV station today has one or more associated "taboo" channels
which cannot be used due to co-channel interference. In some cases there
are as many as 3 or 4 taboo channels per station. If HDTV is in the public
interest, as the FCC has already stated in its Report & Order, it is
important that legislation explicitly support the use of additional
spectrum for HDTV. Otherwise, the several major American corporations who
have invested millions of dollars on HDTV may have invested for nothing and
the perceived American lead in world HDTV technology may be lost.




Q7. What are some of the commercial services that are currently
technologically feasible if broadcasters are allowed to use the spectrum
originally allocated to them for HDTV services, other than their broadcast
service? Is this spectrum particularly well-suited for any specific
commercial uses?


A7. The UHF television frequencies penetrate walls better and travel
further than most other frequencies. There are a wide variety of
applications for this high-quality spectrum which may attract a premium in
a license auction providing cost-effective local, "last mile" access to NII
services. For example: health delivery for underserved areas; network
access for classrooms and offices without re-wiring buildings; two-way
mobile videoconferencing.




Q8. Under the FCC's proceeding on advanced television systems, the
additional spectrum to be assigned to broadcasters would not require the
issuance of new licenses. If broadcasters use this spectrum for services
other than HDTV service, how should such services be regulated and should
broadcasters be required to obtain a separate license for such service?


A8. Either the broadcasters use their new licenses for HDTV or the licenses
should be withdrawn and the spectrum re-allocated for other applications.
The licenses should be auctioned in order to encourage broad, innovative
participation including telephone carriers, personal communications
providers, cable networks, minorities, and new entrepreneurs as well as
non-profit and educational enterprises.




Q9. To the extent that television broadcasters offer additional video
programming services apart from the main channel signal on spectrum
assigned to them for HDTV service, should such services be accorded must
carry rights by cable operators?


A9. There are three questions here:


1) Should broadcasters be allowed to simultaneously broadcast multiple low
resolution TV programs in their HDTV channel? Yes, but the FCC should
mandate a minimum amount of HDTV programming sufficient to ensure timely
HDTV penetration.


2) Should broadcasters keep their old NTSC channel along with a new license
for an HDTV channel? No, every effort should be made to retire and
re-license via auction old NTSC spectrum for new services, as soon as
possible.


3) Should "must carry" rights apply to additional video programming
services? This is a very complex question because the technical feasibility
and economic viability of doing this depends upon the penetration and
capacity of cable systems. The answer may not be the same in every region.
Further study into this matter is essential.




Q10. To the extent that a new service offered by a broadcaster is similar
to its existing main channel signal, would this new service be considered
"broadcasting" under Section 3(0) of the Communications Act of 1934 and
therefore subject to the requirements of Title III of the Act? This may not
be a concern if the ancillary service is data transmission, but if it is an
additional video channel, the language of the amendment could effectively
exempt that service from the requirements of Title III (for example, the
equal time rule, the personal attack rule, equal employment opportunity
requirements, children's television programming requirements, character
review, etc.) Please comment.


A10. The Amendment could be interpreted as circumventing the provisions of
Title III. In the future, video transmissions will be digital, and
therefore "data." Bits are bits, and there is no way to distinguish between
different kinds of content. Data services today, such as Mosaic on the
Internet, carry video and audio "broadcast-like" services. The technologies
are converging, and any attempts to try to distinguish "main channel"
television from "ancillary" data services will not work.




Q11. Under existing law, broadcast frequencies are available to all based
on a competition which considers public interest factors such as diversity
of ownership and ownership by minorities. The amendment could be read as
effectively reallocating spectrum without taking such minority and
diversity concerns into consideration. Please comment.


A11. The spectrum is a public resource, and the public owns it. As a matter
of equity, a public trust is given to private enterprise to develop its
uses. The TV spectrum public trust was for broadcasting television,
sponsored by advertisers. If non-conventional television services are to be
provided, others besides the existing broadcasters should have the option
to bid on with public interest factors such as diversity of ownership and
ownership by minorities given due consideration. Special consideration
should also be given to allocating this spectrum to provide cost-effective
access to the NII from school and college classrooms.




Q12. Nothing in this proposal would appear to restrict or limit the
proportion of spectrum that broadcasters would be able to devote to
services apart from its main channel signal. This leaves open the
possibility that the broadcast-related service could become a minor part of
a broadcaster's overall services. Should broadcasters be required to devote
a minimum percentage of their spectrum to their broadcast license
operation?


A12. As we have indicated in answers to previous questions, we welcome
innovative uses of spectrum. However, we believe that competition in
providing local access to NII services is best achieved by an auction.
Nevertheless, the use of data compression and other advanced techniques,
plus complex channel conditions, makes setting a minimum percentage of
spectrum a poor mechanism for service allocation.




Q13. If broadcasters are given flexibility to offer multiple digitally
transmitted video signals, wouldn't there be a natural incentive to reduce
picture quality if that meant a broadcaster could transmit more channels of
video?


A13. Studies at MIT have established that picture quality is not the
primary consideration for home viewers; there are a number of other
variables. Nevertheless, advanced techniques for high-definition TV may be
applied to vastly improve the picture quality of conventional definition
TV.  So, the number of variables and degrees of uncertainly indicate that
it would be best if the market decides the range of preferable picture
quality options, rather than any government mandate.


Q14. FCC regulations currently require a minimum level of service for
television broadcasters of 2 hours per day or 28 hours per week, and for
radio broadcasters of 12 hours per day. The amendment would appear to free
broadcasters to provide services apart from their main channel signal on
the entire spectrum assigned to them, during hours of the day that they are
not broadcasting. This appears to create incentives for them to reduce
their traditional broadcasting service to the public in order to expand any
commercial services that prove more profitable than broadcasting. Please
comment.


A14. That is correct. As we stated in question 5, broadcasters, like any
entrepreneurs, would be motivated to take the broadest interpretation of
vague language to maximize their options.


______________




* The FCC's study "Changing Channels: Voluntary Reallocation of UHF
Spectrum" (Working Paper 27, Nov. 1992) estimated that a 6 Mhz UHF station
in the Los Angeles area would be worth $1 Billion.  For the nation as a
whole, if hundreds of megahertz are released for new services applying new
technologies,  then the total value of the TV spectrum will be worth far
more in auction revenue to the Federal treasury.