FCC Economist: Supercharge Ferree’s DTV Plan With Incentives

Kwerel picked the channels in the “upper 700” MHz range as less dense with stations than the lower 700 also involved in the transition - and therefore the easier to clear and presenting “the most bang for the buck” in financial incentives, he said. Even here, though, in populous areas like the Northeast as many as 5 stations must be cleared to free up an analog channel for reuse, Kwerel said.

Licensees would be lured to early spectrum relinquishment with vouchers whose values would depend on the auction outcomes. Those that balked would simply lose their analog spectrum when the hard stop arrived. The set-up aims to solve a “strategic holdout” problem similar to that in property development, Kwerel said: Holders of parcels, real or virtual, have every motive to boost their sale prices by holding out as long as possible in the face of a big, definite transition. There is also the “free rider” problem, he said, wherein interference induces would-be occupants of a channel to lie back while others bear the costs of clearing adjacent channels. These scenarios complicate freeing up the spectrum for new- technology uses, notably WiMax wireless broadband, Kwerel said.

Co-panelist Kelly Williams, NAB engineering & technology policy senior dir., focused on the prospect that seizing analog spectrum from licensees while significant numbers of viewers depend solely on over-the- air broadcast would produce job losses resulting from failures of stations he portrayed as mom & pops. Loss of those viewers would translate into reduced ratings and consequently shrunken ad revenue, he said. The issue’s magnitude often is understated by focusing on the estimated 15% of viewers without cable or satellite service and ignoring the millions of sets that subscribers own but that have nothing but over-the-air reception, Williams said. That adds about 28 million sets to the 45 million in broadcast-only households. The solution is cheap digital set-top boxes, ideally under $100 and perhaps govt. subsidized, to augment the natural phase-out of old sets. He also said subscription services should be required to provide all of a station’s digital offerings and not just a slice.

But Kwerel characterized the upper 700 spectrum as “not very valuable in the current use.” He said UHF stations in the 60s generally aren’t very popular and many Americans who couldn’t receive them digitally presumably either don’t want them or could remedy the situation. Digital-only broadcasters still would have great access to viewers through cable and satellite and over the air, Kwerel said.

The 700 MHz spectrum at issue offers huge propagation benefits over alternative frequencies, said Intel Communications Policy Dir. Peter Pitsch. In comparison, 2.5 GHz spectrum requires more than 10 times the transmission and entails an 11 db deficit in signal strength, he said. Intel studies have shown a capital spending advantage of 4-5 times in the 700 MHz range, just from propagation benefits across open space, Pitsch said; taking into account foliage, defraction and in-building penetration, the boon probably grows to 7 or 8 times: “We believe these numbers are very conservative.” WiMax would cut by 3/4 the number of transmission cells required in rural and other areas and open up whole new business models based on mobile devices and service self- installation, he said.

Contrasting projections Kwerel had cited of $60 billion in value creation from the transition - deriving equally from auction proceeds and customer benefits from new uses - against the presumed hundreds of millions of dollars need-based subsidies of digital set-top boxes would cost, Pitsch suggested the economics almost demand a compensation deal and all that’s really up in the air is the terms. - Louis Trager