ACI Study Blasts Retrans Regs, Urges Reform

A new study by the American Consumer Institute Center for Citizen Research (ACI) finds that regulations put in place more than 20 years ago to protect TV broadcast stations from eroding market share will now have what it calls “a devastating impact” on wireless consumers.

The study, Consumer Welfare on Hold: The Unintended Consequences from Retransmission Consent Regulations on Spectrum Auctions, finds that these retransmission consent regulations are making broadcasting so lucrative that major TV stations will be reluctant to give up spectrum in future FCC wireless auctions.

The study says that with wireless traffic “nearing capacity and predictions for continued rapid growth, Congress passed legislation designed to make wireless broadband spectrum available by holding auctions, whereby TV stations could voluntarily surrender use of TV broadcast spectrum in return for auction proceeds. To this end, incentivizing (compensating) TV stations to relinquish broadcast airwaves is the key to clearing and repurposing spectrum needed to meet growing wireless broadband service demand.”

By relinquishing spectrum in return for auction revenue, TV station broadcasters could voluntarily stop broadcasting altogether, or they could continue broadcasting by either moving to a VHF frequency or sharing spectrum with other broadcasters.

The study says that if broadcasters moved to another frequency, “they could (collectively) be reimbursed (up to $1.75 billion) for offsetting the cost of new equipment, retuning and preventing any loss in coverage that may result from the move. In the end, the process hopes to make as much spectrum available and take in as much auction revenue as possible, while repurposing the airwaves for wireless communications services, most notably for broadband Internet services.”

However, the study continues, “retransmission consent regulations act to discourage TV stations from participating in the auctions. In other words, these regulations work counter to the policy goal of getting spectrum to its highest and best use, and they are at odds with achieving the National Broadband Plan.

“Unless these regulations are reformed or eliminated, the resulting consumer welfare losses will be immense. While the rise in retransmission consent costs will increase multichannel video programming distributors prices by 15%, leading to demand repression and $20 billion in consumer welfare losses over the next five years, these costs are trivial with respect to the potential welfare losses affecting wireless consumers. This study estimates that auction failure would potentially reduce consumer welfare by roughly half a trillion dollars in the wireless sector.”

The study claims that “because retransmission consent regulations discourage TV stations from participating in the incentive auctions, these regulations pose a major obstacle to the auction’s success and a major threat to consumer welfare. Even if the upcoming spectrum is somewhat successful and manages to clear the entire UHF spectrum, because these retransmission consent regulations remain firmly in place and act to inflate station values, the remaining TV spectrum may never reach its highest and best use. Instead, the remaining VHF stations, particularly stations associated with the major national affiliates, have every incentive to keep the spectrum underutilized.”

It concludes that retransmission consent rules — “by pushing higher pay-TV prices to consumers, threatening blackouts and discouraging the repurposing of spectrum to wireless services — are not welfare enhancing and do not benefit consumers. If policymakers are serious about getting spectrum to go to its highest and best use, changing or ending retransmission consent regulations is necessary in order to achieve auction success. Retransmission consent regulations encourage broadcasters to keep broadcasting because they provide generous financial rewards for doing so. This clearly runs counter to the incentives provided in the reverse auction. Failure to modify retransmission consent regulations will undermine future spectrum auctions, thereby resulting in massive consumer welfare losses, on the scale of a half a trillion dollars.”

The American Consumer Institute Center for Citizen Research is a 501(c)(3) nonprofit educational and research institute founded on the belief that “consumers’ interests are not satisfactorily represented by the wide variety of advocacy and consumer organizations that often represent small subsets of consumers and special interests; ignore distant, collateral and unintended consequences of importance to consumers; and too often mirror advocates’ political views rather than an empirical analysis of consumers’ economic welfare.”

Read the full study here.