Padden On Spectrum: Take The Sure Money

Like retirees sizing up their pensions, broadcasters can go for the lump-sum payout or opt for an annuity that will fill their checking accounts each month.

That’s the way Preston Padden, executive director of the Expanding Opportunities for Broadcasters Coalition, explains it in a speech prepared for delivery this morning at a George Mason University conference on TV’s future.

Only Padden is not talking about pensions; he’s talking about TV spectrum.

Broadcasters can take a lump sum by selling their spectrum in the FCC’s planned incentive auction or they can adopt a new broadcast standard and lease all or some of their spectrum to wireless carriers for that “annuity.”

Both represents ways that broadcasters can monetize the “10-fold” increase in spectrum value when it is made available to wireless carriers rather than used solely for broadcasting, he says.

For Padden, the choice is clear: take the cash. That’s not surprising. His coalition represents broadcasters who have been buying marginal large-market stations with that intention.

The opportunity could come as early as 2015 if the FCC sticks to its plan to buy spectrum from willing broadcasters in a “reverse auction” so that it can turn around and sell it to wireless carriers in a forward auction.

Getting the annuity — leasing the spectrum, that is — requires too many things to go right over the next few years, Padden says. He calls it “highly speculative.”

Before broadcasters could lease, he says, they would need to coalesce around a new broadcast standard; they would have to convince the FCC to adopt that standard; they would need to spend billions of dollars to help consumers transition to the new standard; they would have to persuade mobile device manufacturers to develop new standards and devices to receive the broadcast signals; they would have to switch to a cell-like broadcast architecture; they would have to develop a plan with wireless carriers for aggregating and leasing spectrum; and, finally, they would have to cope with disputes resulting from the leasing.

But a successful auction is far from a given, too, Padden also acknowledges. For it to work, the FCC has to convince a critical mass of broadcasters to participate and that will not be easy, he says.

“To even begin to contemplate participation in the auction, broadcasters need to know what initial price offers they will see, when the auction will be held and when they will be expected to cease broadcasting. The sooner the FCC commissioners and their hard-working staff can provide answers to these questions, the sooner the FCC will begin to attract more broadcast sellers.”

Some of the FCC’s current thinking on compensating broadcasters in the auction is self defeating, Padden says. “For example, in an apparent effort to suppress payments to some broadcasters, the FCC has proposed to ‘score’ stations offering larger payments to bigger and more successful stations,” he says. “This proposal is driving away from the auction some of the stations otherwise most likely to be willing to participate.

“The FCC will be buying 6 MHz of spectrum, not ongoing broadcasting businesses. Since all stations bring the same 6 MHz to the table, the FCC should offer the same starting prices to all stations and let the design of the auction itself freeze at early high-priced rounds those stations most important to clearing the spectrum.

“Buying smaller stations not located at a market’s main antenna farm will have a greater effect on clearing spectrum because of adjacent channel preclusion — preclusion that is not a problem for co-located stations.”