The Rabbit-Ear Wars

Get ready for a rumble over the future of over-the-air TV.

You stupidly built a drive-in theater in the desert just as your customers were all deciding to stay home and watch HBO. Fortunately, the theater turns out to be sitting on a mountain of oil.
With a few asterisks, such is the situation of old-style TV broadcasters, whose viewers have fled to cable or satellite but whose spectrum is lusted after by the wireless industry. According to a much-noted study sponsored by the Consumer Electronics Association, in the hands of the broadcasters, that spectrum is worth a mere $12 billion. In the hands of mobile phone carriers struggling to meet explosive growth for mobile broadband, it would be worth $62 billion.

View Full Image

Corbis 

 

To the Silicon Valley types who people the Obama administration, this suggests a rational policy: Pay broadcasters to give up some or all of the airwaves used to send signals to their dwindling rabbit-ear audience. Turn it over to mobile phone folks at a hefty markup.

Blair Levin, a veteran telecom analyst who heads the FCC's broadband efforts, has floated a Hindenburg of a trial balloon by broaching just such a deal with broadcasters. Virtually all agree that any such "grand bargain," to be politically deliverable, must enlist the willing, nay eager, participation of broadcast station owners. No problem—broadcasters would be the biggest winners, right?
Sadly, remember what happened to the original Hindenburg. Broadcasters, who have a keen sense of political realities, note that their broadcast licenses don't actually confer a property right, so whatever deal the FCC struck with them, Congress would certainly rewrite it to make sure Congress got all the money. Broadcasters would receive squat, and probably be vilified as bandits in the process.
"Pipe dream" was the verdict of Colleen Brown, chief of Fisher Communications, owner of 20 stations in the Pacific Northwest.
"Politically they would fall flat on their face," opined Sinclair Broadcasting's Mark Aitken, estimating the agency's chances selling a cash-for-spectrum deal to Congress.
But, hold on. We mentioned asterisks. The FCC and Mr. Levin are correct (and brave) in pointing out the need for a market mechanism to guide spectrum to its highest and best uses. But the FCC is in no position to know whether mobile broadband is that higher and better use. A reason is the regulatory straitjacket, including ownership limits, that for decades has prevented license holders themselves from exploring new broadcast business models.
For the truth is, broadcast offers impressive economies for distributing rich media content compared to the Internet. An infinity of users can be served by a single bitstream. It doesn't matter how many receivers tune into a TV broadcast. It never gets overloaded.
Consider a small company called Sezmi, now testing in Los Angeles a competitor to cable and satellite TV. Users get a box with a powerful HDTV antenna, allowing them to receive not just traditional over-the-air TV channels but also popular cable networks, broadcast locally using spare capacity leased from TV stations.
A separate broadband connection supplies on-demand movies and even material plucked from YouTube. And to help make the most of limited bandwidth, each also comes with a giant terabyte-sized disk drive capable of storing many hours of programming, automatically downloaded in advance based on a viewer's demonstrated habits and tastes.
All this, of course, would also yield a cornucopia of information with which to deliver the truly individualized advertising that TV ad buyers crave.
Who knows whether Sezmi will pan out technologically, and at the very-much-cheaper-than-cable price the company touts. The FCC quite properly worries about a coming mobile capacity crunch, with all those proliferating iPhones. But throwing spectrum at it won't be the only solution. Greater integration of fixed and wireless will help. Software innovation, cramming more bits into the same frequency, will help. So will usage-based pricing. And as Sezmi shows, local storage can substitute for bandwidth too.
The FCC is looking in the right direction, but we need more than just a "market solution" to liberate spectrum from the current government-approved incumbents. We need a market that can fully explore the potential of all the business models that might contest to find the highest and best use of that resource.
In the meantime, the agency's trial balloon is having a perverse effect, spurring broadcasters to new Potemkin feats to prove they are making full use of their existing spectrum, such as rolling out new digital "subchannels" that nobody watches. Some broadcasters even invoke the 1962 All-Channel Receiver Act and insist a new "golden age of broadcasting" is around the corner—just as soon as the FCC mandates that every smart phone be capable of receiving over-the-air TV signals.
In short, one picture is starting to come in clearly: The spectrum puzzle won't be solved by the clean and simple deal the agency envisioned just a month ago.