What the Shrinking Broadcast Spectrum Means

For better or worse, the recent UHF incentive auction is over, with a net to participating broadcasters of about $10B. We have now entered into the second or transition phase of the reallocation plan, scheduled to last for 39 months, at the end of which broadcasters must turn over their auctioned-off frequencies. Options include everything from entirely exiting the broadcasting business, to ceasing all over-air transmissions and relying entirely on wired transmissions (cable or Internet), to consolidating over-air operations with a VHF station in the same broadcast area (a Channel Sharing Agreement or CSA), to migrating over-air transmissions to the VHF band. Whichever path a station chooses, if it voluntarily participated in the auction, all associated transition costs need to be paid for out of its auction proceeds. Ideally, for UHF broadcasters transitioning to an alternative form of transmission, there will be something left over to put into an annuity fund, or to be spent expanding and improving existing operations, or creating new services to grow income.

Among the stations that participated in the auction, the division of the $10B received is far from equal. 174 stations are scheduled to receive some amount of revenue, with shares ranging from a low of about $173K to a high of about $304M. The arithmetical mean value of share payments is about $57.5M, while the median payout sits near the $42M mark.

145 of the 175 participating stations indicate they plan to entirely cease all existing over-air operations, while the other 30 will migrate their over-air operations to VHF. Of the 145 stations planning to cease individual over-air operations, however, all but 17 indicate they have, by the close of the auction phase, entered into a CSA with a VHF station in their broadcast area.

Legally and financially, a CSA is straightforward. A VHF station has no way to share in the revenue from the spectrum auction except by entering into a CSA with a local UHF station. Legally, each station in the CSA then receives a separate license from the FCC for its half of the shared channel, with perhaps some restrictions on the ability of one partner to sell its half-share license (e.g., right of first refusal to the other half-share partner).

The more critical issue, which CSA stations must address before the current transition period ends, is how to make a single channel serve two stations. No doubt, the simplest solution is for the two stations to just co-brand a single broadcast stream. However, where the two stations address different audiences—as is perhaps the usual case—this solution may not be workable. Even where it is workable, it may be less than satisfactory, since it would involve two businesses splitting the revenues available from a single stream.

Assume, then, that a shared channel must be made to support two streams, one for each CSA party. Also, assume there is no general transition to ATSC 3.0 before the allowed 39 months expire (with its associated bonanza of additional bandwidth). Then, each partner in a CSA must figure out how to do everything they used to do—or, at least, everything they still want to do—in just half the 19.39 Mbps supported by a 6 MHz ATSC 1.0 channel.

One obvious answer to this technical challenge of doubling capacity in the same bandwidth is to switch from MPEG-2 compression, specified by the ATSC 1.0 standard, to MPEG-4 compression. Since, compared to MPEG-2, MPEG-4 compression is between three and four times better, this would not only allow each station to continue broadcasting a full HD stream but also simulcast a lower bitrate SD or mobile stream alongside it. In short, levering MPEG-4 compression technology, each partner in a CSA could not only continue to do everything they used to do in 6 MHz (while using just 3 MHz), but they could also provide new services, with associated opportunities for new revenue.

But is this feasible? To be sure, some existing over-air receivers can now take a MPEG-4 signal successfully, and more will have this ability by the end of the 39-month transition period. But how many? Is this figure closer to 10% or 90% of the potential audience? Assuming it is not 100%, at what point does the opportunity to gain revenue, with new services empowered by MPEG-4, outweigh any losses from a smaller MPEG-4 audience base? After all, a simulcast aimed at a mobile audience might reach everyone with a cell phone—doubtless, an even bigger audience than everybody with a TV. Does this make it worth taking the plunge at 60% of TV households? Or Lower? At 80%? Or higher?

If the MPEG-4 option is ruled out because of the potential audience loss involved, what are the other options? Are these more or less expensive? More or less audience-friendly?

What certainly is no longer in doubt is that stations entering into CSAs have a total of 39 months to figure out how they are going to share an existing channel. If you have an opinion on this subject that you would like to share, please click the link below to leave a comment on this blog at our LinkedIn page.

Here at Telairity, we do it all when it comes to signal encoding, and we do it with capital costs in mind. Attractive prices, along with high-quality pictures, low bit rates, simple setup, and full software upgradeability have made Telairity a leader in the industry. Get in touch with us, or follow our activity on LinkedIn or Twitter, and see how we can work with you now and into the future.

The Shrinking Broadcast Spectrum

Once upon a time, the radio frequency (RF) spectrum (ranging from 3 Hz to 3000 GHz) was used exclusively for radio (wireless sound transmission)—when it was used at all. Indeed, from the 1860s (when James Clerk Maxwell first postulated the existence of radio waves) to the 1940s, there simply wasn’t any other practical use for radio waves. Then commercial television began elbowing its way into the RF spectrum, to transmit images together with sounds. After TV came cell phones, which initially wanted RF spectrum for ordinary telephony uses, followed by email, followed by pictures, video, text messaging, and graphics. Today, a horde of untethered devices, ranging from L-Band satellites to RFID-tagged inventory items, all clamor for a share of the RF spectrum in an ever-expanding global communication network.

For broadcasters, the result has been a steadily shrinking spectrum. Frequencies assigned long ago, in a bygone era when the only wireless devices most people possessed were their radios and TVs, have been reclaimed and reallocated for other uses. And since, in an increasingly mobile world, the demand for wireless communication continues to grow apace, in recent times, every MHz of RF frequency spectrum a broadcaster continues to hold has rapidly escalated in value. As a consequence, the choice made by a broadcaster to surrender or retain RF frequencies has become a decision to realize or forego many millions of dollars.

Analog-to-Digital Shift and the 2 GHz Relocation

For broadcasters, the most momentous consequence of the growing demand for wireless spectrum was the mandate requiring that full power stations complete a transition from long-familiar analog to new digital technology by mid-2009, with most low-power stations following by the end of 2011. In addition to any other benefits (including an end to signal-transmission problems like ghosting and snow), this shift to digital technology greatly increased the efficiency of RF usage. Better efficiency not only enabled a long-delayed shift from SD to HD resolutions but also allowed broadcasters to surrender frequency while gaining functionality.

Thus, part of the overall digital transition was the exchange of seven 17/18-MHz wide analog Broadcast Auxiliary Service (BAS) channels for seven narrower 12-MHz wide digital BAS channels. Thus, where the old analog BAS band had run from 1990 to 2110 MHz, the new digital band started instead at 2025.5 MHz. The resulting reallocation gave the lower 30% of the old analog band (1990 to 2025 MHz) to Sprint/Nextel, for incorporation into their adjacent Personal Communications Service (PCS) band (1850-1990 MHz). But this diminution in BAS bandwidth involved no sacrifice by broadcasters. To the contrary, they profited from it—twice over. First, in exchange for the extra bandwidth, Sprint/Nextel agreed to pay for all the equipment broadcasters needed to convert their existing BAS usage from analog to digital, e.g., new digital HD cameras and MPEG-4 encoders, transmitters, and receivers. Second, once equipped with new digital gear, broadcasters were able to do far more with a 12 MHz BAS channel than had ever been possible with an 18 MHz analog BAS channel (e.g., transmit two HD signals across it simultaneously).

Auction of UHF Spectrum

 

Since 1994, the FCC has sporadically auctioned off spectrum reclaimed either through shifts in transmission frequencies (like the 2 GHz relocation) or consolidation of operations. Most recently, however, they commenced a first-ever “incentive auction” (authorized by Congress in 2012) of 84 MHz, taken from the UHF TV broadcast spectrum. TV stations using these frequencies could voluntarily decide to relinquish them, in exchange for a share of the auction proceeds. The initial auction phase of this spectrum reallocation initiative took one year, starting March 2016 and ending March 2017, with a total of $19.8B raised (setting the market price of 1 MHz of spectrum at just under $236M or, on a national MHz-pop scale, at $0.73). Those UHF broadcasters that volunteered to surrender spectrum are dividing the lion’s share of this revenue (just over $10B), with the government claiming most of the rest of the proceeds (over $7B) for use in “debt reduction.” Except for 14 MHz, all the freed UHF spectrum goes to phone companies, who plan to incorporate the additional bandwidth into new 5G networks.

While $10B might seem generous—even extravagant—compensation for surrendering 84 million Hz out of a total spectrum of 3,000 billion Hz, hopes for this auction were more elevated. The expectation was that what, at first, seemed a frenzied demand for spectrum would drive bidding far higher, past $60B. Far from the maximum amount hoped for, then, $10B was the minimum figure at which broadcasters were willing to part with this much spectrum.

(To be continued in part 2 of this blog)

Here at Telairity, we do it all when it comes to signal encoding, and we do it with capital costs in mind. Attractive prices, along with high-quality pictures, low bit rates, simple setup, and full software upgradeability have made Telairity a leader in the industry. Get in touch with us, or follow our activity on LinkedIn or Twitter, and see how we can work with you now and into the future.