Consumers paying broadcasters twice

We have heard that there is no such thing as a free lunch and, when it comes to “free” over-the-air television broadcasting, that adage certainly rings true for consumers facing higher prices, and for taxpayers paying for wireless spectrum in order to give it away.  

Over sixty years ago, spectrum was set aside to give TV stations airwaves to broadcast advertiser-supported programming into American households at no charge.  Then, just a couple of decades later when cable TV came on the scene, TV stations faced shrinking market shares and sharply declining advertising revenues.  In response, Congress rescued the TV stations by allowing them to charge then-monopoly cable TV providers new fees, called retransmission consent fees, in return for carrying its “free” programming.  In addition, cable TV providers were required to carry all of the over-the-air advertisements for free, thus preserving TV station revenues. 

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Fast forward to today.  The cable TV monopoly is gone, replaced by rivalry among cable TV, telephone, satellite and new Internet-based providers, like Netflix and Hulu.  As of last year, only 7 percent of television households receive their programming exclusively from over-the-air broadcasting.  However, while the market has changed, costly retransmission consent regulations and fees remain in place in what Professor Thomas Hazlett has pointedly referred to as subsidizing the killer app of 1952.

Retransmission regulations have given TV stations considerable negotiating clout, as evidenced by a 46 percent annual increase in fees charged to pay-TV providers.  These fees mean higher prices for pay-TV consumers and are predicted to increase consumer pay-TV prices by 15 percent in the next 5 years

With 300 million U.S. wireless broadband subscribers as of last year and growing, Congress directed the FCC hold a reverse spectrum auction to repurpose the vastly underutilized broadcast spectrum to highly demanded wireless broadband services.  In order to encourage broadcasters to relocate or give up spectrum, Congress decided that TV stations should be compensated for the spectrum they surrender. 

There is a small problem.  None of the spectrum used by TV broadcasters was purchased from the Federal government through a competitive auction process and no payments were made to the U.S. Treasury to buy it, as has been the case by wireless telephone and broadband providers over the last two decades.  Failure by Congress to collect the market value of this public spectrum means revenue forgone by the Federal government, and secondly by taxpayers.  Now paying broadcasters to relinquish public spectrum is yet another lost opportunity for taxpayers to recoup the value of its public airwaves. 

To add further insult to injury, lucrative retransmission consent regulations and fees will discourage some TV stations from relinquishing broadcast spectrum, according to a recent study.  This means that some underutilized broadcast spectrum will not be repurposed for wireless broadband services, as Congress had intended.  The estimated loss to wireless consumers could reach a half trillion dollars.   

Future scenarios look bleak.  One on hand, outdated regulations will make sure that consumers pay higher cable TV and higher wireless prices.  Alternatively, the upcoming spectrum auctions could financially reward pay TV stations for spectrum that they never outright purchased.  Either way, consumers and taxpayers will be on the hook to support a 1950s-era antenna service that they have all but shunned.

The solution is to end retransmission consent regulations and associated regulations.  These legacy regulations simply run counter to repurposing spectrum and meeting the goals of the National Broadband Plan.  Another approach could be to require broadcasters to bid and pay for their spectrum, just as the wireless providers do.  Finally, every effort needs to get more spectrum to consumer services – by repurposing underutilized broadcast spectrum and freeing up unused government spectrum.  Consumers are demanding faster Internet services and should not be slowed by archaic rules.     

These solutions will make sure that the spectrum goes to its highest and best use, and it will keep consumers from paying twice and then some.

Pociask is president of the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization.  For more information, visit www.theamericanconsumer.org.