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Broadcasters and their rusty little transmit towers

I just finished reading a May 2011 report titled, “If a TV station broadcasts in the forest.” It was written by Thomas W. Hazlett, professor of law and economics at George Mason University and managing director of Arlington Economics. Given the report’s title, I did not expect him to be complimentary to television broadcasters — and he was not.

Hazlett begins by calling local broadcasters little more than a “rusty transmit tower.” He further claims, “The TV license continues to hold value not as a gateway to airwaves but as a toll booth for broadcast network programming.”

Mr. Hazlett takes no prisoners in his prejudged opinion piece. After all, the entire "research," if one wants to call it that, is little more than hired PR. More about this later.

His first chapter is titled, “Television broadcasting’s brilliant run to obsolescence.” His concluding chapter is titled, “Video rules as if consumers mattered.”

Hazlett’s paper is based on his premise that OTA television is “a needless expense, propped up not by customer demand, technical efficiency, or business necessity, but legacy regulation generations outdated.” He calls for those broadcast regulations to go the way of “cavemen.” His basic (and long-held) thesis is that the FCC continues to prop up an obsolete business model (OTA television) with syndication rules, must-carry rules and other antiquated rules.

Let’s step back a bit and look at who is Mr. Hazlett, his background and the source of some of his data points.

First, Hazlett served as chief economist of the FCC from 1991 to 1992. One might ask why his term was so short.

Second, he’s a prolific writer having penned pieces on this and related topics. He has been a long-time advocate of “unleashing” spectrum for new applications.

Even prior to his appointment to the FCC, it appears that Hazlett had a jaundiced view of broadcasters. In 2006 he authored a report for the Southern California Law Review, which set forth the basics of his viewpoint and is echoed in the May 2011 paper.

He says:

"Historically, the 'block allocation system' has directed regulators to determine what services, if any, may be provided, what technologies may be used, and what business models may be deployed. For broadcast television in the United States, for instance, the FCC imposed rules between 1939 and 1953 that allocated 81 channels for over-the-air service in the VI-IF (very high frequency) and UHF (ultrahigh frequency) bands. Each station license was allotted 6MHz of bandwidth, and the transmission format was fixed by the National Television Standards Committee, which devised its technology over a half-century ago. Video programs were provided on an advertiser-supported basis; nonvideo services and subscription fees were ruled out. The rules have proven rigid and restrictive, preventing new technologies from accessing the valuable airspace set aside for broadcast television generations ago." (My emphasis added.)

Hazlett suggests government, the FCC, take three steps to “unleash” technology and innovation.

First, he says society will achieve enormous social gains by allowing stations to deploy bandwidth-allocated TV licenses to their highest valued uses, supplying programs to customers via alternative distribution platforms — as done in 91 percent of U.S. households already. Basically, he’s suggesting broadcasters sell their spectrum and go away.

But, what about the 10 percent of homes still relying on OTA broadcasts? Hazlett says at $300 per household, those viewers could be connected to broadband, cable or satellite, making the total transition expense about $3 billion. Selling broadcast spectrum would generate about $108 billion, “Hence, the net social gain of switching out off-air terrestrial broadcasting in favor of existing MVPD networks is at least $1 trillion, or more than 300 times the cost of the transition.”

Second, Hazlett calls for the elimination of must-carry and retransmission consent, which he says are “trade barriers” favoring broadcasters over cable and satellite. Calling them “TV bad science” as first implemented and “absurd” today, he says they stifle consumer choice and market efficiency.

Finally, his report says the transition to over-the-top (OTT) Internet delivered video is already underway. Linear TV, he says, now competes with Hulu, Netflix, Apple TV and Google TV.

He says:

"A television future without 1952-style TV stations is not a difficult world to imagine. It offers a promising vision: over $1 trillion in consumer welfare released for wireless services, elimination of large inefficiencies in the competition to create content bundles, new 'broadcast’ programming coming to households via the pathway hundreds of other channels already do, through contracts with program networks and/or multichannel video bundle providers, and via the newly emerging over-the-top applications flowing to millions of TV sets, mobile handsets, notebook/netbook computers, e-readers and tablets."

Before one gets too carried away with Hazlett’s research, it’s always worthwhile to follow the money and ask, “Who paid for it?” In this case, it was the American Television Alliance, an organization described as, “an unprecedented coalition of consumer groups, cable, satellite, telephone companies and independent programmers to raise awareness about the risk viewers face as broadcasters increasingly threaten service disruptions that would deny viewers access to the programs they and their families enjoy … The ATVA’s mission is a simple one — to give consumers a voice and ask lawmakers to protect consumers by reforming outdated rules that do not reflect today’s marketplace.”

In simple terms, Hazlett was paid to write the piece by folks who want the FCC to force television broadcasters to sell off their spectrum and go quietly into the night. And he has a long history of advocating the FCC get out of the “command and control” way of managing spectrum. From his 2006 paper:

"The FCC is finding it difficult to kick the 'command and control' habit, even as it steps away from block allocations. In its 2002 Spectrum Policy Task Force Report (SPTFR) and in a series of decisions made in its wake, the FCC sought to address how advanced wireless technologies can be unleashed. As reported, Chairman Powell saw the purpose of this Task Force as the establishment of new ways to support innovation and the efficient, flexible-use of spectrum. The report issued a critique of command and control regulatory practices, and called for deregulation."

Of course, deregulation in Hazlett’s eyes means pushing broadcasters over the cliff.

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