How the Traditional Property Rights Model Informs the Broadcast Television Spectrum Rationalization Challenge

J. Armand Musey CFA, Summit Ridge Group, LLC

Abstract

This paper examines the prospective role of zoning rights and eminent domain in the Federal Communication Commission’s (“FCC”) challenge of reallocating underutilized television broadcast spectrum for use in significantly higher value mobile broadband applications. The government must reallocate the spectrum in an economically and legally efficient manner, balancing the interests of the politically powerful broadcasters and those of society as a whole. Recently, the government has decided to explore ways to incentivize the broadcasters to voluntarily return their spectrum licenses. From a strictly legal perspective, the broadcasters have a relatively weak claim to property rights. However, the government has indicated it seeks an incentivized voluntary return of spectrum by the broadcasters. The government’s plan to take the broadcasters’ spectrum voluntarily, rather than involuntarily, suggests that the government intends to effectively treat the broadcasters as though they have certain property rights to their spectrum licenses – specifically the right to control possession. Given the government’s de facto recognition of elements of property rights of the broadcasters, the twin theories of zoning and eminent domain can inform a mutually acceptable solution between the government and the broadcasters. Based on traditional property rights theories, a threefold solution would allow the government to reallocate the spectrum in a manner that is fair to all parties. Specifically, this solution would consist of: (1) giving a payment to the broadcasters, (2) granting cable or satellite subscription subsidies to affected viewers, and (3) allowing the broadcasters some continued retransmission guarantees. The combined cost of the payment to the broadcasters and viewer subsidies would range between $0.10 and $0.19 per Mhz/POP. In addition, the threat of “down zoning” the television broadcasters’ rights would incentivize the broadcasters to accept an equitable offer put forth by the government. The government would be able to auction the spectrum for $1.02 to $1.22 per Mhz/POP, resulting in a net profit of approximately $28.5 to $38.3 billion.