Archive for December, 2014

Notes from the Sandbox – The Rural Broadband Experiment Auction Results

Wednesday, December 24th, 2014

Recently, the FCC released a full list of bidders in the Rural Broadband Experiment auction, collected information from the low bidders on that list, and released a notice providing an opportunity for those who bid to indicate by January 6 their interest in continuing with the Rural Broadband Experiment and participating in a future auction. Over the past year, I have often been asked what we sought to learn from this experiment. Let me answer that by starting with a little history.

For decades, Universal Service – access to telephone service for all – has been an obligation of telephone companies and federal funding has been provided to help meet that obligation. In 2011, the FCC decided to move to a competitive bidding process to award ongoing support to serve rural and high cost areas in certain circumstances. The FCC has become skilled at running auctions. But the auctions we typically run are spectrum auctions, and a Universal Service reverse auction is a different animal.

So, the Rural Broadband Experiment was designed to answer questions about auctions for Universal Service funding. How should such a bidding process be structured? Who would participate? Would incumbent telephone companies cross into neighboring service territories? Would other types of entities step in – cable companies, satellite broadband, electric utilities? What types of technologies would be proposed? What amount of support would be requested? What happens if the FCC’s cost model, which we are currently using to allocate universal service funding, is used to set a reserve price? Is competitive bidding for universal service funds scalable to the nation? What happens in areas where there are no bids?

In size, the FCC experiment was small – $10 million a year over 10 years, or just over two-tenths of one percent of the FCC’s $4. 5 billion annual fund for rural universal service support. The auction bidding was aggressive and diverse. We received bids from telephone and electric co-ops, from mobile operators, from wireless internet service providers, from cable companies, from communities, and from a satellite provider. We received bids from start-ups and from companies that have been around for over 100 years. We received bids to provide broadband via copper, fiber, licensed and unlicensed spectrum. We received bids from national operators, but mostly the bids came from companies that were locally based, with more than an occasional effort to try new strategies to get broadband to unserved communities.

We received 575 bids from 181 different entities to cover homes and small businesses in over 75, 000 census blocks in rural areas in every state in the country. The total amount requested far exceeded the budget, nearly nine times as much as was available to fund in the auction. And it appears that the auction succeeded in drawing bidders who believe they can provide service very economically. For example, when we compared the bids to the amount of support calculated by the FCC’s cost model, the total requested in the auction in the aggregate is less than half the model-based support for those census blocks. And the total from the group of lowest bidders is just ten percent of the model-based support for those particular blocks.

Some expected that the bidding would focus on the lowest cost eligible census blocks, but that isn’t what happened. In fact, bidders sought support in all types of geographic areas with varying cost characteristics, with the majority of bids in the most expensive to serve areas that will be eligible for Connect America Phase II support

We now begin the process of reviewing low bidder applications. We have required the provisionally selected bidders to demonstrate their technical and financial qualifications, as well as obtain a letter of credit and designation as an eligible telecommunications carrier, before they can receive funding. At the same, time, we are starting to design a rural broadband auction on a larger scale. While hard questions remain, we are glad to have results from this experiment to help guide our answers, and we are appreciative of the interest shown by every bidder in the auction.

Making Good on the Promise of Impartial Minority Ownership of Television Channels

Thursday, December 4th, 2014

Increasing minority ownership of television broadcast channels has been an often-stated, but elusive goal. While there is widespread contract on the need for progress, there has been hardly any by way of new ideas to solve the particular twin problems of access and opportunity. For several years, the only path available to minority entrepreneurs required troubling financial dependency and constrained programming choices. With the Media Bureau’s approval of several transactions today, however , we all see the emergence of new ownership models that will not only bring more impartial voices to the station ownership ranks in a manner that promotes diversity, competition, and localism.

Each latest success detailed below is grounded in steps the Commission got this year to rein in misuse of the “sidecar” business model. This permitted television station owners to structure broadcast transactions in ways that freely circumvented our local TV possession rule, which generally forbids possession of more than one station in a nearby market. The effect was to deny opportunities for minority ownership and management.

In aligning our treatment of Joint Sales Contracts (JSAs) for TV stations — which permitted the larger, financially superior station in a market to sell advertising for a weaker station — with that of radio stations, we sought to lessen any influence on programming in the smaller station that might naturally attach to such arrangements. Moreover, allowing major broadcasters to tie up stations because sidecars made it harder for truly impartial would-be broadcasters to compete to purchase available stations.

Additionally , the Media Bureau issued processing guidelines advising broadcasters that the Bureau will look closely at proposed transactions in which stations share services while maintaining extensive financial entanglements, such as options to buy or loan ensures. Such a combination of arrangements raises queries whether the independent ownership that our guidelines require truly exists. By enforcing our local TV rule, we all sought to achieve its purposes of protecting competition and diversity in nearby TV markets.

As a whole, the Bureau approved transactions that will result in ten new minority- and women-owned stations:

  • KPEJ-TV, Odessa, Texas, and KMSS-TV, Shreveport, Louisiana . Marshall Broadcasting Group, Incorporation., owned by Pluria Marshall, Junior., will obtain each of these stations through Nexstar Broadcasting, Inc. Mr. Marshall, an African-American media executive with extensive experience running television and radio stations, began his career on WLBT-TV in Jackson, Mississippi, later on becoming Vice President and General Manager at WLBM-TV in Meridian, Mississippi. During his five-year tenure at WLBM-TV, Mr. Marshall tried to become a broadcast station owner four separate times, with each transaction falling through due to his incapability to obtain financing. Nexstar will provide financial assistance for no more than five years after closing, with no express or even implicit financial support after that time. Use of JSAs is limited to fifteen percent of sales, the attribution floor established in the Commission’s JSA order. Marshall will acquire its very own programming independently of Nexstar, aside from the 15 percent of development for which Nexstar will be allowed to manage advertising sales. This incubation agreement addresses the difficulty that Mr. Marshall previously encountered in obtaining financing for a station purchase and facilitates the entry of a new impartial voice in these local markets.
  • WEVV-TV, Evansville, Indiana . DuJuan McCoy, CEO of Bayou City Broadcasting Evansville, Inc. can be part-owner of WEVV-TV and will run the day-to-day operations; a private investment decision group will provide the money for the purchase. His experience includes over a 10 years of growing small, medium, and large stations. Mr. McCoy, a good African-American, indicated that he has the obligation to “lay down groundwork just for future minorities so that there’s some form of track record of success with minorities running television stations. ”[1]
  • WMMP(TV), Charleston, South Carolina, WCFT(TV), Tuscaloosa, Alabama, and WJSU-TV, Anniston, Alabama . The Bureau is also approving the sale of channels from Sinclair Broadcasting to Howard Stirk Holdings, LCC, which is possessed and controlled by Armstrong Williams. Sinclair will sell these channels rather than turn them in for termination as it had previously announced. Mr. Williams, a well-recognized African-American political commentator with years of experience within the broadcast industry, has said that he can obtain programming by, among other things, making original local public affairs programs aired during prime time.
  • KJCT(TV), Grand Junction, CO, KXJB(TV), Valley City, ND, KAQY(TV), Columbia, LA, and KNHL(TV), Hastings, NE . Gray Television, Incorporation., retained MMTC Media and Phone system Brokers, the brokerage arm from the Minority Media and Telecommunications Council, to identify and facilitate the transfer of these full-power television stations following a termination of their services agreements with Gray. The sales will provide Ravi Kapur and Sherry Nelson the first opportunity to purchase a full-power television place. Jeff Chang will purchase their second full-power television station.

What we have done in a really short time is foster clear-eyed market-based solutions to the longstanding challenge of low minority broadcast ownership. The examples above indicate real and replicable progress of which the broadcast industry should take note. We anticipate the continued expansion of minority ownership of broadcast stations and invite the participation of all stakeholders in working toward this goal.

[1] Adam Buckman, DuJuan Could be the Real McCoy Station Owner, TVNewsCheck: The Business of Transmitting, Oct. 1, 2014.