Pay-TV operators are required to pay fees to retransmit "must-carry" programming from the local TV affiliates of national broadcasters like CBS, FOX, NBC and ABC. Broadcasters have been steadily increasing retransmission costs when contracts come up for renewal, citing the value of their content to consumers; cable and satellite players have said that the fee hikes amount to nothing more than extortion. Now, a new study by the American Consumer Institute Center for Citizen Research (ACI) argues that rapidly expanding retrans rates will eventually have a devastating impact on wireless consumers.

The study, "Consumer Welfare on Hold: The Unintended Consequences from Retransmission Consent Regulations on Spectrum (News - Alert) Auctions," contends that the existing retransmission fee structure has made broadcasting so lucrative that major TV stations will be reluctant to give up spectrum in future FCC (News - Alert) wireless auctions.

The FCC is prepping for the upcoming sale of local broadcasters’ unused analog TV signals to mobile carriers, and is planning to implement a two-sided auction for the spectrum. The idea is to first make an effort to pay broadcasters a fair value for their assets through an incentive auction, before selling it to the highest-bidding mobile carriers. But absent a good reason to sell the airwaves, TV stations are under no obligation to. ACI’s hypothesis extends that worry to future auction efforts.

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Retrans fees are set to more than double, reaching $7.15 billion by 2018, according to SNL Kagan—the amount has been revised upward from the previous 2018 projection of $6.05 billion. Further, the firm expects U.S. TV station owners' retrans fees to reach $7.6 billion by 2019, versus the projected level of $3.3 billion this year.

In the year since SNL Kagan last updated its projections, the environment has improved for TV station owners, who have increasingly obtained rates they believe are closer to the value they bring to multichannel video services, it said. As a result, revenue growth is expected for the sector despite a reduction of multichannel subscribers in the forecast.

Whereas last year multichannel subscribers were projected to grow from 100.4 million at year-end 2011 to 103.7 million in 2018, this year SNL Kagan projects that in 2018 the multichannel industry will serve just 100.6 million video subscribers.

In all, SNL Kagan's projections for growth are based on rising per-month sub fees for TV station owners in recent negotiations, as well as the consolidation of the business over the last couple years, which has often led to higher retrans rates after acquired stations are brought under larger groups' umbrellas.

The rise in retrans rates will translate to more expensive pay-TV rates for consumers, multichannel video providers argue, and are leading to blackouts for consumers as disputes over fees have led to impasses in negotiations. But ACI raises the possibility of other fallout.

“These regulations will discourage TV stations from relinquishing underutilized broadcast spectrum, which will mean that this spectrum will not be repurposed for wireless broadband services and will result in adverse consequences on wireless consumers,” it said. “This study estimates the resulting consumer welfare loss from auction failure to be roughly a half trillion dollars.”

ACI puts the onus for fixing the perceived issue squarely in the court of the FCC, noting that “addressing this problem requires reforming these old regulations for the benefit of consumers.” The commission has said in the past that it is watching the trajectory of retransmission blackouts closely, but has thus far declined to take up the issue in a meaningful way.