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Cable Technology Feature Article

September 28, 2009

Broadcast Bankruptcies: The Solution to the Spectrum Crunch?

By Tom Wheeler, Managing Director, Core Capital Partners

Do the serial bankruptcies of multiple television broadcasters hold the answer to the broadband spectrum shortage? With almost 100 television stations now in bankruptcy and giant Sinclair Broadcasting warning its 30 stations may be there soon, the banks and hedge funds that own the broadcasters’ debt will soon be the proud owners of beachfront spectrum. It’s hard to imagine they’ll be content to sit on that beach.


I’ve written before about the impact the digital conversion has on television broadcasters. Nothing touched by IP (Internet Protocol) has ever remained the same. With television revenues in a freefall and the new digital capacity yet to produce meaningful income, just how long will the hedge funds and international bankers be willing to sit idle and watch as their new asset ponders its future?


These accidental broadcasters surely have done back-of-the-napkin analysis on how much spectrum they own (or are about to own) and how much it is worth in the hands of the wireless industry. When Sinclair Broadcasting’s 30 stations are worth less than $300 million on Wall Street, and the 100 bankrupt stations, by definition, have no market cap, it must be awfully tempting to look at the $100 billion the wireless industry paid in the last FCC (News - Alert) auction and begin to wonder “what if?”


What if…the new owners just sold the spectrum directly to a wireless carrier? Or perhaps ran their own auction? The beauty of digital television is that in most markets the major broadcast outlets can be squeezed into one or two license allocations. This would assure continued access for the 10 percent of homes without cable or satellite connections while making the newly vacated spectrum available for sale.


What if…the new broadcast owners could themselves provide mobile services based on the new ATSC-M/H standard for delivering video to handheld devices? It is not hard to imagine “mobile Hulu (News - Alert)” or a subscription service for time-shifting current programs for a fee. But, of course, the broadcaster will need someone with a subscriber billing arrangement to realize on that opportunity. That brings us back to the mobile carriers.


What if…the local broadcasters offered their excess spectrum on a “carrier’s carrier” basis? They wouldn’t have to worry about subscriber relationships, just lease access to their capacity to wireless carriers the same way they lease access to their towers for wireless antennas.


What if…a consortium of banks and hedge funds decided to pool their assets to create a nationwide footprint for any of the above options? Delivering national coverage of major population centers would mean the whole is greater than the sum of the parts. The valuation multiple of such a footprint would justify the major effort this would require.


Of course, there are some pesky legal and political details that these “what ifs” could trigger. Current rules control the ability to sell or repurpose spectrum. The must carry rules that require a cable system to show the local station are rooted in its over-the-air delivery. The FCC’s ownership rules limit how many outlets one entity can own in a market; rules that probably would be inadvertently breeched as debt holders become equity holders in multiple properties. And since many of the hedge funds are registered offshore they could run afoul of the FCC’s foreign ownership rules. One would hope, however, that the FCC and Congress would look kindly on such innovation since the result would be a two-fer that it helps solve the spectrum crunch while maintaining the viability of local television.


I bet these “what ifs” are more than napkin jottings at the major international banks and hedge funds. If they aren’t, they sure should be. Money managers aren’t long term broadcasters; their need to find a return on their capital just might mean that broadcasting’s bankruptcies could end up being a solution to the spectrum crunch.

Tom Wheeler, a Managing Director at Core Capital Partners, writes the Wireless Musings column for TMCnet. To read more of Tom’s articles, please visit his columnist page.

Edited by Michael Dinan