The $19 Billion Dollar Loophole
The $19 Billion Dollar Loophole
The $19 Billion Dollar Loophole

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    Shareholders for Verizon, AT&T, and other companies that paid big money in the 700 MHz auction may want to check the fine print and hold back on final payment. Thanks to a quirk in the FCC's rules, the NFL, the MPAA, and other users of “broadcast ancillary services” (BAS) may have superior rights in the spectrum.

    I've written a longer and more technical version of this on my Tales of the Sausage Factory blog. But for those without the patience for the long story, here's the quick version of what may turn out to be the funniest and most expensive joke in FCC history.

    The FCC licenses use of the empty broadcast channels (aka the “broadcast white spaces”) to a small class of authorized users (check out Mike Marcus' excellent summary here). These users hold real, genuine FCC licenses — albeit on a “secondary” basis to broadcast television. The problem for the winners of the 700 MHz auction is that (a) they are not broadcasters, so therefore (b) under a straightforward reading of the FCC's rules, the licensed users of wireless microphones and other BAS systems enjoy equal or superior rights to other licensees — like the recent 700 MHz auction winners.

    The critical language is in 47 CFR 74.802.

    (a) Frequencies within the following bands may be assigned for use
    by low power auxiliary stations:

    26.100-26.480 MHz
    54.000-72.000 MHz
    76.000-88.000 MHz
    161.625-161.775 MHz (except in Puerto Rico or the Virgin Islands)
    174.000-216.000 MHz
    450.000-451.000 MHz
    455.000-456.000 MHz
    470.000-488.000 MHz
    488.000-494.000 MHz (except Hawaii)
    494.000-608.000 MHz
    614.000-806.000 MHz
    944.000-952.000 MHz

    (b) Operations in the bands allocated for TV broadcasting, listed 

    below, are limited to locations removed from existing co-channel TV broadcast stations by not less than the following distances unless otherwise authorized by the FCC. (See Sec. 73.609 for zone
    definitions.) (emphasis added)

    The problem for the 700 MHz auction winners is that they are not television broadcasters. Thus, licensed BAS users may, under a strict reading of the rule, continue to operate on Channels 52-69. Worse for the 700 MHz auction winners, the existing licensed BAS users are senior in use. Absent 30 days notice and an opportunity for notice and comment (see 47 USC 316), the FCC must guarantee to the licensees the rights conveyed under the license (Section 309(h)).

    For the 700 MHz auction winners, this is like buying prize beach front property only to find that there's some folks living in the basement. And what's worse, as folks following the white spaces proceeding can tell you, the actual licensed wireless microphone users are only the tip of the squatter ice berg. For reasons too complicated to get into here, there are tens of thousands (possibly more) unauthorized users of wireless microphones scattered all over the country, using equipment that can cause interference with the systems the 700 MHz auction winners hope to deploy.

    Of course, the FCC has authority to migrate the licensed BAS users, recall the unauthorized equipment, and even prosecute the unauthorized users. But, for reasons I explain in my longer post, that opens up a huge political can of worms. Mind you, explaining to shareholders how you missed the superior license holders before you bid $19 billion dollars is also something of a can of worms. But happily for me, it's not my problem. I can just sit back and enjoy the joke, noting the delightful little irony that if the wireless microphone people hadn't been such uncompromising a–holes about the whole business for the last two years, I probably never would have noticed this.