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NEW FEES: There is No Such Thing as Free Spectrum January 27, 1999 As part of the transition to digital TV Congress in 1996 gave the broadcasters “free” spectrum, but recent FCC rules to tax ancillary digital broadcast services may one day make that spectrum a little less free. In November, the FCC adopted rules requiring broadcasters to pay a five percent tax on any revenue garnered from ancillary or supplementary services they offer using their new digital spectrum. Broadcasters will have the technology to broadcast several digital channels in the space needed for just one analog channel. Some of that space may be used for broadcasting data or subscription television services. The FCC rules stem from a Congressional mandate in the Telecommunications Act of 1996, requiring the FCC to retrieve funds the government sacrificed when it decided all the broadcasters will use the digital spectrum rather than auctioning it. The FCC ruling requires broadcasters to pay to the commission five percent of any gross revenue they gain from using digital spectrum to supply data or subscription television services. The fees do not apply to revenue from home shopping channels or infomercials. Because the fee is based solely on the revenue from these services, rather than broadcasters’ overall revenue, the commission argues the fees will not impede the development of digital broadcast channels or prevent them from launching additional broadcast services. Any funds that are eventually received from the fee will be funneled to the U.S. Treasury. When the commission, or the Treasury, will get any of that money remains to be seen. Most broadcasters who have begun to make the transition to digital do not have business plans for offering ancillary services. According to National Association of Broadcasters spokesman Dennis Wharton, no broadcasters are currently offering ancillary services via digital spectrum. Wendell Bailey, vice president of advanced cable technology at NBC, recently said it is "very difficult to see a business model that would make sense" to transmit multiple video feeds, let alone the type of ancillary services the FCC can levy a tax on. In addition, most in the broadcast industry and the government predict current analog spectrum will not be turned over for auction until well after the 2006 date the Act mandates. Therefore, while the compromise agreed to in 1996 says there is no such thing as free spectrum, for the near future, broadcasters seem to be getting a free ride through the digital transition. The Congressional process leading up to the ruling stems from two premises that, in 1996, helped shape the digital broadcast debate of the Telecommunications Act: One, spectrum is a precious commodity not to be squandered. And two, the broadcasters’ switch to digital, because it does not produce any immediate revenue but requires substantial infrastructure investment, must be subsidized by the government. After bills were introduced in the House Telecommunications Subcommittee and the Senate Commerce Committee in 1993 to allow flexible use of the digital spectrum as long as broadcasters pay a spectrum fee, some in Congress raised objections calling for the spectrum to be auctioned. An auction of the digital spectrum would ensure the government received the bucks for its spectrum bang, they argue. Former Sen. Robert Dole (R-Kan.) and Sen. John McCain (R-Ariz.) supported auctioning the digital spectrum to the highest bidder. Broadcasters vehemently opposed this option, saying it would effectively kill any hope of making a nationwide transition to digital. The primary argument was many local broadcasters would not bid for the spectrum because it would not generate immediate revenue to cover their investment. In response, Congress forged a compromise in the 1996 Act, lending broadcasters the digital spectrum, provided they return either the original analog spectrum or the digital spectrum when the full transition to digital broadcasts is completed. This spectrum will then be auctioned. The act also kept the original 1993 language requiring broadcasters to pay fees on any revenues from ancillary services on the digital spectrum. Two years later, the FCC enforced this compromise when it imposed the five percent fee in November. --David Connell OTHER DIGITAL TV BEATS HBO HDTV GETS READY: Titles Coming Up On HBO HDTV March 10, 1999 THE DATA HORIZON: PBS Tackles the Bandwidth Usage Question February 24, 1999 RESEARCH: The Reports Are in, But the Conclusions Are Confusing February 10, 1999   CES TV Talk: More Buzz than the Sequins on an Elvis Jacket Jan. 13, 1999   CES: Bright Lights, Big Screens to Hit Las Vegas Dec. 16, 1998   LOCAL EFFORTS: Broadcasters Give Viewers a Push toward TV Purchase November 18, 1998   FIRSTS: Digital TV Broadcasts Hit the Airwaves November 4, 1998   THOMSON'S DBS BRAIN: Channels ARE Plentiful in New Digital TV World October 21, 1998   DECISIONS, DECISIONS: Taking the Plunge into Digital TV October 7, 1998   FIREWIRE: So the Blender Says to the Toaster, He Says... September 23, 1998 They're Here... September 9, 1998   GOT AN IDEA? 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