The federal government is promising to pay local television stations around the country tens of millions of dollars each — but only if they agree to go out of business.
Local TV stations can provide valuable services, such as community news, entertainment, weather, and information in emergencies. But the stations are also sitting on an incredibly valuable resource: the frequencies they use to broadcast their signals.
Wireless providers like Verizon and AT&T are scrambling to keep up with their customers' skyrocketing demand to stream videos and browse the Web on their mobile devices. And the cell-phone companies argue that without access to more of the airwaves, their networks could soon become congested, leading to dropped calls and stalled videos.
To address this problem, the Federal Communications Commission is preparing an ambitious and complicated plan to buy back broadcast licenses from TV stations and then auction them off to the wireless companies.
The auction, scheduled for the middle of 2015, could boost smartphone speeds and result in billions of dollars in revenue for the government. But it will only succeed if the broadcast stations agree to participate, and the FCC won't force them to.
On Wednesday, the commission began sending slick educational packets, prepared by the investment banking firm Greenhill Associates, to every TV station in the country. The packets provide details about how the auction will work and offer projections for just how much money the stations could rake in if they agree to sell out.
The estimates vary based on which markets the TV stations are in. Airwaves in densely populated urban areas are more valuable to the wireless companies, but the TV stations in those markets are also more profitable businesses.
A full-power TV station in Los Angeles, for example, could get as much as $570 million for selling its broadcast license, according to the FCC estimate. But the agency emphasizes that even TV stations in smaller markets could still get massive payouts. A station owner in Scranton, Pa., stands to make as much as $56 million, according to the packet. Low-power stations, which reach fewer viewers, would get smaller payouts.
In total, the FCC estimates it could pay as much as $38 billion to the broadcast stations.
Most of the affiliates of the major networks like CBS and NBC are expected to sit out the auction. But for many smaller stations, the offer may be impossible to resist.
"I believe the incentive auction is an unparalleled business opportunity for broadcasters," FCC Chairman Tom Wheeler wrote in a letter accompanying the informational packet. "I hope you give careful consideration to the economic potential that it offers you."
Stations will get the biggest payout if they go off the air entirely. But they can also get some money if they choose to move to less desirable frequencies that reach fewer viewers. Two stations can also sell off a license and share the remaining frequencies.
FCC officials are planning to go on the road to meet with hesitant station owners around the country and make the case for why they should participate.
Wheeler has often compared planning the auction to solving a Rubik's Cube. The FCC has to coax the broadcasters into selling their licenses, encourage the wireless companies to bid, obtain enough money for the federal government, and ensure both industries remain competitive and robust in the wake of the massive restructuring. Botching one piece of the auction could cause the entire undertaking to fail.
The FCC needs to set aside at least $7 billion in auction proceeds to build a nationwide high-speed communications network for first responders. The rest of the revenue that's left after paying off the broadcasters will go to deficit reduction.
Some broadcast owners have been quietly enthusiastic about the chance for a massive payday. Preston Padden, a former Disney lobbyist, is leading a group of broadcasters who plan to participate in the auction. In a statement, Padden said the FCC's information packet is a "highly credible, first class piece of work," and that the auction will be a major success if the government is able to actually deliver on its payment estimates.
But the National Association of Broadcasters, the leading lobbying group for TV and radio stations, has been more skeptical of the auction, which is set to slash the group's membership.
NAB officially supports the auction as long as it is voluntary, but has been highly critical of many of the FCC's technical decisions in preparation for the auction. The group has filed a lawsuit against the FCC, claiming the agency isn't doing enough to protect the interests of the stations that will stay on the air.
NAB President Gordon Smith issued a statement Wednesday commending the FCC for its "efforts to get the ball rolling" on pricing information.
"We will work with our members to sort through this comprehensive report as they do their own homework on the upcoming auction opportunity," Smith said.
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