II B. Most Radio Frequencies Outside of The Reserved FM Band Will Be Closed To Public Broadcasters If They Must Compete In Auctions For The Frequencies
If the Commission subjects public radio broadcasters to auctions when deciding among competing applications for radio broadcast frequencies outside of the reserved noncommercial FM band, it will effectively close these frequencies to public broadcasters. The entire AM and FM band is crowded, even in sparsely-populated areas such as the Rocky Mountain states of Arizona, New Mexico and Utah, so an application for a new full-service or translator station is likely to be subject to competing applications and, if the Commission adopts its proposal, auctions. Furthermore, auctions will become more likely as the conversion to digital television results in frequent relocations and modifications of both television and radio stations.
However, public radio broadcasters lack the substantial resources necessary to compete and prevail in auctions. They operate on shoe-string budgets funded primarily through charitable contributions and government funding. Whatever extra money they have is reinvested in the production or acquisition of additional high-quality programming to serve their communities of license. Public broadcasters are prohibited from raising money by accepting advertisements. As not-for-profit entities, they cannot rely upon later profits to recoup an auction investment. Consequently, they would have serious difficulties finding a lending institution that would provide financing for an auction bid.
In contrast, the revenue of the largest commercial radio broadcasters is extremely high. For example, Westinghouse/CBS, one of the largest radio owners, had estimated revenues of $1.5 billion for 1997. Other industry giants reported revenues in the hundreds of millions of dollars. Commercial broadcasters have purchased stations at prices that are far beyond the reach of noncommercial entities. For example, in 1996, commercial entities paid amounts as high as $168 million for two FM stations in Detroit, $68 million in cash for an FM radio station in Chicago and $65 million in cash for an FM radio station in Miami. A major market AM station – WWRC, Washington, DC -- was sold for $22.5 million. The disparity of resources between public and commercial broadcasters is so great that the adoption of bidding credits or other assistance to public broadcasters in the auction context is unlikely to close the gap.
Although public broadcasters will be consistently outbid in an auction, this does not mean they are not entitled to an FCC license. The market rationale behind granting spectrum to the highest bidder – "allocating spectrum to those valuing it the most and best able to serve the public" – is fundamentally flawed when both commercial and public broadcasters compete for a license. First, public broadcasters value spectrum very highly even though they cannot pay as much for it as commercial broadcasters. Second, it is acknowledged that public broadcasters – who answer first to the public and not to shareholders or investors – provide a critical service to the public. Indeed, Congress and the Commission have recognized that public broadcasters often satisfy the interests of the public not served by commercial broadcast stations. Since the market rationale supporting auctions is inapplicable to public broadcasters, it cannot justify the closing of a substantial portion of the spectrum to public broadcasters.