'WE'RE TURNING THE CORNER' ON ENG UPGRADE

Sprint Nextel admitted to the FCC in March that it would not meet the Sept. 7 deadline for completing the analog-to-digital upgrade of TV stations’ ENG microwave operations, claiming in something of an understatement that the project “has proven far more complex than originally anticipated.”

Within the next few days, it will formally ask the FCC for an extension, possibly for as much as two more years.

The project to upgrade the broadcasters’ ENG gear actually started with the FCC’s desire to kick Sprint Nextel out of the 800 MHz band to make way for firefighters and other public safety users.

Under a deal it worked out with the FCC, Sprint Nextel is giving up 800 MHz spectrum, but is getting a big hunk of the broadcasters’ ENG spectrum in the 2 GHz band, otherwise known as the Broadcast Auxiliary Service (BAS).

So the broadcasters don’t suffer any loss of service, the FCC is converting the BAS band to the more spectrum-efficient digital and requiring Sprint Nextel to cover the cost of upgrading broadcasters’ microwave gear from analog to digital.

Involving the ENG facilities of approximately 1,000 TV stations, the Sprint Nextel upgrade is expected to exceed $500 million.

Charged with heading the upgrade at Sprint Nextel is Michael Degitz, VP, spectrum management.

In this interview with TVNEWSDAY, Degitz acknowledges that only two small markets have completed the transition—the same number it reported in March.

But there are other signs of real progress, he says.

Since March, he says, the percentage of stations that have signed reimbursement agreements—FRAs in project parlance—has jumped from 22 to 60 and the percentage of stations that have actually received all their new digital gear has risen from five to 13.

“We’re turning the corner,” he says.

An edited transcript follows.

When will you be asking for the extension?

We’re not exactly sure when it’s going to get filed, but it will go in before Sept. 7.

I understand that broadcasters—NAB, MSTV—will be going in with you and supporting the request.

That’s our expectation, yes.

How much of an extension are you looking for? What will be the new deadline?

We’ll be asking for an extension of time. What that is I can’t share just yet.

So far, I know of only two markets that have made the transition from analog to digital—Yuma, Ariz. [DMA 167], and Lima, Ohio [DMA 196]. Is there anybody else?

There are a few small markets where all the equipment has been installed. Juneau [Alaska, DMA 207] is one. Presque Isle [Maine, DMA 204] is one. They are waiting to get their licensing changed at the FCC. There are some other markets that are very, very close.

Any big markets?

Well, we’ve got some big ones that aren’t 100% there yet, but we’re pushing real hard to get them there.

Can you name some names?

I’d rather not because I don’t want to disappoint people. There’s a lot of equipment being installed right now.

In fact, 13% of the purchase orders that the broadcasters have submitted have been completely fulfilled and a lot of those guys are installing right now. There are several markets where most of the stations are installed.

We’re turning the corner here, going from the contract phase of this to the equipment-fulfillment-and-installation phase of this project. So we’re going to gain a lot of momentum in the next year or half year as far as installation goes.

How many FRAs [Frequency Relocation Agreements] have you done?

Sixty percent are done now. There are, in rough terms, 1,000 we have to do. So we’ve got about 400 left.

Are there any holdouts among the major TV station groups?

No, all the major groups are moving forward.

So this 40% are mostly little guys?

We’ve done this TV market by TV market so there may be a large group that’s got a station in one of the markets where everything’s now engaged and everybody’s involved in relocation.

So the FRAs are done on a station-by-station basis?

Oh, yeah. So, in some of the more rural markets, group XYZ may have a station and we just haven’t done the final work on the FRA with them.

What’s been the hang up on getting to FRAs done?

There have been a lot of issues. There was a major income tax issue. The broadcasters were concerned that they would be taxed on the equipment we’re giving them and one of the broadcast groups went to the IRS and got a private letter ruling [in July 2006] that said there is no tax liability on this because it is essentially a forced relocation by the government. Getting a template agreement that everybody liked also took a long time.

Once those two issues were put behind us, things started rolling a lot quicker. It’s a lot of work for the broadcasters and manufacturers to come up with a plan to replace this equipment.

This stuff’s been put together over a long period of time—30 years. Various chief engineers have done this and that. To analyze what you have, to document what you have, to come up with a new system to replace it, it’s just a lot of effort by broadcasters and the manufacturers.

But I guess the FRAs are the toughest part.

Yes and this installation phase is going to be tough just like everything else in this project. Nobody’s ever done this before so every step is a learning process.

I know there are only a handful of companies that make the radios and antennas. Are they able to meet the demand here?

We are still pre-stocking radios and control systems and antennas, so there’s a lot of equipment on the shelf right now.

The real challenge we have is, no one manufacturer makes all the equipment. So, generally it’s the radio manufacturer that is bringing together all the pieces. An antenna may be made by a one company and the controllers that communicate between the studio and the remote receive sites are made by another. Then, you’ve got filters.

All this stuff comes together at the manufacturer’s place and they integrate it on their floor and then that gets shipped out to the station. And even with all this integration there are challenges because you can’t foresee everything.

What’s the total cost of this thing now?

I can’t give you a total cost, but one thing I can tell you is that, as of this month, we’ve paid for and have stocked $266 million worth of worth of radios and antennas and control systems. That gear is sitting on shelves in the manufacturers.

All right, but that’s only part of the cost. You have all these administration costs, too.

The administrative costs are a fairly small part of this whole project. It’s primarily equipment.

Is there an overall number you could give me about where we are?

I can’t share that now.

The systems you are reimbursing for are strictly SD. If broadcasters want to do HD, they have to put in the decoders themselves. Is that right?

Yes, but this is a big stepping stone towards getting to HD. Some of the equipment actually has HD capability in it. We’re not paying for it, but the broadcaster can pay the extra money to turn that on in the radios.

So what’s the word from Lima Ohio?

Everybody that we’ve heard back from is pleased with the new gear.