Incentive Auction Is Coming, But When?

It’s the countless gadgets and gizmos on display at this year’s International Consumer Electronics Show that are driving the FCC’s incentive auction of TV spectrum, but just when that auction will be held is still up in the air.

The FCC has set it for 2014 and wireless carriers eager to join the bidding are hoping that the agency can stick to that schedule. But others believe it’s too aggressive.

“This is enormously complex,” said Rick Kaplan, EVP of strategic planning for the NAB, at a CES panel devoted to the incentive auction. “And it could sink the entire auction if it isn’t done correctly. A lot needs to be done and we really need to get these things right — not just done.”

Kaplan told an audience of about 50 people that the 2014 date doesn’t give the FCC enough time to make sure the spectrum is efficient and coordinating with Canada and Mexico.

“Border issues are enormous,” he said. “Does the FCC want to go forward with 2014, and potentially leave Canada and Mexico out? Some of that spectrum currently extends as far as New York City. Or do we want to repack more stations in a way that makes sense, frees up more spectrum and results in a more successful auction?”

In a separate panel at the CES about the FCC’s regulation agenda, Republican Commissioner Robert McDowell echoed Kaplan’s feelings.

“We’d all love this to be as soon as possible,” he said. “I’ve lived through two of the largest auctions in FCC history — AWS1 and 700 MHz — especially with 700 MHz, we had the industry coming to us asking for a delay. There were lots of twists and turns that were not foreseen.

“So, while I hope it’s 2014, and I’m going to work as hard as I can, folks just need to realistically understand that history tells us that these things can take longer than you hope or expect, especially when you have literally the most complicated spectrum auction in world history.

“With the reverse and forward auction and all the rest of it — the repacking, really everything — we need to keep all of that in mind, but we hope it’s 2014.”

The FCC still has plenty of work ahead of it. Laying out a fair set of rules that would provide an incentive for broadcasters to go off the air, relocate from UHF to VHF or accept extra interference is still a challenge, said William Lake, chief of the FCC’s Media Bureau.

“For some broadcasters, their opportunity to share in those auction proceeds could be very attractive,” Lake said. “We want to design an auction to size up that opportunity, to help broadcasters decide whether or not to participate and allow the broadcasting industry to emerge stronger than ever.”

On the later panel, Lake got some support from Democratic FCC Commissioner Mignon Clyburn, who said the fast-track attitude of the FCC would help push an incentive auction forward in 2014.

“There is, has been and will continue to be on-going engagement,” she said. “This is a very dynamic item. If there is any opportunity to be on target, there are all sorts of incentives and engagement that will get us there in that timeframe. Yes it’s aggressive, it’s hard, but there are a lot of motivated bodies and participants in this particular auction.”

Those who believe the FCC will hit the 2014 deadline point to the market demand for more spectrum — all those gadgets and gizmos — as the No. 1. motivator.

“We’re focused on the incentive auction as a country,” said Charla Rath, vice president of wireless policy development for Verizon. “Anyone who walks the [CES] show floor can count the vast majority of products out there that have some kind of wireless component. People want to be mobile.”

The International Data Corporation predicts the demand for Internet-connect devices could reach more than $2 trillion in 2015.

When Congress passed legislation to allow a voluntary spectrum auction last year, it was estimated that the complete auction could generate $24 billion — $7 billion that would be used for public safety communications — and $3 billion that would be paid out to the participating broadcasters.

No one on the panel, however, would agree or comment on those numbers.

“There will be some broadcasters out there that will be getting some checks with significantly high value,” said Mark Fratrik, VP-chief economists of BIA Kelsey.

The FCC is expected to offer a price for stations in a particular market to either go off the air or make the move to VHF. The stations will either accept or reject that price. The FCC will then evaluate how many stations accept. If it’s too many, the price will drop — essentially leaving the price up to the marketplace.

It is still unclear, however, if stations would get the exact amount that they bid, or if they would all get the same, which would likely be the highest price of any accepted bid.

Life after the auction and repacking is also an issue for the industry that could add more time to the incentive auction. Broadcasters that don’t participate in the auction could be affected by the repacking of channels once the auction is completed, even though it was added into the legislation that the FCC would “make all reasonable efforts” not to diminish the quality of those station’s broadcasts.

“We’re confident that the FCC will ensure this will happen,” said Kaplan. “We wouldn’t allow anything else.”

Since the repacking is going to be dynamic, the FCC needs to decide if broadcasters will get only one crack at putting out a bid for their station, or if those bids can be revised. “Can we make sure everyone can adjust to a multi-round, simultaneous repacking?” asked Neil Fried, senior counsel of the U.S. House energy and Commerce Committee.

Again, these issues all add time to the process.

“If station A in market 7 decides to opt out in the third stage, it’s going to affect everyone on the Eastern seaboard,” said Fratrik. “That integration of repacking is really, really challenging.”

But he added that he expects this auction to happen in 2014 and be a “nice Christmas gift” for everyone involved.

Comments on the FCC’s Notice of Proposed Rulemaking must be in by Jan. 25, with reply comments due March 26.