Padden’s Auction Fight May Be Yours, Too

The indefatigable Preston Padden once again made the rounds at the FCC this week, trying to convince commissioners and their aides to set up the incentive auction in such way as to maximize how much TV stations can make by selling their spectrum in the auction

It’s exactly what the former Fox and Disney/ABC lobbyist was hired out of retirement two years ago to do. As head of the Expanding Opportunities for Broadcasters Coalition, he represents a small group of spectrum speculators who have been buying up marginal TV stations over the past few years with the intention of selling them at a fat profit in the auction.

EOBC members are anonymous, but it’s as open secret that they include NRJ (Larry Patrick, Bert Ellis and Ted Bartley) and Michael Dell’s OTA Broadcasting. Altogether, they have about 80 stations, including many in and around major markets where the bulk of the auction action is expected to be.

If the auction is a flop, the EOBC members will be sitting on a lot of lousy TV stations.

Padden’s job is challenging. The FCC wants to buy TV spectrum as cheaply as it can from the broadcasters and then sell it in a second auction to wireless carriers as dearly as it can. In that way, it hopes to send a big check to the U.S. Treasury at the end of the day, thus fulfilling its fiduciary responsibility to hard-pressed American taxpayer.

Buy low and sell high makes sense. But Padden contends that the FCC will have no spectrum to sell unless it creates an auction that entices a lot of broadcasters to participate.

“I tell the FCC: If you low ball the broadcasters, they will stay away in droves and you will have a lot of explaining to do about how you snatched defeat from the jaws of victory.”

The way to go is to set up an auction that makes selling potentially extremely lucrative, he is telling the officials. “You can clear 120 MHz, you can raise large amounts of money and be heroes.”

Padden’s job is doubly challenging because he is essentially out there all alone. Well, not exactly. The EOBC has also hired Richard Bodorff and other legal talent at Wiley, Rein to work with Padden. But it’s a small cadre up against a slew of policymakers and bureaucrats, some of whom, I bet, wonder why they are paying broadcasters anything for the public airwaves.

Right now, no other broadcasters are out there working for a broadcast-friendly auction.

The NAB has so far devoted itself exclusively to trying to manage the fallout from the incentive auction. After the auction, the FCC plans to repack or reorganize the TV band to segregate the remaining broadcast spectrum from the newly reallocated wireless spectrum. The NAB wants to make sure that broadcasters are reimbursed for the costs of moving to new channels and that they don’t lose coverage area in the repack shuffle.

It’s critical work. If the NAB botches it, broadcasting will be handicapped in its never-ending race with broadband media.

The NAB’s repack focus reflects a consensus formed four or five years ago that nothing good can come from the incentive auction, that the best the industry can do is to work to mitigate the repack damage and hope that the auction fails for lack of interest among broadcast sellers or wireless buyers.

Lack of interest among wireless buyers is wishful thinking at this point.

After a month, the bidding in the on-going AWS-3 spectrum auction has now surpassed $41 billion, four times the reserve price. And the TV spectrum is better spectrum.

Some say that the AWS-3 auction will sate the wireless industry’s lust for spectrum for a good long while. I don’t think so. I agree with what Padden told The New York Times a couple of weeks ago. “It’s stunning,” he said. “Consumer demand for wireless broadband is on a growth curve that looks like a hockey stick, and carriers are desperate to keep up with that demand.”

Two months ago, the FCC released estimates of what spectrum might be worth at auction in every TV market. At the time, the estimates seemed wildly inflated. They pegged the median price of New York channels at $410 million and those of L.A. channels at $340 million.

But in light of the AWS-3 auction, the estimates are looking more real, maybe even low.

The incentive auction is not going away. Maybe it won’t happen as planned in 2016, but it’s going to happen.

Look, I still believe it is a mistake for strong, news-producing TV stations to sell their spectrum in a year or two. That spectrum gives stations their very own pathway into every American home and, if the promise of ATSC 3.0 is fulfilled, into every smartphone and tablet and wearable. Spectrum equals power and independence.

And remember this: No matter how valuable the spectrum is today, it is only going to be more valuable next year, in five years, in 10 years. If the best laid schemes of broadcasters go awry as they oft do, they will have other opportunities to sell their spectrum. It’s money in the bank.

But as I said here when the FCC estimates came out, there are plenty of broadcasters with independents, affiliates of minor networks or religious and ethnic outlets who should be thinking about taking the auction exit.

And if they are thinking about it, they should also be thinking about getting involved in how that auction will operate to make sure broadcasters don’t get shortchanged.

Padden can talk at great length about how that could happen and what needs to be done to prevent it. Just ask those FCC officials with whom he met this week.

And he could certainly use some help.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or [email protected]. You can read earlier columns here.