Is FCC’s Incentive Auction Smart Business?

It just might be for some TV stations.The value of the spectrum for alternative uses seems substantial enough that it may persuade some stations to participate in the FCC's planned incentive auction and cash in. They now just have to wait for the FCC's opening bid.


So now that the FCC has begun writing the rules for the reverse auction of the television spectrum, what does it mean for local television stations? Will this reverse auction lead to enough revenues to make it worthwhile to cede all or some of the spectrum that is presently being used? Will those revenues be enough to compensate moving to the VHF spectrum?

The answer for some television stations is clearly yes. The value of the spectrum for alternative uses seems substantial enough to allow the FCC to offer prices that should be high enough to cause a good number of television stations to participate.

But how will the FCC determine the final price paid to television stations? In the declining reverse auction that will recover some of the broadcast spectrum, the FCC will set initial prices in many television markets for two options: one to give back the entire 6 MHz and one to keep the 6 MHz but relocate to the VHF band.

The first option includes the previously announced additional option of channel sharing with another station in their local market. The channel sharing scenario is when two stations agree to split one 6 MHz allotment. One gives up its 6 MHz of spectrum and they share in the proceeds. The second option involves changing from an existing UHF channel (more desirable) to a VHF channel.

Once the FCC sees how many broadcasters are willing to participate at that initial price while also tracking how much demand there is for that spectrum, the agency will adjust downward (i.e., declining price being offered), if necessary, in order to equalize the prices to support the supply and demand of that spectrum.

So, if after the FCC initial price is offered in a market and there is too much spectrum being offered by broadcasters, given how much is being demanded in the forward auction, the FCC will then lower that price to equalize the amount of spectrum offered and needed.


Now, the FCC will need to set those initial prices high enough to entice broadcasters to participate. The FCC has historically auctioned spectrum across varying sizes of geographic areas – Economic Areas (that might encompass more than one television market), larger regional areas or the entire country as a whole.

In auctioning the recovered spectrum in these larger areas, it is important for the FCC to entice enough stations in the largest markets to participate, as well as stations located in adjacent markets. Given the necessity to have “clear” spectrum across some of these larger areas for the forward auction (i.e., auctioning the spectrum to other users), stations in somewhat smaller markets may be surprised to see the prices being offered by the FCC for their stations.

One significant challenge across the whole auction is coordinating the acquisition of enough spectrum across television markets in the reverse auction while auctioning (in the forward auction) the spectrum across different and wider geographic markets. The need for conducting these auctions simultaneously, in order to ensure enough supply to satisfy the demand, just makes it even more challenging.

But broadcasters need only concern themselves with the options being offered to them. If they want to consider giving up some or all of their 6 MHz, they need to consider the value to them of that reduced spectrum (e.g., fewer multicast signals of the over 2,000 now being offered according BIA/Kelsey Media Access Pro) or completely ceded spectrum and what they are willing to accept. If they want to consider moving to the VHF spectrum, they need to evaluate the decreased value of their over-the-air coverage (e.g., the inability to adequately provide a receivable mobile DTV signal).

For many broadcasters that decision process will lead them to continue providing their same level of services. However, for some broadcasters the potential proceeds may make offering some, or even their entire spectrum, a smart business opportunity.

Comments (11)

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Joanne McDonald says:

September 28, 2012 at 4:17 pm

I would take a bet that Daystar, Trinity, Ion and all the other religious and minor broadcast network plus all the diginets multicast networks would round up being regulated to cable only network that would be made available to customers with FTA systems and be made available on all cable systems as well as on both Directv and Dish Network and also be allowed to stream their programming online for internet users at no cost. I like the idea in which NBC stations on 1080 share their channel with Telemundo on 480 in widescreen, CBS stations on 1080 sharing with CW on 1080 in widescreen, FOX stations on 720 sharing with MyNET on 720 in widescreen, Univision and Telefutura share a channel together on either 480, 720, or 1080 in widescreen, and ABC would continue to not have to worry about sharing their stations with another network or another station and still on 720 in widescreen, but could likely share it with other network affiliated channels on either 480, 720, or 1080 in widescreen. PBS stations would likely be forced to merged and share it’s stations on the same channel frequency and still be able to transmit in 1080 widescreen. The stronger PBS stations would end up sharing the channel space with the weaker PBS stations in markets where there are multiple PBS affiliates in the same market. The mid-sized and smaller TV markets could end up carrying 2 to 3 subchannel feeds in widescreen SDTV or HDTV on the same channel frequency. I would recommend that all the TV stations that are now on the UHF 14-51 band in digital that were on 7, 8, 9, 10, 11, 12, and 13 in analog be forced to move on 7, 8, 9, 10, 11, 12, and 13 in digital and all the TV stations that are now on the UHF 14-51 band in digital that were on 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, and 30 in analog be forced to move back to those channels in digital plus all the TV stations that are now on the VHF 7-13 high band with different RF physical channel numbers on the VHF high band in digital that were on 7, 8, 9, 10, 11, 12, and 13 in analog to be forced to move back to those channels in digital as the best way to not mess up on frequency assignments in the future maybe by around 2020. I like the idea of all the TV stations be allowed to transmit all HDTV and SDTV as well as mobile programming in the MPEG 4 format in the future maybe by around 2020. I like the idea of both IVI TV and FilmOn HDi be allowed to go in business again and be able to transmit all the local stations to the viewers on the net for free without any interference from the government for violating any copyright laws with benefits for online viewers that want to watch their favorite stations programming such as local news and shows even after the spectrum auction and plan becomes very mandated and very hard for TV stations to be able to stay on the air without being able to stream all their programming online to the viewers online. Me wanting IVI TV and FilmOn HDi transmitting the locals online for free to the viewers on the internet would be very beneficial when it comes to very severe weather outbreaks and breaking news that the viewers would want to be very informed the sooner and the better. I’m afraid that my take of what channels the TV stations ought to be on with the planning of an spectrum auction.

Thank you for my understanding to this crisis in the TV business lately as it relates to the spectrum crunch going on right now.

My comment to this matter is not a negative attack but a opinion and theory on my own terns to the spectrum auction in the future.

Christina Perez says:

September 28, 2012 at 4:27 pm

Licensees to not own the airwaves. The public does. Any profits from an auction of public spectrum would be deemed by the courts to be owned to the public, the American people, and not to mere licencees of public property, which is what spectrum is. Station owners are engaging in wishful thinking if they expect this auction scheme to survive upon appeal. The real motive here is to strip broadcasters of their local spectrum so that the pay TV industry and its allies in broadband and telco can dismantle and make obsolete free, over the air broadcast television. That would not be in the public interest. Broadcasters are being enticed into conspiring against the public interest, and their own.

    Christina Perez says:

    September 28, 2012 at 4:28 pm

    That’s “licensees do not own the airwaves.” There seems to be a gremlin between my keyboard and the tvnewscheck site.

Teri Green says:

September 29, 2012 at 1:13 pm

The answer is simple. Do away with over the air high def. Make OTA standard def. That way you could easily fit all the OTA stations on UHF. Then if people want high def, let them get cable or dishes or FIOS and so forth. If they want high def, they can pay for it. Standard def is good enough for over the air.

    Ellen Samrock says:

    September 30, 2012 at 1:14 pm

    And while we’re at it, let’s set broadcast television back 30 years. This is absolutely the worst idea ever.

    mike tomasino says:

    October 4, 2012 at 12:23 pm

    Eric’s just a troll with no stake in the matter. Never mind him!!!

Allyson Mongrain says:

October 1, 2012 at 2:50 pm

This whole issue is a afront to broadcasters because the FCC has sold themselves to the Verizon, etc. What was the digital conversion all about? Mr Post idea is bad but it may be the only insane choice, with retrans fees HD is what cable’s paying for, make OTA a low cost option . The Obama FCC has turn spectrum into a swap meet, LPTV stations with no cable are selling( pardon me hocking) their bandwidth like it;s beachfront property. No one wants to program a channel, and sell the time just lease the space to the highest bidder.FCC has created a horrible stituation.

    Ellen Samrock says:

    October 1, 2012 at 6:21 pm

    Sending broadcast television back in time technologically, as would be true of most industries, is not a good idea. Period. Here is a much better approach and it’s very simple: 1. The FCC postpones the auctions for three years. 2. During this time the broadcast industry makes a push to migrate to ATSC 2.0 (or 3.0) which will make much better use of existing bandwidth than is implemented now. 3. As this migration progresses, the FCC begins auctioning little-used government spectrum. 4.The FCC then coordinates with broadcasters a process of repacking the band yielding some UHF spectrum for auction while not impacting broadcasters. 5. Once the repacking is completed and all broadcasters who need to be are relocated, the FCC begins auctioning the reclaimed UHF spectrum. It’s a simple plan that I think all television broadcasters can get on board with. As it stands now, the FCC will meet with a great deal of push back from the broadcast industry and rightly so. Frankly, their plan sucks and proves to me that simply having a high-priced degree from Harvard does not prove that the holder of such a degree is intelligent.

    mike tomasino says:

    October 4, 2012 at 12:25 pm

    “Frankly, their plan sucks and proves to me that simply having a high-priced degree from Harvard does not prove that the holder of such a degree is intelligent.” Agreed!!!

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