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.