12 Auction Facts That You Need To Know

1. The auction is voluntary — really.

The FCC wants to clear up to 120 MHz of TV spectrum — or 20 TV channels in the upper UHF band— so that it can turn around and auction it to wireless carriers for broadband use.

To do that, the authorizing legislation empowers the FCC to buy spectrum from any broadcaster willing to sell. That’s why it calls it an incentive auction. Broadcasters that want to hang on to their spectrum can simply ignore the FCC and its huge wad of cash. From the auction proceeds, the FCC will reimburse non-participants that are forced to move to new channels after the FCC reshuffles the band to make the recaptured spectrum more enticing to wireless bidders.

2. There are three ways to play.

Under the convoluted auction the FCC has envisioned, broadcasters that want to play the game will identify in a reverse auction  how much money they are willing to cash out for, while wireless companies will bid in a  forward auction  on how much they are willing to pay for frequencies.

Broadcasters can participate in the reverse auction by agreeing to sell all rights to their channels and stopping broadcasting; by giving up their existing channels and moving into channel-sharing arrangements with other broadcasters; or by moving from their UHF channel to a VHF channel.

3. Nobody really knows when all this is going to happen.

Top FCC officials are hoping to establish the final rules for the auction this year and hold the auctions in 2014.

Insiders say it’s impossible to say whether the agency will be able to stick to that timeline, in part because Julius Genachowski, the FCC’s chairman, could step down from the agency before the auctions are held.

Genachowski’s existing term at the agency expires June 30. If he does step down, the decision on whether to stick to the current schedule will be up to his successor.

Wireless industry representatives are urging the FCC to keep the pedal to the metal. But the National Association of Broadcasters has been raising an alarm that the agency may not be providing sufficient lead time to prepare for the complex undertaking.

“It’s more important to get this done right than to get it done right now,” said Gordon Smith, NAB CEO, at a news conference earlier this year.

4. Only full-power TV stations in and around large markets have much chance of cashing in.

Any full-power or Class A TV station can participate in the reverse auction. Low-power and TV translator licensees are out of luck.

As a practical matter, the greatest FCC need for TV spectrum will be in or near the nation’s largest markets. Industry lawyers and engineers say that essentially means that it’s mainly broadcasters with TV stations in or near one of the 30 largest markets — or within a couple hundred miles of the Canadian or Mexican borders — that are likely to be able to play. Still, station executives should look carefully at their own markets to determine how their channel fits into the mix with other channels in surrounding markets to gauge whether the FCC may need their frequencies to put together a 120 Mhz-wide nationwide wireless band.

5. The NAB won’t be much help for those interested in selling their spectrum.

Broadcasters interested in participating in the auction will have to do much of the heavy lifting on lobbying for their individual interests on the auction on their own, because the NAB has made clear that its primary focus will be on protecting the interests of the vast majority of stations that are expected to sit the auctions out.

A group of broadcasters interested in considering selling their channels in the auction formed a group — Expanding Opportunities for Broadcasters Coalition — earlier this year to give them a confidential lobbying forum to help influence auction policy. The group, headed by former Walt Disney Co. lobbyist Preston Padden, claimed 41 major-market TV members as of early this year. But sources say the FCC will need many more broadcasters than those represented by the coalition for the auction to succeed, and other broadcasters are said to be making their interests known to agency officials anonymously on their own.

6. Broadcasters that plan not to participate figuring they will get a better shot later may be disappointed.

Some Washington insiders say it’s doubtful that there will be a second opportunity for broadcasters to participate in a similar auction in the future. So station owners that think that they may be able to drive up the value of their spectrum by sitting this auction out could be out of luck.

Other insiders warn that there’s nothing to prevent the FCC from holding another auction if this one proves to be a dud, and the next auction doesn’t have to give broadcasters the same protections offered by the incentive auction. “The doomsday scenario for broadcasters is that Congress will encourage the FCC to just start taking back licenses,” says Rick Kaplan, NAB EVP. “The chances of that happening are extremely small, though.”

7. Broadcasters that plan to give up their spectrum may be wise to play it close to the vest.

It could be a major public relations and financial disaster for a station if word leaked out of the FCC that the broadcaster had submitted a bid to cash out. The news could torpedo station relationships with advertisers and programmers — and could make it all but impossible for the station to retain or recruit staff.

That’s why the auction statute directs the FCC to “take all reasonable steps” to protect the identities of broadcaster participants.

8. Non-participating stations are supposed to get reimbursed for the cost of moving to new channels, but you never know.

The auction legislation authorizes a $1.75 billion fund for the FCC to reimburse broadcasters for repacking costs. But NAB has raised concerns that the agency may attempt to repack far more broadcasters than it can afford to reimburse with the $1.75 billion, forcing some broadcasters to pick up some of their own costs for the moves.

The auction statute also requires broadcasters to build out and collect their reimbursements within three years of the completion of the forward auction. This could be a challenging deadline for many stations to meet because of the limited number of tower crews available to do the work.

9. Broadcasters that don’t participate may end up with lousier coverage if they are not careful.

If the FCC needs a broadcaster’s channel, the broadcaster can be “involuntarily relocated,” even if the broadcaster doesn’t want to play the auction game. This is what the FCC calls “repacking” — moving stations that remain after the auctions to make room for new wireless operations.

Under the spectrum auction legislation, the FCC is supposed to make “all reasonable efforts” to protect a full-power TV station’s broadcast area and population served as of Feb. 22, 2012 — the day the auction legislation was enacted. But some broadcasters are concerned that the agency may attempt to interpret the law’s repacking mandate loosely, to the detriment of broadcasters.

Even though NAB will be attempting to limit the adverse impact that repacking will have on TV stations, broadcasters need to pay heed to how the repacking plays out in their markets to protect their interests.

Stations should also start thinking about how they will move to new channels without causing serious service disruptions to viewers — finding a place to mount a transition antenna and becoming familiar with any zoning or environmental issues that might impede their ability to move.

10. Stations along the borders have homework to do.

Broadcasters with stations near the borders of Canada or Mexico need to get up to speed on what channels are occupied or reserved for future use in those countries, and how that limits the number of channels that can be used in the U.S. FCC officials are reportedly working hard to coordinate international frequency concerns with Canada and Mexico. But insiders don’t expect the FCC to hold off on the auctions until after international negotiations are complete.

11. If you give up your spectrum, you’ll lose your must-carry rights.

Broadcasters who pull the plugs on their operations altogether should remember that their decision means they will lose all must-carry rights and will be left with a studio and a transmitter to sell. Broadcasters who share channels with others or move to a VHF channel will retain must-carry rights.

12. Translators and LPTVs could be on the FCC’s hit list.

Broadcasters that own translators and low-power TV stations could have their wallets whacked, because translators and LPTV stations are not protected under the auction law. That means that many translators and LPTV stations could be shut down in urban areas while station owners could be forced to pick up their own relocation costs in rural areas.

This story originally appeared in TVNewsCheck’s Executive Outlook, a quarterly print publication devoted to the future of broadcasting. Subscribe here.