EOBC Sees 60/40 Split Of TV Auction Revenue

If the FCC would simply follow its advice, the Expanding Opportunities for Broadcasters Coalition says the commission could net around $50 billion for the U.S. treasury in next year’s incentive auction.

With the recommended tweaks, the EOBC says in an FCC filing, the agency could buy or “clear” 126 MHz of TV spectrum in a reverse auction for $35 billion. It could then turn around and sell it to wireless carriers for $85 billion.

The EOBC comprises broadcasters who have invested heavily in TV stations in hopes of selling them for a profit in the incentive auction. The EOBC reps submitted the filing during a visit with FCC officials Monday afternoon.

Its estimate for the cost of a revised reverse auction is based on 180 computer simulations that University of Maryland economist Peter Cramton ran on its behalf, the EOBC says.

As it has before, the EOBC argues for higher opening prices in the reverse auction. That would increase what the FCC has to pay for spectrum by 5%, but result in “dramatically improved broadcaster participation and less loss of over-the-air viewing alternatives for consumers.

“In fact, using these improved metrics, and assuming relaxed channel sharing rules, we found that the commission can reliably clear 126 MHz on a near-nationwide basis with only very few markets in which a top four affiliate, Univision affiliate, or top-rated public broadcaster relinquishes its spectrum.”

“Even in those few [markets], it is highly likely that the stations would continue to broadcast either through channel sharing or a move to VHF,” the filing says.

The simulations also indicated the auction would not create any more markets with no noncommercial stations, the EOBC adds.

What’s more, it says, the revised pricing formula would result in “similarly situated stations” receiving similar prices. Under the FCC’s current formula, pricing gaps would be 53% greater.

The EOBC estimate for what the FCC may be able sell the recovered spectrum for is based on an analysis by Cramton of the recent AWS-3 spectrum.

“The AWSâ€Â3 paired price of $2.72/MHzPop is a timely estimate of 600 MHz auction prices,” Cramton writes in 69-page supporting paper attached to the EOBC filing.

“This price implies forward auction revenues of $84.9 billion for the 126 MHz clearing target (10 blocks). There are good reasons to believe that revenues will be higher than $84.9 billion as a result of the better propagation characteristics of the 600 MHz band and the greater scarcity of lowâ€Âband spectrum.”

The computer simulations also provide more evidence for getting rid of dynamic reserve pricing (DRP) or replacing it with a round zero reserve (RZR), the EOBC says.

The simulations exposed DRP’s “Achilles heel,” it says. “To properly implement DRP requires a full channel-assignment optimization between rounds of the reverse auction. However, this is impractical because full optimization is expected to require days, not hours, to complete.”

If the FCC finds it necessary to impose some form of reserve pricing, it says, it should implement RZR. “The concept of RZR is that any station that would be frozen at the start of the auction will receive an RZR price offer that is equal to or less than its opening bid.

“The station could accept the offer and relinquish its spectrum or reject the offer and be repacked. Once the RZR round is complete, the auction would continue on a market basis.”