FCC Details $45 Billion TV Incentive Auction

In move that the FCC hopes may encourage some broadcasters to give fresh consideration to participating in the commission’s incentive auction next year, the FCC released a study today by Greenhill & Co. that suggests that the auction could generate $45 billion next year, with some major-market stations getting paydays of up to $500 million or more.

The study, which the FCC is mailing to TV stations and posted on its website today, says the auction, intended to repurpose broadcast spectrum for smartphones and other wireless services, could generate up to $570 million for a full-power station in Los Angeles, and up to $490 million for a full-power station in New York.

The study also says that the auction could result in huge paydays for some stations in smaller markets,including Palm Springs, Calif., at $180 million a station, and Providence, R.I., where stations could receive payments of up to $160 million.

FCC officials said they may need the smaller- market stations to open up a nationwide swath of spectrum for wireless services in the auction’s wake.

The study also says that the lower-powered Class A stations could also receive significant auction payments in some markets, including up to $360 million in New York City.

The estimates for all markets for full power and Class A stations can be found on pages 30-34 of the study.

An FCC official said the $45 billion—and the other estimates in the report—are not official projections but are based on reasonable assumptions about how much the auction could generate. “The actual amount raised in the auction can only be determined  by the auction itself,” the official said.

Among the assumptions is that the FCC will clear 126 MHz of total spectrum and sell 100 MHz in the auction to wireless carriers at $1.50/MHz-pop.

Not all the proceeds from the broadband auction will be available to compensate broadcasters. The FCC says that it has to set aside $7 billion — $5 billion for the so-called FirstNet system; $1.75 billion to reimburse broadcasters for the repacking of the TV band and $250 million to cover the costs of the auction. So of the $45 billion, perhaps only $38 billion will be available to broadcasters.

Mark Fratrik, SVP and chief economist for the financial consulting firm BIA/Kelsey, told TVNewsCheck that the FCC projections were similar to ones that he has been generating for private broadcast clients over the past two years — and the FCC figures suggest that the auctions could generate far more for many stations than selling the operations for broadcasting purposes.

“It’s really important to look at what the market is saying the value of this spectrum is for alternative uses, including wireless, and that’s what the FCC did here,” Fratrik said.  “Broadcasters who haven’t considered participating probably will start thinking about it.”

Preston Padden, executive director of Expanding Opportunities for Broadcasters Coalition, which represents TV spectrum speculators who hope to cash in on the auction, said the FCC “book” is “a highly credible, first-class piece of work that fully delivers on Chairman Wheeler’s promise to provide incentive auction pricing guidance to broadcasters. If the FCC does end up compensating broadcasters in line with the guidance in the [study], we expect next year’s auction to be a great opportunity for many television broadcasters.”

NAB President Gordon Smith had little to say about the substance of the report.  “It is clear the FCC staff put a great deal of work into developing this piece on reverse auction pricing, which is a key component of the auction,” he said in a prepared statement. “NAB commends the FCC for their efforts to get the ball rolling in this area. We will work with our members to sort through this comprehensive report as they do their own homework on the upcoming auction opportunity.”

Highlights from the information package include:

• The FCC has the sole ability to unlock spectrum value through the reorganization of the UHF band that cannot be matched by individual private sales or leases.

• Multiple bidding options offer significant flexibility to broadcasters including the option to relinquish their spectrum and remain on the air through channel sharing. Initial participation in the auction only commits broadcasters to accept the opening bid price.

• Robust participation from all sized markets is key to the incentive auction’s success. Due to the “daisy chain” nature of interference, mid- and smaller size markets will be able to derive substantial value for their spectrum usage rights.

• Estimated high end compensation values of what broadcasters in each market could be paid in an optimal scenario that were generated by FCC staff using a methodology similar to the auction methodology currently under development.

• The estimated high end compensation for an individual station ranges from several million dollars to hundreds of millions of dollars, with some of the highest estimates being in mid-size and smaller markets. Of course, the actual prices broadcasters will receive will only be determined in the auction itself.

• The IRS letter describes the federal income tax provisions most likely to be relevant to compensation received by broadcasters whose bids are selected in the incentive auction and relocation reimbursements to stations that are repacked as part of the auction.

To accompany the release of the information package, the Incentive Auction Task force has updated its Learn Everything About Reverse Auctions Now webpage (www.FCC.gov/LEARN) to include information for broadcasters potentially interested in participating in the incentive auction. A complete version of the information package prepared for the FCC by Greenhill, the IRS guidance, and Chairman Wheeler’s letter to broadcasters are available there as well.