FCC Mulls How Spectrum Auction Will Work

The first “incentive auction” to clear some broadcast TV spectrum for sale to wireless operators is on the fast-track, but there are still important details to be worked out on just how the process will work so that enough broadcasters are willing to participate. FCC officials spelled out some of the financial options in a PricewaterhouseCoopers LLP (PwC) webcast Monday and urged listeners to file comments as the commission works to write rules for the auction.

Just how the price to be paid to broadcasters willing to go off the air, relocate from UHF to VHF or possibly accept additional interference (a possibility still up for consideration) will be set is key to making the auction process work. Speaking on the PwC webcast, William Lake, chief of the FCC’s Media Bureau, spelled out two options.

First is the possibility of conducting a single round auction using sealed bids. Each broadcaster would set a price for vacating its spectrum and the FCC would accept the lowest (cheapest) bids which collectively cleared enough spectrum to meet the demand by spectrum buyers in that market. Even there, though, there’s a question yet to ponder. Would each seller get the price they offered their spectrum for, or would all get the same amount — the highest price of any bid accepted to get the FCC to the amount of spectrum needed in the market?

The other possibility is a multi-round auction, described as a “descending clock auction.”

“Rather than have the broadcasters give us a price, the commission would set a price. We would start with a very high price in a particular market,” Lake explained, picking some random numbers to illustrate.

“Who’s willing to contribute their spectrum for 100? If we pick that opening price high, we should get a lot of offers. Then, we’d say, that’s more spectrum than we need. Who would be still willing for 90? And presumably as we ticked the clock down individual broadcasters would compare that price to what they think their station is worth and one-by-one they would drop out of the auction. We would stop the auction when we have … the right number of continuing offers,” Lane said.

All TV channel allocations are 6 MHz, but not all broadcast allocations are equal, so there may have to be weighting in the auction process. Lane said the FCC will consider whether to give higher priority to broadcasters willing to sell who serve a larger service area and would contribute more to the goal of spectrum clearing.

The complexity of the auction process explains why the FCC has extended the deadline for comments on its Notice of Proposed Rulemaking to Jan. 25, with reply comments due March 26.

Representing NAB on the PwC webcast, Rick Kaplan, EVP strategic planning, noted that dollars alone may not be what broadcasters look at in deciding whether to participate in the auction. He said a station owner in Los Angeles might look at the station’s value to their community in evaluating whether they wanted to cash out.

Such non-economic analyses could limit broadcaster participation. Lane had earlier shown a slide which claimed that 83 stations in the top 10 DMAs account for less than 5% of TV industry ad revenues.

Rebecca Hanson, senior adviser-broadcast spectrum, FCC, emphasized that going off the air isn’t the only option being offered to broadcasters in the auction.

“Many broadcasters are dedicated to the public service that they provide to their communities. So it was very important to us to offer ways to participate in the auction that allowed them to stay on the air at the same time. How a broadcaster would value any of those options — one way to look at that is what the opportunity cost is. Going off the air — people sell stations all the time. There are valuation experts and M&A contacts. You can figure out that valuation. But with, for example, channel sharing, I think a broadcaster could say, well am I programming my multicast streams? If I’m not, then what would be the opportunity cost of me not being able to program those in the future? Put a dollar amount on that and that could be the basis for a bid,” Hanson said.

“With the example of moving from UHF to VHF — with that example the broadcaster wouldn’t give up capacity, but they’d be giving up some coverage,” she added. So the broadcaster could put a value on the losing some over-the-air viewers, but still having its cable/satellite distribution. And she noted difficulties with doing mobile TV in the VHF band. The FCC is hoping broadcasters will put a price tag on such moves and participate in the auction process.

With so much of the auction process and nationwide repacking of the TV band to clear spectrum hinging on a few key markets, TVNewsCheck asked whether it was possible that the FCC would be willing to lose money in a specific market to buy back enough spectrum to make the repacking work — and presumably still return a nationwide profit to the U.S. Treasury from the auction.

“We have not read the statute to confine our break-even or cost coverage to be on a market-by-market basis,” Hanson replied.

Just how much spectrum the FCC will clear will be determined by market demand. The objective is to have a nationwide swath of downlink spectrum beginning at ch. 36 and moving downward by whatever amount is cleared by the auction. That would allow for nationwide use by consumer devices. The uplink spectrum for wireless operators would begin at ch. 51 and work down, but the width of the vacated spectrum could vary by region.

The FCC’s engineers have their work cut out for them in repacking the remaining TV spectrum and even in dividing up the cleared spectrum for auction. The TV channels are 6 MHz, but wireless spectrum is typically auctioned in 5 MHz blocks. The FCC also has to decide on geographic areas for the auction to wireless operators.

Hanson and Lake repeated the FCC’s timetable of completing the auction rules in 2013 and conducting the auctions in 2014. Many observers expect those targets to slip. As for when the TV repacking will take place, Hanson noted that the law gives the commission three years to distribute funds allocated to pay for the channel relocation of broadcasters who don’t participate in the auction.