Wheeler’s Auction: Promises Undelivered

Just before noon today, Washington entered officially into the Age of Hyperbole where everything is said to be more than it actually is.

So we can forgive departing FCC Chairman Tom Wheeler for declaring yesterday that the incentive auction that is now winding down “delivered on its ambitious promise.”

Not but a long shot.

The bidding by wireless carriers in the forward auction has so far generated $18.3 billion. That will be enough to cover the $10.5 billion the FCC owes the broadcasters who agreed to sell spectrum as well as the $1.75 billion it will owe broadcasters in the repack of the TV band and another $200 million or so in administrative costs.

If you do the math, subtract the liabilities from the $18.3 billion, you find that the U.S. treasury will net about $6 billion.

For that $18.3 billion (it could go a little higher as the bidding creeps to a close), the wireless carriers have bought themselves 70 MHz of broadcast spectrum.

So, the FCC accomplished something, brokering the sale of 70 MHz of TV spectrum to wireless carriers and making some money for the taxpayers.

But to say auction “delivered on its ambitious promise” as in it achieved its ambitious goal is a stretch.

The FCC didn’t even meet its own expectations because of weak demand for spectrum from the wireless industry.

If you go back to the National Broadcast Plan, the FCC-commissioned study that got the whole thing rolling back in 2010, you’ll find that the goal was to reallocate 120 MHz from TV to wireless to head off an expected shortage of wireless spectrum.

Last summer, the FCC started the auction with the goal of clearing 126 MHz and selling 114 MHz. When the market it had set up rejected that, it had to drop its targets twice before settling for clearing 84 MHz and selling 70 MHz.

As disappointed auction advocate Preston Padden put it in his blog this week, the carriers left 42 MHz of prime broadcast spectrum “on the table.”

The FCC officials and their hired economists did everything they were supposed to do except, it appears, ascertain just how much appetite the wireless players had for more spectrum.

It would be difficult, I think, to find any congressional budget maven to say the auction delivered. In April 2015, the congressional budget estimated that the taxpayers would net “between $10 billion and $40 billion, with an expected value of $25 billion, the middle of that range.”

The actual $6 billion net falls below the $10 billion-$40 billion range and is less than a quarter of the “expected” $25 billion. The new FCC chairman will have to inform Congress and the White House that it will not be to able to help much with Trump’s trillion-dollar infrastructure project.

And I’ve been hearing for weeks from broadcasters about how the auction has not delivered on its promise to them.

The promise they heard was that the big wireless carriers and wannabes were desperate for their spectrum and that they would bid aggressively for big swaths of it.

The FCC enticed them with astronomical reverse auction opening bids that were intended to insure their participation in the auction. As I pointed out here before, those bids totaled $340 billion, four times what you would pay for every station at current broadcast multiples.

“Smart'” broadcasters knew the opening bids were a come-on, but surely, they felt, the auction would generate $30 billion or $40 billion for them to divvy up. What a windfall!

So enthralled were the broadcasters by the billions the FCC dangled before them that they went along with it all, even though the necessary post-auction repack of the TV band will disrupt their businesses and potentially diminish their signals and coverage.

Some broadcasters with stations in the top markets will make out, getting payouts for those stations that far exceed their broadcast value. But most will be disappointed to one degree or another — some bitterly.

Among the most disappointed will be those who made promises of their own — to shareholders and other investors. With the auction coming up short, they will now have to explain why hundreds of millions — or even billions — of bonus revenue did not materialize.

At NATPE this week, I ran into a broadcaster who made some speculative side bets, buying stations to sell in the auction. I asked if he hit any home runs. “No,” he said, “just a ground-rule single.”

I’m not even sure that Wheeler himself was truly enamored with the outcome of the auction.

Saying something “delivered on its ambitious promise” is not exactly over-the-top praise, especially in the Age of Hyperbole. In an exit interview with the Washington Post, Wheeler was asked to name his “biggest accomplishments.”

The incentive auction was not on his list.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or here. You can read earlier columns here.