$45 Billion Auction Projection Rests on AT&T’s DirecTV Acquisition Pledge

WASHINGTON—The $45 billion being proffered as potential incentive auction proceeds was derived from AT&T’s commitment to spend $9 billion on 20 MHz of TV spectrum if its bid to buy DirecTV goes through.

“That analysis was based on ATT’s comments filed in the docket stating that they would buy one 10 x 10 block for $9 billion,” said Preston Padden, leader of the Expanding Opportunities for Broadcasters Coalition, the group of station owners who intend to sell their spectrum at auction. “If you clear 126 MHz, that will yield 10 5x5 blocks or five 10x10 blocks; 5 x $9 billion = $45 billion.”

The Federal Communications Commission presented the $45 billion figure this week in a report prepared by Greenhill & Co., with FCC staff-contributed data. The figure compares to $28 billion in projected auction revenues in the jobs bill that ultimately authorized the auction; and $24.5 billion put forth by the Congressional Budget Office for 84 MHz. Both estimates were made in 2011. (See “Reclaimed TV Spectrum Valued at $28 Billion in Obama Jobs Bill.”)

The Greenhill report is intended to encourage broadcasters to participate in the 2015 incentive auction. In it, the commission says “independent studies have estimated total forward auction proceeds could approach $45 billion,” and cites a document filed by the Padden’s group, the EOBC.

The cited document is an ex parte filing dated June 13, 2014, that describes a June 11 meeting between FCC officials and “three representatives of auction-eligible television stations.”

The broadcast representatives presented another document entitled “Incentive Auction Spectrum & Cash Balance: 126 MHz Case,” described as “as one option for estimating the funds that the FCC could have available to pay winning broadcasters, based on a conservative estimate of forward auction revenue, and to reimburse repacked broadcasters.”

This document projects $45 billion in forward auction revenues based on the “AT&T pledge to pay $9 billion for 20 MHz,” and also makes reference to the 700 MHz spectrum in Canada.

AT&T said in May (opens in new tab) that it would spend $9 billion on 20 MHz in the 2015 spectrum incentive auction after its acquisition of DirecTV closed.

“The transaction does not alter AT&T’s plans to meaningfully participate in the FCC’s planned spectrum auctions later this year and in 2015,” the carrier said at the time. “AT&T intends to bid at least $9 billion in connection with the 2015 incentive auction provided there is sufficient spectrum available in the auction to provide AT&T a viable path to at least a 2x10 MHz nationwide spectrum footprint.”

The Greenhill report, sent to broadcasters this week by the FCC, takes the $45 billion figure and divides it among station licensees according to populations and adjacent markets. Thus, the spectrum of a full-power station in Palm Springs, Calif.—a bedroom community of Los Angeles—was valued higher than that of a station in Chicago. (See “FCC Interference Pricing Projects $45 Billion in Proceeds.”)

The FCC officials at the June 11 meeting included Gary Epstein, Incentive Auction Task Force chairman; Howard Symons, Task Force vice chairman; Bill Lake, chief of the Media Bureau and several other FCC staff. Jonathan Levin, Paul Milgrom and Ilya Segal from Stanford University participated by phone, as did Lawrence Ausubel of the University of Maryland, and Christina Aperjis from Power Auctions, according to the ex parte filing.