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FCC Drops Dynamic Reserve Pricing Auction Rule

ALEXANDRIA, VA.—An FCC official acknowledged that the commission would drop its requirement to impose “dynamic reserve pricing,” a rule that garnered stiff opposition from broadcasters. The announcement came during a webinar on spectrum auctions sponsored by NewBay Media and featuring representatives from the FCC and the broadcast industry.

Opponents predicted that the DRP policy—which was designed to encourage broadcasters to participate in next year’s spectrum auctions—would have allowed the commission to lower opening bid prices if not enough stations entered the bidding process. Even some commissioners opposed the rule, with Kevin O’Reilly commenting at the NAB Show in April that dynamic reserve pricing “complicates things unnecessarily and also can short-change broadcasters in the value of their stations.”

On Thursday’s webinar, Howard Symons, vice chair of the FCC’s Incentive Auction Task Force, said that the commission would not recommend adopting dynamic reserve pricing. “It was an effort to avoid overpaying certain stations but in response to the many comments we got, we recommended not adopting that.”

FULL STEAM AHEAD
Despite the numerous delays in starting the spectrum auction, there was general consensus among the speakers that the March 29, 2016, launch date—now just eight months away—would hold and that broadcasters who want to participate need to plan ahead.

“This thing is moving quickly,” said Rick Kaplan, executive vice president and general counsel, legal and regulatory affairs for the NAB. “For those who are thinking of participating, they should be very active right now. For those interested in channel sharing, those deals need to be done now.”

Preston Padden, executive director of the Expanding Opportunities for Broadcasters Coalition, a group of about 40 TV stations planning to participate in the auction, praised the auction rules. “You can enter into a sharing deal after the auction and it can last for five years. There’s a lot of flexibility there,” Padden said. “The staff and the chairman have recommended to kill dynamic reserve pricing which was a creation of the devil.”

Preston added that “A lot of good things have happened and I prefer stations look at this auction as a huge ‘once in a lifetime’ opportunity. The only question a broadcaster has to ask himself is to look at that opening price. Entering the auction is a no-risk proposition and could lead to a great opportunity.”

Mark Aitken, vice president of advanced technology for Sinclair Broadcast Group, one of the nation’s largest owners of TV stations was more skeptical, adding that SBG would not participate in the auctions.

“If you enter the auction and agree to participate,” he said, “the opening bid price—which may not well be the offering price as we descend through the auction—if you don’t want to sell, you may have to sell just simply by entering the auction. Only put your feet in the water if you’re willing to leave.”

MIND THE ‘DUPLEX GAP’
The FCC’s recent proposal to place a certain number of stations in the “duplex gap”—where current ENG and wireless mic spectrum currently calls home and opponents claim could cause interference for high-power TV stations—was discussed, with Aitken commenting that “I’m still scratching my head” over the proposal.

Adding that one of the major implications for such a proposal would be interference, Aitken said that “the duplex gap is a traditional part of a spectrum-separated two-way approach to using the spectrum. Unless you’re willing to put forward major studies to show otherwise, you’re talking about a very non-traditional unproven approach that is greatly dependent on separations and power levels used.”

The NAB this week proposed a compromise to the FCC that would allow placement of stations in the duplex gap for a maximum of six markets. Kaplan said during the webinar that “if you can limit [using the duplex gap] for six markets, we’ll take the six and move on.”

Symons added that while the commission recognizes the importance of the duplex gap, its proposal will create the least amount of harm while ensuring maximum participation. “We want the system to be able to assign those few stations to the place in the wireless band where they interfere with the fewest number of people on an aggregate nationwide basis,” he said. “In many instances, that could be the duplex gap, because the interference to the licenses would be minimized.”

THE IMPACT OF FUTURE STANDARDS
The broadcast industry is in the midst of developing ATSC 3.0, the next-generation broadcast standard which proponents say would not only promote more efficient spectrum use, but would add an IP component. Aitken characterized the current standard as a “handicap” for broadcasters.

“The impact of ATSC 3.0 could fundamentally change the nature of how people connect to their services,” he said. “3.0 standardization is underway and we’re very soon going to have a candidate standard.” In response to a question from the audience about whether the necessary equipment will be available by the time of channel repacking, Aitken replied “absolutely.”

One of the opportunities that ATSC 3.0 could offer is to allow stations to lease spectrum to wireless carriers, which Symons warned would not be as advantageous to broadcasters as combining channels after the spectrum auctions.

“For those broadcasters who may think that [a new standard] provides an opportunity to lease to carriers, I would only point out that one of the benefits of the opportunity presented by the incentive auctions is to combine individual broadcast channels into a more powerful contiguous whole,” he said. “That, taken that way, is of greater value to carriers than one-off deals, market by market or station by station. So I think that’s just a factor broadcasters should keep in mind as they consider the range of opportunities, including the auction and advanced standards that may be presented to them.”

There has been some intra-industry discussion of coordinating channel repacking with the deployment of ATSC 3.0 but Symons shot that idea down. “We have consistently encouraged the industry to develop next-generation standards and when and if they bring us a rulemaking recommendation to adopt it, we will obviously consider it expeditiously,” he said. “But the auction’s on its own schedule. We have long ago decided we’re not going to delay it.”

Nevertheless, Symons emphasized the FCC’s objective for the spectrum auctions vis a vis the broadcast industry.

“A healthy robust broadcast industry is a very important part of our nation’s communications ecosystem and we look forward to having that part of the ecosystem thrive,” he said. “We look at this auction as Congress intended it—as a market mechanism for repurposing some of the 600 MHz band and spectrum for future uses. We think both of those objectives—repurposing spectrum for future mobile broadband uses while ensuring a healthy broadcasting industry—are not mutually exclusive objectives.”