WASHINGTON—A full-power TV station in Los Angeles could get as much as $570 million for its spectrum in the federal incentive auction. One in New York, the No. 1 market, could get as much as $490 million. That’s according to a model created by the Federal Communications Commission in conjunction with Greenhill & Co. LLC.
“I think they are very realistic and are in line with some of the estimates I have been making for clients over the past two years,” said Mark Fratrik, chief economist and senior vice president at BIA/Kelsey in Chantilly, Va.
That a station in Los Angeles, the second largest TV market in the United States, could beat out one in No. 1 New York likely is a reflection of the pricing model, which is based on interference. Consequently, stations in smaller markets that are adjacent to large markets have higher valuations than others in similarly sized markets. E.g., the maximum estimated price for a full-power station in No. 148 Palm Springs, Calif.—two hours outside of L.A.—is $180 million. In No. 147 Sioux City, Iowa, the high-end estimate is $12 million. Palm Springs even beat No. 3 Chicago, where the high end was $130 million.
Commission staff “assigned an interference value based on the sum of the number of people covered by signal, and the number of stations it overlaps with,” according to a senior FCC official. “We assigned a value derived from that methodology, whether commercial or Class A, and then took projected auction proceeds at $1.50 and divided them.”
These projected auction proceeds were based on a “clearing target “ of 126 MHz, making 100 MHz available for the forward auction after consideration of guard bands. The estimates also take into account the $1.75 billion set-aside for broadcaster relocation, $250 million in auction costs and $5 billion to fund FirstNet.
Clearing 126 MHz in every market could be tough, Fratrik said.
“It’s going to be very challenging in the very largest markets to get 126 MHz, not just because of stations in those markets, but adjacent-market stations… And there’s also land-mobile in large markets in UHF. So it could be very challenging to reach their goal in the largest markets.”
FCC officials who presented the Greenhill report Wednesday morning emphasized that the estimates presented were “high-end compensation values as generated by FCC staff.” They also said the report was not intended to “predict a clearing target,” and that not every station would receive the modeled sums. The report, plus documents outlining tax implications, are being sent to broadcasters around the country today.
The goal of the report is to get broadcasters on board. The broadcast community has been skeptical of the auction from its introduction, even though Congress stressed that participation must be voluntary. Even so, TV stations will have to be repacked in a reduced spectrum band, meaning they will have to move and once again retrofit their facilities, as they did prior to the 2008 700 MHz auction.
FCC officials said participation is “virtually risk-free,” and that broadcasters will be provided with actual opening bid prices before they decide to participate. If they do, they are only committed to accepting the initial price and they can drop out anytime during successive rounds as the price drops.
The FCC has updated its auction outreach website, www.fcc.gov/LEARN, and also intends to launch a “road show” with Greenhill to visit broadcasters one-on-one.
“These dollar estimates are going to shock some of the people who haven’t thought about this previously, including my clients who were very shocked at the numbers I came up with,” Fratrik said.
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