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FCC Proposes Minimum Bids for 700 MHz Auction

How much is that out-of-core channel worth? Licensees with stations on Channel 55 have received financial assistance in improving their DTV coverage in exchange for vacating the channel early, but these amounts pale compared to the minimum bids the FCC is placing on some of the new 700 MHz out-of-core TV spectrum. Channel 56, the “Block E” spectrum, has a $903,690,000 minimum for the combined bids for all licenses on the channel. Block A consists of Channels 52 and 57, and the minimum bid for all licenses is the same as the Block E price on a per-channel basis, or $1.807,380,000 for both channels. A total of 172 licenses will be offered in Blocks A and E, which results in an average minimum bid of $5,134,602 per license per channel. In many markets, if not most, this is a lot less than it would cost to buy an existing broadcast TV Construction Permit. Of course, these are the minimum bids and actual bids will likely be higher.

Block B spectrum, which consists of TV Channels 53 and 58, is a relative bargain at $1,374,426,000 minimum total bid for all licenses, but the FCC is offering many more licenses with smaller service areas. For the 734 licenses being offered, the average minimum bid per 6 MHz TV channel per license is $936,257.49.

Block C and Block D include parts of broadcast channels and have special conditions attached to them.

Block C, which has “open access” requirements requiring licensees to allow network access to all devices and all applications meeting minimum requirements to avoid damaging the network, has a proposed minimum bid of $4,637,854,000. There are only 12 licenses being offered in this block, which is 22 MHz wide and includes Channels 60 and 65 and parts of Channels 61 and 66. On a per-MHz basis, this works out to $105,405,773 per 6 MHz block per license.

Block D is designated for a public-safety/private partnership. It has 10 MHz of spectrum, using parts of channels 62 and 67. Minimum bid for this spectrum is $1,330,000,000. Only one nationwide license is proposed for this spectrum, which if calculated on a 6 MHz per license basic to match the size of a broadcast channel, works out to a minimum bid of $798,000,000, making it that most expensive license on a per-MHz basis.

The FCC realized that it might not be able to obtain these minimum bids. In the case of Block C, if the combined total falls short of the $4.6 billion minimum bid, the FCC said it would consider dropping the open access requirements. See the Public Notice (DA 07-3415) announcing the auction start date of Jan. 16, 2008, and seeking comment on the competitive bidding procedures for details. The Public Notice also indicated that if the Block D minimum were not met, it would consider re-offering the spectrum (perhaps with a lower minimum bid) and/or reconsider the rules associated with this block.

Other than getting an idea what minimum value the FCC replaces on returned out-of-core spectrum, why should broadcasters be interested in this? One answer is that the spectrum based on 6 MHz channels could be used to offer programming without the restrictions the FCC places on broadcast TV. While high-power facilities like those used by most broadcasters would not be allowed, it should be possible to design a single-frequency network that would cover a market. Broadcasters considering interactive applications could use the spectrum to provide a return channel. Even non-interactive programming would benefit from a return channel as it could provide real-time on who was viewing what. In this application, the return channels wouldn’t require a much bandwidth and it might make sense for several broadcasters in a market to form a company to acquire spectrum they share.

Even broadcasters that don’t participate in the auctions have a stake in the results. Studies show more people are watching programming over the Internet, even if the quality is nowhere close to that of even the most heavily compressed over-the-air programming. So far, cable companies and other ISPs have not restricted video streams, which require substantially more bandwidth than Web browsing or e-mail, but recent comments indicate they may start charging extra for preferred access to their networks. This would, of course, have an impact not only on broadcasters’ live streams and video clips, but on major Internet players like Google.

A recent article in Ars Technica, Google Ready to Invade Telco Turf, Bid on 700 MHz Spectrum, indicated Google would likely participate in the auction for Block C. Google could offer high-speed Internet access on Block C spectrum and not only bypass cable and telephone data limits but steal customers from them as well. With alternatives available, it would be harder for cable or telephone companies to request payment for carrying Internet video or data from Internet companies like Google, Yahoo, TV/cable networks and local TV stations.

Ars Technica notes that comments from former SBC chief Ed Whitacre that Google shouldn’t be able to “use my pipes for free” are sometimes credited with starting the public debate over network neutrality. “Ironically, for the telcos who can’t be thrilled at the possibility of a bidding war with a cash factory like Google, one of their own may be to thank for the current situation,” Ars Technica says.