Incentive Auction To Cost $226 Million

FCC releases procedural details
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WASHINGTON—Next year’s TV spectrum incentive auction will cost around $226 million to run, according to the Federal Communications Commission, which released the figure Tuesday in a Public Notice detailing auction procedures.

“Bidding in the reverse auction will determine the first cost element—winning bidder payments required for broadcasters,” it said. “With respect to the second element, the commission’s relevant administrative costs, we estimate these costs at $226 million. We intend to update these costs no later than the commencement of bidding in the clock phase of the forward auction.”

The commission voted last Thursday to adopt the procedures, which lay out the logistics of the two-part auction: first, the reverse auction, in which broadcasters can elect to accept opening bids, and the forward auction in which wireless providers bid on TV spectrum relinquished in the reverse auction. Much of what was approved Thursday is unchanged from a list of rules the FCC recommended last December. The one thing notably booted was “dynamic reserve pricing,” which would have allowed the commission to pay a TV station stranded in wireless spectrum a lower price than the last bid that station accepted. DRP had just about all broadcasters at bay since they would have no control over how much their stations sold for.

The commission also adopted a graduated clearing-target model designed to minimize interference-impaired spectrum at higher levels. Whereas the December list shot to clear 84 MHz of TV spectrum and set a 20 percent population cap on interference, the final rules have clearing targets ranging from 42 to 144 MHz with impairment decreasing as the target increases. At 144 MHz, for example, the FCC estimates 8 percent of the population will experience some interference with wireless service, over-the-air TV reception, or both, in the 600 MHz band. At a 84 MHz, impairment would be around 14 percent; below 78 MHz, it’s capped at 20 percent.

The FCC will announce the initial spectrum target “as soon as possible after completion of the initial clearing target determination procedure,” and “before any bidding takes place in the reverse auction.”

Bidding will commence in the reverse auction March 29, 2016. Opening prices for TV stations in the reverse auction will be announced 60 days before the deadline to apply. (The application window and applicable deadline will be announced in an Application Procedures Public Notice to be released separately by the FCC’s Wireless Bureau. The agency’s Office of Engineering and Technology is also directed to deliver “final baseline coverage area and population served data no later” than 60 days before this deadline.)

These opening prices will be based on a maximum value of $900 million divided into 1 million units of interference-population volume, or a “$900 base clock price.” (See “FCC Clarifies Auction Pricing, EOBC Disputes It.”)

These prices will be further affected by the way a TV licensee participates. Applicants will have to choose one of three options going in: go off the air, move to a low VHF or to a high VHF. (Final option available only for UHF stations.) Stations that elect channel-sharing will be treated the same as those going off the air, and will receive the full $900 x volume pricing. UHF stations moving to a high VHF will get 75 percent of the base clock price (Correction: UHF stations moving to a low VHF will get 75 percent of the base clock price), or $675; UHFs moving to a high VHF will receive 40 percent of base clock, or $360. Stations may elect one of the three options, all three, or a preferred option and a fallback.

Stations accepted for participation will be presumed sold at the opening price offered. The auction system will assign each station one of six bidding statuses after each round of the reverse auction. “Bidding in the current round” indicates there’s still a channel in the TV band for that station; “frozen—provisionally winning” indicates a station that can’t be repacked in the TV band; “frozen—currently infeasible” means a VHF channel may open up in subsequent rounds; “frozen—pending catch up,” is a frozen—provisionally winning station that’s no longer provisionally winning; and exited voluntary and unneeded.

Bidding will continue until all stations have entered “frozen—provisionally winning” status or either of the “exited” statuses. The forward auction to wireless providers will follow. Another reverse-forward round will be held if the final stage rule of $1.25 MHz/pop for 70 MHz of cleared spectrum (84 MHz with guard bands and a duplex gap between wireless up- and downlink spectrum) is not met. An extended round will be triggered if the final stage rule is not satisfied and bidding has stopped, i.e., supply exceeds demand.

Once the auction is complete, channel assignment will begin for the remaining TV stations. All channel assignments will be subject to change except for those assigned to the duplex gap during the auction. The National Association of Broadcasters, in addition to wireless providers AT&T and Verizon as well as assorted lawmakers, objected to the FCC’s proposal to repack TV stations in the duplex gap because of the potential for interference. The FCC, however, said its auction software could not reach an acceptable clearing target without putting some stations into the duplex gap—between up- and downlink wireless blocks. The NAB said last month it would accept up to six stations in the duplex gap, but the FCC didn’t self-impose a lid.

“Despite releasing data designed to demonstrate how only a handful of markets would have TV stations in the duplex gap, the order fails to conform to the commission’s own numbers,” the NAB said.

The 156-page order includes further details on the mechanics of the auction that will be deciphered by media attorneys in the days ahead.