McAdams On: Caveat Auctor

HERE, NOW— This is directed to anyone thinking about selling their TV spectrum based on the $45 billion in auction proceeds projected by the Federal Communications Commission.

I am sharing details of the release of this figure because I think anyone considering selling their broadcast license has a right to know them. I believe that under the circumstances, the FCC would agree. It is in the commission’s and the Administration’s best interest to have everyone go into this auction with as much information as possible; information that is as accurate as possible or states clearly when it is conjecture.

I recount this from my perspective as a reporter. Any generalization I make with regard to reporters is primarily a reflection of my own course of action. It happened as follows.

A conference call on an the incentive auction with embargoed information was announced via email on Tuesday, Sept. 30 at around 4 p.m. Eastern Time. It was supposed to be embargoed through 12:30 p.m. Wednesday, the following day.

The reporters who received the email awoke to see the news leaked. The Wall Street Journal and B&C both posted it at precisely midnight, Sept. 30. It was old news now, but we queued up for the conference call nonetheless. While one reporter griped about the leak and disparaged the embargo, I sent the “Greenhill Report,” as it was called, to several sources in order to confirm or otherwise deconstruct its $45 billion projection.

I expected a lot more feedback than I got right away because the figure was already in the wild for hours by then. It seemed unreasonably high compared to the $28 billion originally projected in the jobs bill and the $24.5 billion projected by the Congressional Budget Office for 84 MHz of TV spectrum. Even figuring for 126 MHz, as the Greenhill Report did, the CBO’s estimate would yield $36.7 billion.

So where did $45 billion come from? We were led to believe it was a valuation of $1.50 MHz/pop for 126 MHz. Both figures are assumed. ($/MHz/pop is total price paid for a license divided by number of MHz times population covered. It is accurate only for completed auctions, not projections, which also must take into account location, demand, interference, congestion and other mitigating factors.)

That 126 MHz will be volunteered for auction is hopeful at best. The National Broadband Plan, introduced in 2010, called for 120 MHz. The number heard most often in private discussions is 84 MHz—tops.

The $1.50 MHz/pop is not unrealistic based on past auctions. The average for the 2008 spectrum auction was $1.22 MHz/pop, with AT&T and Verizon paying $1.51 MHz/pop on average.

At this point, it was close to 12:30 p.m., the end of the embargo. I wasn’t married to the idea of posting that instant, but I didn’t want to wait much longer. In digital news, each moment of delay means fewer readers and less impact, even if you come up with a completely different perspective.

With this auction in particular, there is a void of information into which anything as attention-grabbing as $45 billion is going to proliferate rapidly and immediately become entrenched in all discussions that follow. I didn’t want to be part of something that perpetuated a false notion, but I received no qualified feedback indicating the number was untenable. As I said, the news was already old and getting older by the minute.

At 1:06 p.m., I posted the story with the headline, “FCC Interference Pricing Projects $45 Billion in Proceeds.” In the ensuing hours, I started hearing from some of the other sources. Late that night, I was directed to the “independent studies” cited in the Greenhill Report for the $45 billion estimate.

These “independent studies” comprised a single ex parte filing describing a June 11 meeting among FCC officials and representatives of the Expanding Opportunities for Broadcasters Coalition. This is the group of station owners preparing to sell their spectrum. They have the most to gain from a projection that provokes more participation in the auction.

The $45 billion figure, it turned out, was based entirely on AT&T’s pledge (opens in new tab) to spend $9 billion at the auction if its bid to acquire DirecTV was approved. Four more bids of $9 billion each for the same amount of spectrum would be necessary bring the total to $45 billion. The $1.50 MHz/pop figure is a derivation thereof, rather than a calculation involving previous auctions and the mitigating factors mentioned above.

(To the FCC staff’s credit, they emphasized, multiple times, that the figures in the Greenhill Report were “high-end” estimates. This was reiterated by FCC Incentive Auction Vice Chairman Howard Symons during the Wells Fargo Technology Media & Telecom Conference in New York on Thursday, who also said the Greenhill figures did not represent bid reserve prices.)

The next morning, I published “$45 Billion Auction Projection Rests on AT&T’s DirecTV Acquisition Pledge” but it was already too late. The figure had already circulated for nearly 36 hours, long enough to take hold in all subsequent reporting about the auction.

I bring up the issue here again for two specific reasons. One is the announcement this week that the FCC intends to launch a 50-market tour in January to pitch the auction to broadcasters—based on the information in the Greenhill Report.

The other, and possibly more critical reason is that there is absolutely no guarantee of participation by any wireless provider at this point. AT&T’s acquisition of DirecTV remains pending. The FCC stopped the 180-day shot clock on the deal last month. The provider also responded to President Obama’s call to impose network neutrality under Title II by announcing it would postpone its fiber upgrades until the issue was settled.

Up to now, wireless networks have managed to fly below the network neutrality radar, but Obama’s Title II ploy creates regulatory uncertainty across the board. Especially since his philosophy is at odds with that of his FCC chairman.

I can’t say whether the $45 billion projection is completely unrealistic or within reason, and quite frankly, I don’t believe anyone else can, either. As it stands today, the auction is a collection of moving targets that will determine the course of thousands of businesses and many more thousands of household incomes. Broadcasters—and those they employ—deserve every possible piece of information available in order to make a decision about participating.

That also includes where the information comes from.