FCC's Incentive Auction to End After Stage 4

Both components of final stage rule met; broadcasters will get $10 billion for 84 MHz

The FCC will be able to close the spectrum auction and at an 84 MHz spectrum total some had suggested was the last clearing target for a successful auction.

The second round of stage four of the forward portion of the FCC incentive auction ended Wednesday afternoon with bidders raising their ante to  $18 billion but more importantly $1.2570 per POP. The total could still go up, but it is now enough to close the auction once there is no more bidding.

Round one of the forward auction ended at noon Wednesday with bidders offering $17.7 billion ($17.2 net of bidding credits), which more than covers broadcasters asking price of $10 billion plus the $2 billion or so in auction and repacking costs. But it was still just under three cents short of the $1.25 per MHz POP in the top 40 markets (actually PEAs or "partial economic areas") that would satisfy the second benchmark and allow the auction to close.

That per-POP price is essentially a minimum price the government will take for the spectrum in top markets in order to get what it considers a fair market price. So, the auction could only close when that fair top market price was met and the broadcaster-plus-costs total was exceeded.

The spectrum auction ain't over 'til it's over, but the final stage rule has now been met, with forward auction bidders having bid enough to both cover the broadcasters' ask (the second component necessary to close the auction) and the $1.25 per MHz POP price.

The auction will continue until there is no more bidding in any market.

Now that the final stage rule has been met, the FCC's spectrum reserves kick in, where up to 30 MHz has been reserved in each market for auction-eligible bidders--small businesses, women, minority-owned. The FCC set aside some spectrum so the larger players could not simply buy it all up.

Those reserve-elligible bidders can bid against each other for that spectrum, or choose to bid with against the big fish for the rest of the spectrum, but non-auction eligible bidders can't bid for the reserve spectrum.

To give bidders more time to bid in the first round following the second round's meeting of the final stage rule, the FCC will extend round three from two hours to six hours Thursday (10 a.m. to 4 p.m.).

There will be no bidding on Inauguration Day, but the auction will resume on Jan. 23, returning to two two-hour rounds per day.

But while the auction total will continue to climb, broadcasters' payout is capped at that $10 billion, with the balance after expenses going to deficit reduction, as the spectrum auction legislation specified.

After the auction closes, the next step will be for the FCC to hold a second, mini auction among the winning bidders for the exact frequencies they will be getting—they were bidding for generic 10 MHz blocks in the main part of the auction.

It remains to be seen how happy broadcasters are at a payout of likely some $60 billion less than their first ask. That means a lot fewer payouts since broadcasters are only giving up 84 MHz of spectrum rather than the initial 126 MHz. But winning bidders will still be getting a big payday, and the less spectrum broadcasters have to move out of, the easier the repack should be and the less chance of interference to either broadcasters or wireless operators.

The auction began May 31.

“Today's auction results are a four-way positive result for broadcasters, the mobile industry, the government, and the American people," said Dan Hayes, PWC Strategy& principal. "Most importantly, they are the first steps towards freeing up additional spectrum for use in satisfying the public's seemingly insatiable desire for mobile connectivity.

"While the top-line results have been disappointing to some, $10B of proceeds are also expected to inject new life into some segments of the broadcast industry and support future opportunities for other stations to monetize their spectrum. The ultimate spread between the forward and reverse auctions will also provide a multi-billion dollar payday for the federal government, further enforcing its interest in auctions."

Preston Padden, former executive director of the Expanding Opportunities for Broadcasters Coalition, had said after broadcasters dropped their asking price to $10 billion that if there were a God, stage 4 would be the last. "There is a God and I am grateful to her!" he said after the final stage rule was met.