Armed with 180 reverse auction simulations, the Expanding Opportunities for Broadcasters Coalition (EOBC) was scheduled to meet with FCC staffers Monday to argue for changes to the pricing and auction rules, changes it argues would make the auction more robust, efficient, transparent, simpler and fairer. And, by the way, would still mean the government could take in almost $50 billion even after compensating broadcasters for their valuable spectrum.
EOBC argues that given the success of the AWS-3 spectrum auction, the FCC should boost its opening prices and scrap its Dynamic Reserve Pricing approach that EOBC says artificially reduces bid prices.
According to a new paper from auction expert Peter Cramton and based on those simulations, the FCC would need to pay broadcasters about $35 billion for 126 MHz of spectrum (among the FCC’s proposed clearing targets), and could turn around and get about $84 billion from wireless operators in the forward auction, so long as the auction remained in early 2016—the report anticipates AT&T and Verizon will push for a delay in the auction. A Verizon spokesperson said the company had no plans to do so. An AT&T spokesperson had no comment.
The simulations, which included coming up with various exit prices for all those stations had to be run without the FCC's computer code for estimating allowable interservice interference—the level of allowable interference between TV stations and wireless operators after repacking following the auction. The FCC staff said the code was simply too voluminous to share, according to EOBC. Nonetheless, EOBC said Cramton and his team of analysts was able to fully replicate the methodology.
The report concluded there are four key changes the FCC needs to make:
1. "Improve the scoring rule [how the FCC sets opening bid prices] to encourage participation and reduce mispricing.
2. "Simplify the setting of the clearing target to maximize the spectrum cleared and improve transparency.
3. "Replace Dynamic Reserve Pricing (DRP) with Round Zero Reserve (RZR, pronounced 'razor') pricing to simplify the auction and improve transparency.
4. "Encourage outcome discovery—both the likelihood of clearing and the price of clearing—with an information policy that reflects the competitive market structure on the broadcaster side."
EOBC has been arguing that the FCC should not use DRP to artificially depress prices, needs to give TV stations more information during the auction, and has given too much weight to population service in setting opening bid prices. EOBC argues that the key metric in setting the price is the spectrum's impact on repacking.
EOBC also encourages the FCC to stick with its plan to allow for intra-round bidding—stations could offer bids above the FCC's last offer but below the FCC's previous offer.
EOBC also wants the FCC to drop its prices more gradually throughout the auction. "The proposed bid decrement of 3-10% is both too large and too unpredictable. A fixed price decrement of 1% of the station’s opening price per round, meanwhile, would limit the duration of the auction while, at the same time, providing broadcasters with the information and predictability that they need to make difficult decisions about sharing, shifting to high or low VHF, or exiting the auction," the Cramton report said.
The report recommends that the FCC fix a couple of "loopholes" identified in the AWS-3 auction by requiring multiple affiliated bidders to bid on "disjointed" sets of licenses and by either eliminating the use of "fronts" by large bidders to claim discounts by scrapping the "small business" designation for mobile spectrum auctions, where it argues that even small mobile carriers are hardly small businesses, or if it keeps the "small business" discount, make the determining factor ownership, not control.
The FCC is currently deciding if two AWS-3 spectrum winners majority "owned" by Dish should get billions in small business bidding discounts.
The report was paid for by broadcasters, but Cramton says the analysis and views are that of himself and his team.