FCC Ups Its Incentive Auction Ante

For road show, FCC updates briefing books with opening bid prices
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Just in time for its first incentive auction road show (Feb. 9), the FCC is providing TV stations with estimates for the commission's opening bids in the upcoming auctions, which FCC officials insist is on track for early 2016.

Last October, the FCC released estimates of projected high and median payouts to give broadcasters a sense of the financial upside of giving up some or all of their spectrum. The FCC has taken into account the success of the AWS-3 spectrum auction and has upped those estimates and, for the first time, is providing estimated opening bid and median bid prices for the auction.

The new auction information, a revision of the October briefing book from investment banker Greenhill & Co., is available here.

According to the new figures, the proposed opening bid price for New York is $870 million (maximum) and $660 million (median); $630 million and $560 in LA, and $610 million and $520 million in Chicago.

The maximum bid price is based on an actual station in a market that would command that price if it gave up spectrum— the FCC is not identifying which. The median value means there are an equal number of stations with valuations higher and lower than that figure. But those are opening bids, so they are likely to drop given auction competition.

Each station will have a unique opening bid based on its value in clearing and repacking spectrum based on various factors; the FCC will give that information to stations but is not making it public, which is why it is providing figures only for maximums and medians.

There will likely be multiple winners in larger markets as well as smaller markets adjacent to larger ones.

Broadcasters will get the same money for giving up spectrum and sharing with another station as they will to give it up and get out of the business, though they will be sharing that money with the station they will be teaming up with. "There is a lot of money to be had by each individual broadcaster," said an FCC official briefing reporters.

There are actually three options: relinquishing spectrum and getting out of the business, relinquishing and sharing, and moving from a UHF to a VHF channel. Those who agree to move will not get as much money, some 20% to 33% less for moving to a low V, but as much as half to two-thirds less for moving to a high V.

So, a station that would get $100 million to give up all its spectrum, would only get $67 million-$80 million for moving to a low VHF channel, and only $33 million-$50 million for moving to a high VHF channel.

The Incentive Auction Task Force signaled back in October, when it released information packets for broadcasters, that it would be taking its pitch to various markets across the country. Members of the task force will be at the info sessions, as well as representatives of investment bank Greenhill & Co., which prepared the financial pitches to stations using best-case estimates of the cash broadcasters could carry away if they participate in the auction.

The sessions will be limited to broadcasters and their representatives and will include discussions of how the auction will work, bid options, opening prices and methodology. If broadcasters pitch any policy points to the commission representatives they will have to make an ex parte communications filing, but will not have to reveal their identity.

The FCC is encouraging broadcasters without a visit to their market to attend the closest one, where there will be a general presentation on the auction and TV station repacking, plus an opportunity to schedule private meetings.

The first of those sessions is being held Feb. 9 in Philadelphia, followed by Feb. 10 in Wilkes Barre-Scranton, Pa.; Feb. 11-13 in New York; Feb. 24 in Nashville; Feb. 25 in Atlanta, and Feb. 26 in New Orleans.

One official said he was pleased with the expected turnout in Philly, though he would not say how many stations had expressed interest.

The sessions will include meetings with broadcasters who don't want to participate in the auction or drop out of it with information about repacking and reimbursement.

The Expanding Opportunities for Broadcasters Coalition, some of whose data was used in the first report, has asked the FCC to increase its estimate of the value of TV station spectrum given the AWS-3 auction.

EOBC represents stations who are interested in the auction and the right price. The National Association of Broadcasters, at the urging of some members, has also been pivoting toward protecting the interests of both those who are keeping all their spectrum and those who may be giving some up and has gotten some pressure not to push back on the 2016 auction date.

EOBC Executive Director Preston Padden had some issues with the FCC's revised figures.

"Originally the FCC released the Greenhill Book with expected values - the values broadcasters could expect at the end of the auction.  The new Greenhill book lists STARTING prices [emphasis Padden's] based on the formula proposed by the FCC.  These STARTING prices are LOWER than the original expected values in markets like San Diego, Wilkes Barre-Scranton, Santa Barbara and Palm Springs.

"Since the auction goes only down from the starting prices, stations in these markets have no chance of ever seeing the original Greenhill expected values. That is why the starting price formula has to be changed as suggested by the Coalition.

"We have no doubt that the FCC set their formula for broadcaster starting prices in good faith," Padden added. "But that formula was finalized internally at the FCC before the AWS-3 auction went through the roof.  As a result the FCC formula cannot possibly reflect the most recent, and dramatic, market signal regarding the value of broadcasters’ spectrum.  Accepting the FCC starting prices would be like pricing your house without considering the most recent very high comparable sales in your neighborhood.”

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