If wireless companies and other forward auction bidders cooperate, the government will pay TV broadcasters $86,422,558,704 to reclaim their spectrum in key markets.
The FCC will have to collect at least that much in the forward auction to cover what it will have to pay broadcasters at the 126 MHz clearing target it set for the first stage of the reverse portion of the spectrum auction, which closed Wednesday after 52 rounds. The FCC announced that much-anticipated and speculated about "clearing cost" figure on the auction website.
“Today, bidding concluded in the reverse auction, establishing the cost for clearing 126 MHz in the TV band for wireless use," said Gary Epstein, chair of the FCC's Incentive Auction Task Force. "Strong participation from broadcast stations made this initial clearing target possible. Now the action shifts to the forward auction, which will give wireless bidders the opportunity to compete for this beachfront spectrum to meet America’s growing mobile data needs.”
The FCC was able to clear that much spectrum thanks to the robust participation by TV broadcasters looking for a big payday.
Actually, the FCC will need to make a couple billion dollars more than that figure in the forward auction to cover the $200 million-plus in projected auction expenses and another $1.75 billion to cover the cost of repacking broadcasters in their tighter spectrum quarters after both parts of the two-sided auction are completed.
The FCC is freeing up spectrum to re-auction to wireless carriers and others in the forward portion of the auction.
The reverse auction is where broadcasters bid to give up spectrum for a price, low bid wins. The forward portion is where wireless companies and others bid for that spectrum, high bid wins.
If not enough is bid for that reclaimed spectrum in the forward auction to cover that initial clearing target price, the FCC will have to continue the reverse auction at a lower clearing target (114 MHz)—it has set nine of those targets just in case. That means fewer stations will get those big payouts, since the FCC won't need as many to meet the lower target.
That $86,422,558,704 figure is sure to prompt speculation that bidders in the forward auction will not pony up enough to cover it. In fact, it already had at press time.
"The completion of the first stage of the reverse auction marks an important milestone for the FCC's first-ever incentive auction," said PwC principal Dan Hays. "Most importantly, it reveals for the first time just how expensive it could be for mobile service providers to get their hands on the most lucrative tranche of spectrum to hit the block in nearly a decade. At a clearing cost of more than $86 billion, the bar has been set high for the wireless industry. Given the current financial profile of the industry, this number may have to move significantly lower. A second stage of the reverse auction later this year is likely.Indeed, we could well see the proceedings drag on into early 2017 before coming to a final conclusion."
But the low-band spectrum is beachfront, and as one interested auction watcher points out, sharing is the watchword of the future, so that amount of unimpaired, unshared, spectrum could draw big bucks.
In any event, only when both sides of the auction are completed will the FCC know whether or not it will have to go to stage two and lower the target. Forward auction bidders advised the FCC to clear as much spectrum as possible and let the marketplace decide, which the FCC did and which is why the auction is built to accommodate multiple reverse rounds at lower targets, if necessary.
The forward auction likely will begin at the end of this month or in early August and last a couple of months. July 1 is the deadline for upfront payments, which each qualified bidder will need to pony up in order to be eligible to bid.
Telecom consultant Tim Farrar of TMFAssociates took one look at that $86 billion figure and tweeted that he thought the strategy for forward bidders like Comcast, Dish and private equity firms would be to stay on the sidelines and wait for the clearing cost to drop to $30 billion or so at a 60-70 MHz clearing target.
The FCC set the opening bid prices based on a formula that combined the population served and the level of interference the station would represent if it had to be repacked. The goal was to incentivize broadcasters to participate, which it clearly did, and making those opening bid prices high enough to be bid down, though given the size of the clearing cost, a number of stations were almost certainly frozen at the opening bid price.
“We are pleased to see the 600 MHz incentive auction move closer to delivering spectrum for wireless providers so they can meet Americans’ mobile-first lifestyles," said CTIA, which represents the wireless companies that pushed the FCC to reclaim the broadcast spectrum.
It also put in a plug for the high-band spectrum the FCC is working on freeing up. "With mobile data usage expected to rise six-fold by 2020, we will need to use all tools, including an effective incentive auction process and high band spectrum, to meet consumer demand and continue our wireless leadership.”
“Broadcasters have done our part," said National Association of Broadcasters spokesman Dennis Wharton. "Now it’s up to the wireless industry to demonstrate the demand is there for low-band TV spectrum.".