Spectrum Auction, Take 3 - Broadcasting & Cable

Spectrum Auction, Take 3

Broadcasters eye new round of price drops
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Related: Public Knowledge Hails Pallante Exit

The FCC last week was preparing for its third attempt to get broadcasters and wireless operators to agree on a price for reclaimed spectrum in the incentive auction. Actually, the auction is set up for the marketplace to find that equilibrium—which so far has most definitely not occurred.

The third stage of the reverse portion of the FCC’s broadcast incentive auction begins this week (Nov. 1) at a 108 MHz clearing target, down from the initial 126 MHz broadcasters agreed to give up if forward-auction bidders would pay over $86 billion. They didn’t, by a long shot.

Those forward-auction bidders only offered up about $22 billion in each of the first two rounds. Broadcasters then dropped the price, admittedly for less spectrum (114 MHz), to $56 billion in round two, but forward bidders only took one round to hold firm at $22 billion.

The FCC will start dropping prices again and see how low broadcasters will go this time.

The less spectrum the FCC reclaims, the fewer TV stations will get the big paydays many were hoping for, and the lower the price, generally, for the ones who do get payouts.

The FCC has 9 different spectrum targets. If forward auction bidders don’t cover the stage-three price, the next target is 84 MHz, which some see as the potential equilibrium point between broadcasters’ asks and forward bidders’ offers.

Target Practices

The auction was actually designed for multiple stages to let the marketplace decide, as it were, the price at which that spectrum would change hands. But as the spectrum target declines, broadcasters are starting to wonder just how big a spectrum crisis there was for the wireless companies bidding in the auction.

Initial estimates for the value of the spectrum ranged from $25 billion or so—around the current forward auction number—to $80 billion, or around broadcasters’ initial asking price.

The question now is will the next reverse and forward rounds show some move toward the middle and, potentially, an end. Interested parties would hope so.

“We look forward to the next round and ultimately a successful conclusion of the TV auction,” said National Association of Broadcasters spokesman Dennis Wharton.

Changing Time

Bidding will start with one four-hour round on Nov. 1 (10 a.m.-2 p.m.), increase to two two-hour rounds from Nov. 2-Nov. 5, then increase again to three one-hour rounds (10-11 a.m., 1-2 p.m. and 4-5 p.m.) on Mon., Nov. 7 and until further notice.

The most spectrum in any market is now eight paired blocks (5 MHz for uplink and 5 MHz for downlink in wireless parlance). It was 10 paired blocks in stage one, reduced to 9 in stage two.

But as the amount of spectrum being reclaimed drops, the quality of the spectrum increases since there is more space to repack TV stations in to avoid interference.

There are now only four impaired Category 1 blocks, one in Los Angeles; one in Casa Grande, Ariz.; and two in Pecos, Texas. An impaired Category 1 spectrum block is one with interference affecting more than zero but less than 15% of the geographic area. There are only two Category 2 blocks, both in Eagle Pass, Texas, which means interference of between 15%-50% in a geographic area.

The reason for the impaired blocks is the United States has committed to protecting Mexican channels below Ch. 37. Mexico has agreed to clear the 600 MHz band from Ch. 51 to Ch. 37, but the 108 MHz target still needs channels down to 32, so Mexican stations between 32 and 37 create interference.

Related: Public Knowledge Hails Pallante Exit

The FCC last week was preparing for its third attempt to get broadcasters and wireless operators to agree on a price for reclaimed spectrum in the incentive auction. Actually, the auction is set up for the marketplace to find that equilibrium—which so far has most definitely not occurred.

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