FCC sets opening prices for the world’s most complex and mind-numbing spectrum auction

• Incentive auction to switch broadcasters off 600MHz UHF spectrum
• Broadcasters have until December to decide to participate
• Reverse auction followed by a repacking process, then forward auction
• Mobile operators able to bid for this spectrum

The US Federal Communications Commission (FCC), via the Incentive Auction Task Force and the Wireless Telecommunications Bureau, have released the opening bid prices for the forthcoming so-called “reverse auction” for broadcast TV spectrum. It’s a reverse auction because broadcasters will bid to voluntarily relinquish UHF spectrum rights in exchange for a portion of the proceeds from the forward auction – which is when mobile broadband providers make their bids for the released UHF spectrum, in the mobile-friendly 600MHz band.

Confused? Understandably so, but the FCC has a helpful resource page here that goes into more detail.

The FCC says the lynchpin joining the reverse and the forward auctions is the “repacking” process, which involves reorganising and assigning channels to the remaining broadcast television stations in order to create contiguous blocks of cleared spectrum suitable for flexible use. The reverse and forward auctions will be integrated in a series of stages, each consisting of a reverse auction and a forward auction bidding process, and additional stages will be run if necessary.

Prior to the first stage, the initial spectrum clearing target will be determined. This is where broadcasters will indicate their willingness to relinquish spectrum usage rights at the opening prices – the prices that the FCC has just announced. Based on the collective willingness (or not) of the broadcasters, the initial spectrum clearing target will be set. Then the reverse auction bidding process will be run to determine the total amount of incentive payments to broadcasters required to clear that amount of spectrum. The forward auction bidding process will then follow and continue until there is no excess demand, and then the incentive auction will finally close.

But there’s a catch: if the final stage rule is not satisfied, additional stages will be run, with progressively lower spectrum targets in the reverse auction and less spectrum available in the forward auction. This rule is actually a reserve price with two components – the first requires that the average price per MHz-pop for licenses in the forward auction meets or exceeds a certain price per MHz-pop benchmark, and the second requires that the proceeds of the forward auction be sufficient to meet mandatory expenses set forth in the Spectrum Act.

Still confused? You are not alone. However, at stake are highly valuable swathes of spectrum, which are coveted by both broadcasters and mobile operators, and there is a huge amount of distrust between both parties that has been brewing for years, with the FCC stuck in the unenviable position of being right in the middle and having to be fair to both sides.

There are three categories of opening prices, each corresponding to a possible decision by the local broadcasters. First, to go off the air completely and hand over all of their UHF spectrum for re-use (which will mean them either closing down, or joining with another broadcaster to share their spectrum). Second, move their transmissions to low VHF frequencies; and third, move to high VHF bands. As an example, the FCC has determined that he opening prices for New York regional broadcaster and CBS affiliate WCBS-TV Channel 33 range from $900m to $675m and $360m for the three options respectively. Whereas WQEC in Quincy, Illinois is looking at $48m down to $19m.

“For potential Incentive Auction participants, today is a watershed moment,” said Tom Wheeler, Chairman of the FCC. “For all practical purposes, we’ve fired the starting gun: the release of final opening bid prices – combined with the detailed application procedures and other data – provides broadcasters with all of the information they need to decide whether to apply to participate in the auction.”

He add that stations that miss the December 18th deadline will not be able to participate in the auction. But this is, after all, an “incentive” auction. Will sufficient broadcasters be incentivised by these opening prices (which are theoretical maximum amounts) to offer up their spectrum for mobile broadband use? And don’t forget, not all mobile companies are interested – Sprint has already decided not to bid and AT&T has been downplaying just how much the auction will generate, so these opening bid figures will no doubt fall substantially as the complex auction process kicks in.