FCC

Reverse Auction Closes With Broadcasters' New Exit Price at $54.6 Billion

Take two of forward auction begins Oct. 19 10/13/2016 11:21 AM Eastern

The second stage of the FCC's reverse portion of the spectrum incentive auction closed Thursday after 53 rounds, and wireless operators will now have to pay broadcasters at least $54,586,032,836 to get access to the 114 MHz of spectrum that will be on the block in the forward auction.

 

In the reverse auction, broadcasters are competing to give up spectrum or move to new channels in exchange for a government payment — low bidder wins.

 

The $54.6 billion total is a sizeable drop in price from stage one, substantially closing the gap between broadcasters' asks and wireless companies' offers, who will get to start bidding on the 114 MHz of spectrum (actually less since some of that is guard band -- buffer spectrum -- in their own stage two forward auction starting next week.

 

The FCC's initial 126 MHz spectrum-clearing target would have required forward auction bidders to cover $88.4 billion, comprising broadcasters' $86,422,558,704 asking price plus $1.75 billion in moving expenses in the post-auction repack and $207 million in FCC expenses for conducting the auction (that's an additional $1.957 billion).

 

Broadcasters' asking price was apparently far too rich for forward auction bidders, however. Wireless companies and others (Comcast is eligible to bid, for example) only offered $23.1 billion in stage one of the forward, prompting the FCC to lower the spectrum-clearing target to 114 MHz and launch the second stage of the reverse auction.

 

The FCC purposely opened with high prices to encourage broadcaster participation, but the auction was planned for, potentially, multiple stages, so arguably it is working as planned.

 

"The auction is going exactly as planned," said Preston Padden, who represented stations interested in the auction as executive director of the Expanding Opportunities for Broadcasters Coalition. "It was not designed for speed but rather to find the equilibrium point between spectrum sellers and buyers and that is what it is doing."

 

So the forward auction bidders -- there were 99 eligible bidders -- must now pony up that new total price tag for the incentive auction to close and the FCC proceed with actually paying broadcasters that money and starting to move them off their spectrum.

 

There are actually two dollar benchmarks that must be met to close the auction. The first was achieving a fixed baseline price based on spectrum and price benchmarks in the top 40 markets -- $15.9 billion -- which has already been met (given the $23 billion already bid in the first forward).

 

The stage two reverse auction would have closed after 52 rounds and a day earlier unless there were stations, or a station, whose bidding status was suddenly freed up by the bidding in round 52, which must have been the case.

 

The FCC said it would open stage two of the forward auction four business days after the close of the second stage of the reverse, which is Wednesday (Oct. 19).

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