FCC Outlines Broadcast Incentive Auction Proposal

Releases 205-page Framework for Reclaiming Broadcast Spectrum for Re-Auction

The FCC released its 205-page (including addenda) incentive auction framework proposal on Tuesday, and it is suggesting broadcasters may prefer a multiple-round, "dynamic" auction, rather than one with a single round of sealed bids, where the decision not to sell in that first round would be "irreversible."

The proposal, which launches a process with mostly questions and requests for comment, was adopted as a notice of proposed rulemaking on Sept. 28. Final rules aren't expected to be voted on until mid-2013, with auctions slated for the following year.

The FCC is proposing two options for the reverse auction that compensates broadcasters for giving up spectrum for re-auction to the highest bidders -- presumably wireless broadband providers. The first option the FCC describes as a "single-round, sealed bid procedure, in which bidders would specify, during a single bidding round, the payment they would be willing to accept in exchange for relinquishing various spectrum usage rights."

The second is a multiple-round, "dynamic" auction the FCC describes this way: "Bidders would indicate their willingness to accept iteratively lower payments in exchange for relinquishing rights. For example, in a descending clock auction prices would start high and decline over time. 

"As the price ticks down, stations would indicate whether they would be willing to relinquish certain spectrum rights at the current prices. Those that would still be willing to relinquish rights would remain active in the clock auction, while those that found the current prices for all the relinquishment options too low would decline all the offers, exit the auction, and continue broadcasting in their pre-auction band. The exit decision would be irreversible. We could also offer bidders the option of submitting a ‘proxy bid' in advance of the clock auction indicating the minimum payment they would be willing to accept in exchange for relinquishing spectrum rights, making it possible for bidders to submit bids just once. The clock auction would then use the proxy bid to generate and submit bids dynamically on behalf of the bidder."

The FCC suggested the dynamic version would be better for broadcasters since they would not have to determine at the outset the exact bid they would accept. It said the single-round version might be better for the commission, since it would likely require less complex software and be easier to administer.

The NPRM also proposes two different algorithms to help figure out how to factor repacking into the bidding process, since not all spectrum will be equally as valuable to the FCC.

It asks for input on whether it should figure into the repacking/auction equation the case where a broadcaster giving up spectrum creates "white areas" without any broadcast service, thought is suggests that adds an "additional technical constraint [that] would increase the complexity of the repacking process, possibly requiring additional time and resources and limiting the efficiency of the outcome." 

As to paying broadcasters, the FCC asks whether it should pay the value of their bid, or "the highest amount it could have bid and still have had its bid accepted," the latter which the FCC says would compensate for lowball and highball bids.

Broadcasters have been eager to vet the plan to see just how the auction will be structured and how broadcasters who don't give up their spectrum will be protected when they are repacked into smaller spectrum quarters by the FCC.

The FCC extolls the virtues of broadcasting, but also talks about its diminishing audience and uneven uptake of multicasting as it builds its case for some broadcasters giving up spectrum real estate.

"Broadcast television stations provide free video programming that is often highly responsive to the needs and interests of the communities they serve," the notice says. "Among other things, broadcast television stations provide children's educational programming, coverage of community news and events, reasonable access for federal political candidates, closed captioning, and emergency information. A small but significant segment of the Nation's population relies solely on over-the-air broadcast television stations for video programming service."

On the other hand, says the commission:

"Although broadcast television continues to be a vital source of local news and information for most Americans, the other offerings in the video programming marketplace have diverted much of broadcast television's over-the-air viewing audience over the years. For example, in 1960 virtually all television households received video programming service by viewing a broadcast television station's over-the-air signal. In contrast, during the 2011-2012 television season, the Nielsen Company estimates that only 10.7 million television households, or approximately 10 percent of the total, rely solely on over-the-air broadcast television service."

The National Association of Broadcasters, in arguing for the medium's continuing relevance and importance, says that figure is much higher, pointing, in part, to increasing cord-cutting.

The FCC gives broadcasters plenty of props for news content. "Seventy-eight percent of Americans say that on a ‘typical day' they get news from their local broadcast television station (either directly over-the-air, or through cable and satellite services)-more than from newspapers, the Internet, or the radio. Likewise, the three major broadcast network nationwide evening newscasts draw 22 million viewers (either directly over the air, or through cable and satellite services)-five times the number of primetime viewers for the three major cable news networks (CNN, Fox News Channel, and MSNBC).  In fact, broadcast content draws such significant viewership that 96 of the top 100 TV shows in the 2011-2012 season originated on broadcast television. In addition, many households that subscribe to other video programming sources rely on over-the-air broadcast signals for some television sets in their homes."

And while the FCC gives broadcasters credit for taking a three-screen approach to their future -- on-air, online and on-the-go -- it also points out that not all broadcasters can and are taking advantage of those opportunities, who it suggests might want to take it up on an auction offer.

"As of 2010, roughly 29 percent of commercial broadcast television stations did no multicasting. Only a fraction of broadcasters at this point offer Mobile DTV channels," the notice said. "Those broadcasters that are able to take advantage of these and other opportunities offered by an evolving marketplace have every prospect of continuing successfully to provide the public the benefits of free over-the-air television. For those that cannot, Congress's mandate to conduct a broadcast television spectrum incentive auction creates alternative opportunities."

NAB president Gordon Smith has conceded there are some spectrum speculators looking to cash in, but says there has been no stampede of interest from his members in giving up spectrum.