TV Spectrum Auction Kicks Off: $60 Billion at Stake in Push to Free Up Wireless Bandwidth

Broadband Spectrum Auction
alexei vella for Variety

With as much as $60 billion in play at the start of this week’s auction of TV spectrum, the time has come for station owners to put up or shut up.

The Federal Communications Commission’s deadline for those willing to sell off spectrum is 6 p.m. ET on March 29, kicking off a massive auction that has been in the works for four years, one in which broadcast airwaves will be repurposed for broadband and Wi-Fi.

FCC chairman Tom Wheeler has called it “a once-in-a-lifetime opportunity.” Some stations, particularly those that are financially struggling, will enter the auction knowing they may go dark.

Federal Communications Commission chairman Tom Wheeler calls the auction a “once-in-a-lifetime” opportunity. AP Photo/Lauren Victoria Burke

Others will see a possible bonanza, giving up their airwaves but staying in business by moving to the VHF band or sharing a channel with another outlet. In Los Angeles, for instance, KCET and KLCS last year announced plans to share a single channel, with each operating under independent licenses.

“I can assure you that there will be hundreds of broadcasters with smiles so big they will have to be surgically removed,” says Preston Padden, who until last year led a coalition, which included stations interested in selling, to give input on auction rules. The $60 billion figure is an estimate from analysts  last fall.

The National Assn. of Broadcasters has not been so bullish. Because the FCC will be reducing available spectrum for broadcast use on the UHF band, it will likely create some disruption for even those stations that aren’t participating.

“Ultimately, our biggest concern is what happens after the auction successfully closes,” says Patrick McFadden, associate general counsel of NAB, expressing doubts over the post-auction’s 39-month time frame to vacate.

The exact identities of participating stations have been kept under wraps, but a number of station groups have expressed interest, including those owned by CBS and Fox, as well as Gray Television and Media General. Some analysts estimate that large groups could reap billions of dollars.

But complexity abounds in what is a two-track process. The first is a “reverse auction,” in which participating stations get offers from the FCC in rounds of descending prices, ending when the government meets its target to clear enough wireless bandwidth, which it estimates at 126 MHz of spectrum. Then comes a “forward auction,” in which the FCC will sell the repurposed wireless spectrum with prices that will escalate in each round.

“I can assure you there will be hundreds of broadcasters with smiles so big
they will have to be surgically removed.”
Preston Padden

The March 29 deadline compels a station to take the offer if the FCC chooses to pay for spectrum at an opening price the government established in December. It published a list of those prices — ranging from $900 million for WCBS-TV in New York, to $1.2 million for a tiny station in Glendive, Mont. Though some broadcasters believe those prices are inflated, and doubt that many of them actually will be offered, there’s always the chance that a lucky owner will walk away with a windfall.

After the FCC assesses the participation level of sellers and establishes a target for the amount of bandwidth to be sold — a process expected to take three or four weeks — then the actual bidding will start. As the offer prices descend, stations can to choose to accept that amount or drop out. The auction of station bandwidth is expected to wrap up in late June or early July. That’s when the wireless auction begins, with the expectation that the entire process will wrap up by the end of September. But that assumes the commission can “close” the auction, which means at least breaking even; otherwise, it would have to start the
process all over again.

In short, success depends on the willingness of stations to sell and the interest of wireless firms to buy.

A clue regarding the latter came earlier this month, when the FCC released a list of 104 potential bidders for the spectrum, including major carriers like AT&T, Verizon and T-Mobile, as well as Comcast and Dish. Sinclair Broadcast Group expressed interest in auctioning spectrum and bidding on new spectrum. Not on the list: Sprint and Google.

There has been some concern that wireless carriers won’t be as aggressive, given the debt on their balance sheets. In a research note, Marci Ryvicker, senior analyst at Wells Fargo Securities, wrote that the sheer number of applicants wanting to buy wireless spectrum was a surprise, although the lack of any big tech or social-media firms was unusual. “We didn’t expect anyone in particular, but the fact that there were (no big names) was surprising,” she noted.

Tom Davidson, a former FCC official and now partner at Akin, Gump, Strauss, Hauer & Feld, noted that the list “certainly shows a level of interest that is significant. Whether there is an appetite with respect to pricing and bidding, we will see at the auction.”

Wanna Buy a Frequency?
Opening prices were set to move eligible stations off the air
$900m WCBS, New York
$545m KCBS, Los Angeles
$1.2m Glendive, Mont.

Padden believes conditions are ripe for the auction to exceed the record $44.9 billion raised from an auction of 65 MHz of spectrum that closed early last year. In a blog post, he outlined a series of reasons why he believes there will be a bonanza of bidding, the simplest of which has to do with the fact that the low-band spectrum available is most prized. But he noted that another factor spurring prices would be the lack of future sales.

“Spectrum is still the life-blood of the carriers,” Padden wrote. “There is no more spectrum in the pipeline after this auction.”

When the auction is over, the FCC will name the stations that will relinquish their spectrum, as well as those that will have to be relocated. There may be hundreds of stations that have to move; the NAB warns that number could exceed 1,000. “There are a lot of unknowns,” McFadden says. “We don’t know how many channels are going to move or how many will go off the air.”

For viewers, the disruption may come in the form of having to rescan their TV lineup and, of course, losing some channels that call it a day.

For the broadcast business, it is a symbolic moment in the buildup of broadband. Stations are in for a shakeup, but in the process, they might bank billions.