FCC’s Spectrum Auction Reaps Rewards for Stations, but Didn’t Live Up to Predictions

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As broadcast station groups like Fox Television Stations and Tribune Media report hundreds of millions of dollars in expected proceeds from the FCC’s auction of spectrum, the windfall comes with a caveat: The sell-off of the airwaves hasn’t lived up to the hype.

Before the auction started last spring, some financial analysts had predicted that wireless firms would pay tens of billions of dollars for the prized UHF-band spectrum that stations were relinquishing. Some pegged the bonanza would reach as much as $80 billion.

With the auction in the final stages, wireless firms are expected to pay $18 billion — $10 billion of which will go to broadcasters for giving up their airwaves, $1.75 billion to station relocation costs, $207 million for administrative costs and the remaining $6 billion for deficit reduction. The figure could go higher as the auction enters its last phases.

So what happened?

“It is real simple: the broadcasters showed up, and and the wireless carriers did not,” said Preston Padden, who had led a group called the Expanding Opportunities for Broadcasters Coalition, made up of those companies interested in participating in the auction.

“I don’t honestly know,” he added. “The carriers had told the Congress in writing that they would build at least $45 billion.”

The purpose of the auction was to address a “spectrum crunch,” spelled out in a 2010 FCC report called the National Broadband Plan. It warned that the United States risked falling behind in competitiveness if it couldn’t address a coming shortage of frequencies. A solution: Try to entice broadcasters to give up their spectrum licenses with the option of putting it up to bid and sharing in the proceeds. The result would be to free up a big chunk of the airwaves for wireless use.

Two years later, Congress passed legislation calling for the FCC to conduct a first-of-its-kind “incentive auction.” With input from Nobel prize winning economists, the complex auction consisted of two parts — a “reverse” auction to determine what price the station can get for its spectrum, and a “forward” auction to determine what prices companies are willing to pay to obtain wireless licenses.

Simply put, supply had to match demand. It’s taken four rounds of bidding to reach that point, as broadcasters initial offers of selling a total of 126 MHz of spectrum eventually was dropped to 84 MHz of spectrum. That is still a significant chunk of airwaves, and the auction also met benchmarks, including those to make sure that the government covered costs.

“We’re very happy with the results,” said Charles Meisch, an FCC spokesman.

Some analysts have suggested that the initial expectations about the auction were too bullish, and perhaps based too much on the heightened expectations from a previous auction of government held airwaves that brought in $41 billion.

In a recent blog post, the research firm of MoffettNathanson cited a number of market factors, among them that wireless carriers are increasingly looking to small “cells,” rather than spectrum, to boost capacity in specific areas, like “a specific street corner, for example, or a pedestrian plaza.”

“It may also be the case that the sobriety in the current auction reflects the fact that the carriers’ balance sheets are stretched to the breaking point,” the research firm said. “Sprint has no money. AT&T is busy buying Time Warner. And Verizon has promised the ratings agencies and investors that it will de-lever.”

The firm noted that even though the auction fell short of predictions, “in truth it has done precisely what it was supposed to do.”

Padden credits the FCC staff for “working nights and weekends for four years” to pull off the auction.

“Look, $20 billion is not chopped liver, and for the broadcasters who got significant payments it is good,” Padden said of auction proceeds. “But there were lots of other broadcasters who relied on the statements of the [wireless] carriers and were very disappointed.”
Broadcasters now are looking to the next phase, as the FCC clears portions of the UHF band to make way for its new use by wireless carriers.
The FCC has begun informing stations of the end result of the auction. That will mean that some channels will go off the air, others will move to new spots on the lineup and others will share space with other entities.
It’s a prelude to a 39-month process called “repacking.”
Gordon Smith, president of the National Association of Broadcasters, said that they still have concerns that it will be sufficient time. “It is going to be highly disruptive, and our hope is that those on Capital Hill and at the FCC will be fully engaged and cooperative,” he said.
 The FCC is expected to disclose a complete list of the winning bidders sometime later this year, perhaps in several months.