FCC sets $40.3B clearing cost as incentive auction enters Stage 3 of bidding

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The next round of bidding in the FCC’s auction of 600 MHz airwaves could be much more telling than the first two.

Forward bidding in Stage 3 of the FCC’s auction of 600 MHz airwaves is expected to begin Monday, with carriers and would-be service providers once again vying for TV broadcasters’ spectrum. And the next round could be much more telling than the first two.

The commission completed the third stage of the reverse auction this week, setting a target price of $40.3 billion for 108 MHz of broadcasters’ spectrum that would free up 80 MHz for wireless use. Bidders must meet that price in the third round to end the auction; otherwise the FCC will lower the amount of spectrum available and return to TV broadcasters to set a lower clearing cost in a fourth stage.

Stage 2 of the auction came to an unexpectedly abrupt end after a single round of bidding generated only $21.5 billion in offers several weeks ago. The first stage generated only $23 billion in bids for 126 MHz of spectrum, falling far short of the $88.4 billion clearing cost initially set by the FCC.

And Stage 3 may not be much more successful than either of the first two rounds.

“The relatively modest, 26 percent reduction in the clearing cost of the reverse auction is a strong indication that broadcasters are unlikely to give up their spectrum at anything but premium values,” said Dan Hays, a principal with PwC, via email. “At $40.3 billion, we believe that the cost is still far beyond the appetite of mobile network operators. This makes a fourth stage of the auction a virtual certainty. Even more disturbing is the notion that the large gap between the forward and reverse auctions could persist, and perhaps be an early indicator (of) a potential eventual failure to successfully complete the auction altogether."

The 600 MHz airwaves up for grabs are sometimes referred to as “beachfront” property because of their propagation characteristics, which had led some onlookers to predict that proceeds from the event would surpass the record $44.9 billion generated by the auction of AWS-3 spectrum that ended in January 2015. Indeed, Tom Wheeler said earlier this year that he expected to see a “spectrum extravaganza” as companies vied for airwaves to meet ever-increasing demand for mobile data.

“The bid-ask between what the broadcasters want and what the operators are willing to pay continues to be quite wide,” Barclays analysts wrote last month in a research note. The industry will be watching closely to see how much that gap closes during the third round of bidding.

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