Incentive auction moves to stage two after failing to garner $88.4B target

Photo credit: Flickr user Sam Howzit

Stage one of the FCC’s incentive auction of 600 MHz spectrum came to an end abruptly Tuesday after bidding slowed to a trickle.

The FCC racked up a little more than $23 billion by the end of the 27th round before announcing it would move on to a second stage. Bidding had largely centered on major U.S. markets at the outset of the auction, helping to drive proceeds. But bidding action declined dramatically in those markets in recent days, particularly in New York and Los Angeles.

“Spectrum auction really petering out now,” Walter Piecyk tweeted between rounds this week. “Demand>Supply in 18 mkts. Could Stage 1 forward bids end this week?”

The Commission announced the conclusion of first phase of the reverse auction in June, setting the clearing cost for broadcasters’ airwaves at $88.4 billion for the 126 MHz it cleared for wireless use. That price needed to be met by carriers and would-be wireless service providers during the forward auction to end the event in stage one.

The FCC must now reduce the amount of spectrum it will free up for wireless and resume bidding with TV broadcasters in the reverse auction where it ended during the previous stage.

The FCC discloses market-by-market bidding activity during the forward auction, but it doesn’t disclose the identity of the bidders. Verizon, AT&T and T-Mobile are all expected to spend billions at auction, while Sprint opted out. Other major bidders include Dish Network and Comcast.

Tim Farrar of TMF Associates speculated the recent slowdown in bidding may have been an indication that Dish was reining in its activity after bidding aggressively in some markets to inflate the price.

The waning activity “very likely means that Dish has given up and Stage 1 will close this week at an even lower price of (roughly) $25 billion, with convergence of the forward and reverse auction values probably not achieved until the $30 billion to $35 billion range,” Farrar wrote. “I said before the auction that Dish’s best strategy would probably be to bid for a large amount of spectrum in a handful of top markets, in order to drive up the price, and that appears to be exactly what happened.”

Regardless, the completion of the first round is the latest indication the event may drag into 2017 as the FCC works to strike a balance between what bidders are willing to pay for the airwaves and what TV broadcasters are willing to settle for. The initial clearing cost of $88.4 billion was far higher than analysts’ estimates that were generally in the range of $30 billion to $40 billion.

Stage two of the auction will resume with a second incentive auction, with the FCC and TV broadcasters picking up where they left off in stage one. The Commission will set a second clearing cost, and the lessened supply should result in higher prices when bidding begins again in a second forward auction. But some analysts have estimated a third or fourth stage of bidding will be required for the event to finally come to a close.

The FCC could announce a start date for stage two as early as tomorrow. The FCC requires a minimum of five business days between rounds.

For more:
- see this FCC auction dashboard
- read this Tim Farrar blog post

Related articles:
Incentive auction draws more than $1B in rounds three and four, surpasses $10B overall
First two rounds of forward auction of 600 MHz airwaves draws over $9B in bids
The forward portion of the incentive auction starts tomorrow, and no one knows what to expect
Rama, Sinclair not on final list of bidders for 600 MHz spectrum auction
600 MHz incentive auction primer: Who will bid, when it will happen, how it will work, and how much money it will raise

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