Broadcasters warn that FCC could lower 600 MHz auction opening prices by a collective $8.3B

If the FCC does not change some of its technical rules ahead of the incentive auction of 600 MHz broadcast TV spectrum, it could lead to the opening bid prices for broadcasters dropping by more than $8 billion in total, according to a coalition of broadcasters.

The Expanding Opportunities for Broadcasters Coalition (EOBC), a group of dozens of broadcasters that are interested in participating in the auction, wrote in a July 2 FCC filing and an accompanying blog post that the starting price for every station fell by around 2.3 percent when the FCC released updated population data last week for TV stations.

"If the FCC does not intervene, we estimate that reverse auction opening prices will fall by at least $8.3 billion nationwide, or approximately 2.3% for every auction-eligible station," Preston Padden, executive director of the EOBC, wrote in a blog post.

Broadcasters are most concerned with opening bid prices for the first part of the auction, the "reverse" auction, in which broadcasters agree to sell their spectrum rights, with prices going down in each round. EOBC also wants the FCC to reduce how much prices drop with each round in the reverse auction as the FCC seeks the lowest bidder. 

The EOBC thinks the FCC could make several changes to its rules to correct for the price shift. Padden wrote the "most sensible" solution is to set the multiplier based on the highest volume UHF station.

Alternatively, the FCC could make changes to its so-called "scoring rule," which sets the opening prices for broadcasters to sell their spectrum; if prices are set too low, there will be insufficient broadcaster participation and the auction will fail. In its filing, the EOBC noted that "since in the reverse auction all prices move down in the same percentage terms, the scoring rule determines the relative prices of stations that are still active. This plays an essential role both in the sequencing of exits during the auction and in establishing the payments made to broadcasters that clear."

The FCC could increase a key component of the scoring rule, the base clock price, which the EOBC thinks would be prudent in light of the high prices carriers paid during the AWS-3 spectrum auction. "Not raising the base clock price would be a strange and poor policy given this clear market signal," the EOBC wrote. "The AWS-3 outcome tells us that the greatest risk in the incentive auction is a shortage of broadcasters from opening prices that are too low, rather than a shortage of revenues in the forward auction."

The FCC plans to vote on the auction rules and procedures at its July 16 meeting.

"We understand that the FCC Staff is considering how to solve this issue, and we appreciate their concern," Padden wrote in the blog post. "Any of the above solutions would produce results more consistent with the Commission's intention when it adopted the Auction Comment Public Notice and the understanding of interested parties that have participated in this proceeding."

For more:
- see this FCC filing
- see this Broadcasting & Cable article
- see this EOBC blog post

Related articles:
FCC's Wheeler reaffirms that incentive auction will take place in Q1 2016
T-Mobile's quest for larger 600 MHz reserve gets boost from DOJ
Wheeler shoots down T-Mobile's push for 40 MHz spectrum reserve in 600 MHz auction
FCC gets grief from broadcasters over incentive auction rules
Report: FCC has reached out to 2/3 of eligible broadcasters about 600 MHz auction
FCC tentatively sets price of $1.25 per MHz-POP on 600 MHz spectrum for 'reserved' bidding to start in incentive auction

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