FCC moving forward with basic 600 MHz auction framework, but spectrum reserve remains unclear

The FCC is moving forward with the basic framework it proposed for the incentive auction of 600 MHz broadcast TV spectrum that was released in June 2014 with a few minor technical changes. However, there are still major issues the commission needs to address, including how much spectrum will be set aside for smaller carriers to bid on.

An FCC official confirmed that a draft order on the auction framework was circulated to the commissioners earlier this week. The order responds to various so-called "petitions for reconsideration" from around 30 different parties that asked the FCC to make changes to the framework.

The order on the auction framework might be voted on in June, but it's not clear if it will be.

An FCC official said that there were a handful, perhaps four or five, technical modifications to the framework that were accepted. However, most of the petitions for reconsideration from organizations like the National Association of Broadcasters were denied. Some that were accepted were related to how station coverage areas are calculated and interference issues, but were not major, the official said.

The incentive auction will consist of two main parts: The first is a "reverse" auction, in which broadcasters agree to sell their spectrum rights. After the reverse auction, the spectrum will then be moved around or "repacked" based on which stations relinquish their spectrum. Then the FCC will conduct a more traditional "forward" auction in which carriers and other entities bid on the spectrum licenses.

Some of the big issues that remain on the table include the size of the spectrum reserve for smaller carriers. T-Mobile US (NYSE:TMUS), Sprint (NYSE: S), Dish Network (NASDAQ: DISH), C Spire Wireless and a group of policy and public interest groups want a bigger chunk of spectrum reserved in the auction for smaller carriers--to 40 MHz, or at least half of the spectrum available in the auction.

Sprint and T-Mobile have argued that if the reserve is not increased to at least 40 MHz, then only one small carrier will be able to secure a 10x10 MHz block in the reserve, potentially letting Verizon Wireless (NYSE:VZ) and AT&T (NYSE:T) get another 10 MHz or more. T-Mobile also wrote in a recent FCC filing that the commission should "also limit reserve spectrum purchases to 20 MHz to prevent any one reserve-eligible bidder from acquiring all of the resources available in the spectrum reserve."

The counter-argument from AT&T, Verizon and those that do not want to see the reserve increased is that by limiting Verizon and AT&T's participation, the FCC will depress auction revenues and will scare broadcasters away, since broadcasters will think they will not get as much money as they otherwise might be able to. Broadcaster participation is crucial for the incentive auction, since broadcasters need to sell their spectrum to the FCC so that carriers can bid on it.

Another issue that is still up for debate is the FCC's use of "dynamic reserve pricing." Under dynamic reserve pricing, a UHF broadcaster may be offered a lower price for its spectrum even if it cannot feasibly be assigned a channel in the remaining TV portions of the UHF band; if it refuses the offer, it may be assigned to a channel in the 600 MHz band with wireless carriers. According to the FCC, the aim is to guard against the risk that a station may be awarded its opening price merely because there is no channel to offer in its pre-auction band.

The Expanding Opportunities for Broadcasters Coalition, a group of broadcasters that are interested in participating in the auction, has been vociferous in its opposition to dynamic reserve pricing. The group has argued that using it will lead to a failed auction, and that it is "a blunt tool to drive down broadcaster prices and, in the process, create potentially substantial amounts of additional impairment," or interference.

For more:
- see this Broadcasting & Cable article

Related Articles:
Sprint, T-Mobile, Dish join forces with others to press FCC on incentive auction rules
FCC seeks comment on new rules that would block a replay of Dish's AWS-3 auction bidding strategy
Analysts: Deutsche Telekom won't support T-Mobile financially in 600 MHz incentive auction
Sprint's Claure suggests bidding coalition with CCA members for 600 MHz spectrum
T-Mobile, Sprint and Dish push for 40 MHz spectrum reserve in 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