FCC pitches broadcasters to participate in incentive auction, offering billions as a reward

The FCC is making its formal pitch to TV broadcasters in an effort to get them to relinquish their 600 MHz spectrum for next year's planned incentive auction, arguing that the one-in-a-lifetime auction could deliver billions of dollars to broadcasters throughout the country. For the first time the FCC is making public its estimates for how much money broadcast stations in different markets will get if they give up their airwaves.

The first part of the pitch is a slide deck or "information package" prepared for the FCC by investment bank Greenhill & Co. that explains how the auction will work and the benefits broadcasters have for participating. FCC staff members and officials are expected to hit the road in the coming weeks to make personal pitches to broadcasters ahead of the auction, which is scheduled to begin in mid-2015.

However, the FCC needs to start laying the groundwork now to get broadcasters to line up. If not enough broadcasters choose to relinquish their spectrum in the "reverse" part of the auction, there won't be enough to auction and draw interest from carriers to bid on in the following "forward" part of the auction and the auction will fail. After the forward part of the auction broadcasters will be "repacked" and potentially reassigned new channels, depending on how many broadcasters participate, and the FCC has set aside up to $1.75 billion to reimburse broadcasters for relocation costs.

With that in mind, getting broadcasters on board is critical--as is allaying their concerns and letting them know how much money they can expect if they choose to participate. The information package is designed to explain in detail how the auction will proceed for broadcasters, whether or not they choose to participate.

Perhaps the most crucial aspect of the information package is the FCC's estimates on how much broadcasters could receive for giving up their spectrum. "The auction offers potentially significant financial benefits for broadcasters in more than just the largest markets. In fact, some of the highest estimated compensation is for mid-size and smaller markets," FCC Chairman Tom Wheeler wrote in a letter to broadcasters. However, he noted that the estimates "are not the exact amounts you can expect to be paid in the auction. Actual compensation will be determined in the auction itself."

According to the estimates, full power broadcasters in some major markets like New York City will get a maximum return of $490 million and an average estimated return of $410 million. In Los Angeles, broadcasters would get a maximum of $570 million and an average of $340 million. Some mid-size markets would wind up getting larger returns than large markets, the FCC estimates. For example, a full power broadcaster in market like Harrisburg-Lancaster-Lebanon-York, Pa., is estimated to fetch an average of $130 million for giving up its spectrum, while a full power broadcaster in Atlanta can only expect to get an average of  $65 million--and in Denver, only $28 million.

However, as Broadcasting & Cable notes, those estimates are rosy and are based on the idea of the FCC clearing 126 MHz of spectrum and auctioning 100 MHz. Most analysts and observers expect the FCC to clear around 84 MHz. If that were the case, the median would only be $287 million in New York City.

In total, broadcasters would receive around $38 billion if 126 MHz is cleared and around $26 billion if 84 MHz is cleared, according to Broadcasting & Cable.

FCC officials told Broadcasting & Cable they thought that 126 MHz was a reasonable estimate, but it puts the benefits of participating in the auction in a much more favorable light--which is the main point of the pitch to broadcasters in the first place.

"The package explains why participation is virtually risk-free," a senior unnamed FCC official told the Washington Post. "We expect compensation to be compelling for broadcasters across the nation."

Preston Padden, a former Disney and News Corp. lobbyist who is the executive director of the Expanding Opportunities for Broadcasters Coalition, which represents broadcasters interested in the auction, told the Post the Green hill report was a "highly credible, first-class piece of work."

"If the FCC does end up compensating broadcasters in line with the guidance in the book," he said, "we expect next year's auction to be a great opportunity for many television broadcasters."

However, the National Association of Broadcasters reacted cautiously to the release of the information. "It is clear the FCC staff put a great deal of work into developing this piece on reverse auction pricing, which is a key component of the auction. NAB commends the FCC for their efforts to get the ball rolling in this area," NAB President Gordon Smith said in a statement. "We will work with our members to sort through this comprehensive report as they do their own homework on the upcoming auction opportunity."

CTIA said it was encouraged by the release of the Greenhill report. "As we transition from a policy issue to a business opportunity for thousands of broadcasters across the country, this report will underscore the once-in-a-lifetime opportunity for broadcasters to monetize their spectrum assets," Scott Bergmann, CTIA's vice president of regulatory affairs, said in a statement. "With our $53 billion track record of participating in spectrum auctions, the wireless industry will be active bidders in the incentive auction. While today's U.S. wireless story is one of remarkable success, making additional spectrum available remains critical to promoting economic growth and enhancing our nation's global competitiveness to benefit Americans." 

Competitive Carriers Association President Steve Berry also praised the release of the report, and noted the importance of the auction in delivering low-band spectrum to market. "The FCC's information package clearly shows that there is a lot of value for both broadcasters and carriers in the upcoming auction, and I appreciate the detailed look at pricing at the market level," Berry said in a statement.  "The information package affirms what competitive carriers already know--low band spectrum is incredibly valuable and is in high demand, and greater participation by the broadcaster community will benefit consumers and the economy.  I thank the Commission for moving another step in the right direction with today's information package.  The more spectrum available for carriers to bid on the better, and we look forward to our continued work with the Commission on this critical issue."

For more:
- see this FCC release
- see this Greenhill presentation (PDF)
- see this Wheeler letter (PDF)
- see this IRS letter (PDF)
- see this Broadcasting & Cable article
- see this Washington Post article

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