FCC's estimated opening bids for 600 MHz auction 'grossly' undervalues licenses, broadcaster group says

The FCC released estimates for opening bids for broadcasters' 600 MHz spectrum in the agency's planned incentive auction of those airwaves. However, since the FCC's formula for calculating the opening bid prices does not take into account the prices paid in the AWS-3 spectrum auction, the figures have been criticized as undervaluing the spectrum.

Preston Padden, who leads a group of broadcasters called Expanding Opportunities for Broadcasters Coalition, said the FCC isn't valuing broadcasters' spectrum correctly because the agency's spectrum valuation formula was created before the close of the AWS-3 auction and doesn't take into account the prices paid in the auction. The auction, which ended Jan. 29, had net winning bids of around $41.3 billion, double what many analysts had expected before the auction started. Padden argued that the AWS-3 auction demonstrates how much carriers are willing to pay for spectrum.

The FCC's formula for opening bids in the 600 MHz auction "grossly undervalues [broadcasters'] spectrum," Padden told the Wall Street Journal.

In October, the FCC released estimates prepared by investment bank Greenhill & Co. for how much total money broadcasters could expect to receive in the reverse auction of their spectrum. Padden said that in some smaller markets, including lower powered stations in California, the new opening bid prices are lower than the final compensation estimate from Greenhill in October.

"Since the auction goes only down from the starting prices, stations in these markets have no chance of ever seeing the original Greenhill expected values," Padden said, according to Broadcasting & Cable. "That is why the starting price formula has to be changed as suggested by the coalition."

The FCC noted on Friday though that "for almost every station, those prices [the estimated opening bid prices] are higher than the estimated high end compensation values in the original information package" from October. An FCC spokesman did not immediately have a comment on Padden's remarks. 

A spokesman for the National Associate of Broadcasters declined to comment on the FCC's opening bid estimates. However, according to a recent FCC filing, representatives from Fox Television Stations, ION Media Networks, Univision Communications and Tribune Media Company met with FCC Chairman Tom Wheeler last week to express their support for the incentive auction.

But, in the meeting, the broadcasters asked the FCC to give greater clarity on several fronts. They want the agency to "state clearly--prior to the deadline for submission of reverse auction applications--a 126 MHz clearing target." They also want the agency to provide "greater clarity and transparency with respect to reverse auction pricing, including the 'dynamic reserve price' concept" the FCC introduced in December. They also want the FCC to "enhance opportunities for channel sharing through greater flexibility, including the ability to enter into channel sharing arrangements following the conclusion of the auction."

The situation is critical for the FCC, which is kicking off a roadshow in which FCC officials will conduct meetings with broadcasters around the country in an attempt to woo them to give up their spectrum in the 600 MHz auction. Since broadcaster participation is voluntary, the FCC needs broadcasters to participate and relinquish their spectrum in order for the auction to succeed.

The incentive auction, scheduled to begin in early 2016, will consist of two main parts: The first is a "reverse" auction, in which broadcasters agree to sell their spectrum rights. Then the FCC will conduct a more traditional "forward" auction in which carriers and other entities bid on the spectrum licenses. After the auction, the spectrum will then be moved around or "repacked" based on which stations relinquish their spectrum.

The opening prices will be based in part by how many nearby stations are participating, since the FCC will need to "repack," or move around broadcasters, after the auction. If the FCC can repack more stations and free up more spectrum, those stations that can be more readily repacked will have higher valuations.

According to the FCC, the reverse auction will work on a so-called "descending clock" format where the bidding prices will keep falling in each round. Broadcasters can exit with no penalty if prices fall too low. The prices will continue to drop until the number of willing broadcasters is narrowed down to a number set by the FCC.

For more:
- see this FCC release (PDF)
- see this FCC information packet (PDF)
- see this Broadcasting & Cable article
- see this WSJ article (sub. req.)
- see this Bloomberg article

Related Articles:
T-Mobile keeps pushing FCC to set aside more 'reserved' spectrum 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
NAB expresses concerns to FCC over how broadcasters will be moved around in incentive auction
Starting in January, FCC officials to hit the road to woo broadcasters to incentive auction
FCC delays start of 600 MHz incentive auction to early 2016
FCC pitches broadcasters to participate in incentive auction, offering billions as a reward

Article updated Feb. 9 at 2 p.m. ET to note that NAB declined to comment on the FCC's opening bid price estimates.