FCC sets auction clearing cost at $54.6B for Stage 2

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The FCC lowered its clearing cost in the incentive auction to $54.6 billion following the second stage of the reverse auction, knocking nearly 40 percent off the initial target price of $86.4 billion. But analysts say the event is still unlikely to end soon.

The Commission wrapped up the second phase of the reverse auction this morning, setting the price bidders must meet to pay broadcasters for licenses to 114 MHz of spectrum. The second stage became necessary when bidders failed to meet the initial price for 126 MHz of spectrum, forcing the FCC to lessen the amount of spectrum it will free up for wireless use.

The FCC is serving as something of a matchmaker in the auction of 600 MHz airwaves, going back and forth between broadcasters and bidders to settle on a price that strikes a balance between supply and demand. Bidders in the first round offered up only $23 billion for the spectrum, far short of the amount necessary to end the event after a single stage.

The Commission will start a second phase of the forward auction on Wednesday, picking up where the first stage of bidding concluded.

“The significant reduction in the targeted net proceeds of the reverse auction shows just how effective the auction mechanisms can be in bringing together supply and demand,” Dan Hays of Pricewaterhouse Coopers said in a prepared statement. “However, at over $54.5 billion to broadcasters, or roughly $56.5 billion in total, we believe that the clearing cost is still well beyond striking distance for the budgets of mobile network operators.”

Indeed, carriers appear to be tightening their belts as competition increases in the U.S. wireless market and as they prepare to invest heavily to deploy 5G technologies over the next few years. And while cable operators lurk on the sidelines preparing to step into the market, they’re more likely to move into the space gradually rather than buying huge chunks of spectrum at auction.

So analysts expect at least three stages of the incentive auction will be necessary, likely pushing the event into 2017.

“A third stage of the auction, and perhaps even a fourth, is now all but a certainty,” Hays said. “For broadcasters, this is a clear indication of a rapid decline in interest at lower prices, effectively calling the bluff of the wireless industry and demanding that they come to the table ready to pay up.”

For more:
- see the FCC’s auction dashboard

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