FCC tentatively sets price of $1.25 per MHz-POP on 600 MHz spectrum for 'reserved' bidding to start in incentive auction

The FCC voted 3-2 on Thursday to seek comment on specific and detailed rules for how the incentive auction of 600 MHz broadcast TV spectrum will be conducted. Notably, the preliminary rules set a benchmark of $1.25 per MHz-POP in the largest markets before wireless carriers can start bidding on the "reserved" spectrum that will be set aside for smaller carriers.

The Competitive Carriers Association and T-Mobile US (NYSE:TMUS) have opposed such a rule, arguing that a specific price benchmark is unnecessary and could harm smaller carriers. The rules are not yet final and will likely receive plenty of public comment. A CCA spokeswoman did not immediately respond to a request for comment.

Currently, the incentive auction is scheduled to begin in early 2016, though it has already been delayed twice. The FCC plans to start direct outreach to broadcasters in January to encourage them to relinquish their spectrum, without which the auction will not succeed. 

The incentive auction 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.

According to the FCC's preliminary rules, the FCC's "final stage" rule needs to be met in order for bidding on the reserved spectrum to begin. As things stand now, the FCC plans to set aside up to 30 MHz of spectrum in a given market for carriers with less than 45 MHz of low-band spectrum in that market.

Yet in order for that to even happen, the FCC is proposing that the auction meet an average price per MHz-POP benchmark of $1.25 for "Category 1 licenses" in the 40 largest license areas by population, and a spectrum benchmark of 70 MHz, which corresponds to 84 MHz of spectrum being cleared in the auction.

The rule would be met if, at clearing targets at or below the spectrum benchmark, the amount carriers had bid met or exceeded the of $1.25 per MHz-POP benchmark for the licenses in the biggest markets. Additionally, the rule would be met if, at clearing targets above the spectrum benchmark, the amount carriers had bid for all licenses being offered met or exceeded the product of the $1.25 per MHz-POP benchmark for the large markets at the spectrum benchmark of 70 MHz.

Meanwhile, in order for the bidding on the reserved spectrum to begin, the auction also needs to have raised enough money for any additional funding needed for the FirstNet public-safety broadband network. Given the more than $43 billion in provisional winning bids that the ongoing AWS-3 auction has garnered, finding enough money for FirstNet will likely not be a problem.

The FCC is also seeking comment on determining the amount and type of spectrum that will be available to smaller carriers. T-Mobile, for example, has argued that the FCC should set aside at least half of all of the spectrum that is cleared in a given market for smaller carriers, and argues setting aside just 30 MHz of the low-band airwaves for smaller carriers is not enough for them to effectively compete with Verizon Wireless (NYSE: VZ) and AT&T (NYSE: T).

The FCC is proposing that the maximum number of reserved blocks be based on the total number of spectrum blocks--Category 1 blocks plus Category 2 blocks--offered in a given market. The reserved blocks will consist only of Category 1 blocks under the FCC's preliminary rules.

Additionally, the FCC is seeking comment on the methodology for establishing opening bids for the reverse auction, in which broadcasters will give up their spectrum. The FCC is proposing that the opening prices a broadcaster would be offered must be high enough to encourage "robust participation," but not so high that the auction requires hundreds of rounds to close. The preliminary rules propose that a station's opening price will equally weight the station's impact on the repacking process due to the interference it produces as well as the amount of population it serves.

In addition to other technical rules, the FCC is proposing to establish minimum opening bids for each license in the forward auction by assigning a number of "bidding units" to each license. The number of bidding units for a given license will be based on its weighted population using an index of relative prices from previous auctions. The FCC used this methodology for the AWS-3 auction.

For more:
- see this FCC release (PDF)
- see this FCC fact sheet

Related Articles:
T-Mobile allies with CCA in debate over price target for triggering 'reserved' spectrum in 600 MHz auction
CCA urges FCC to drop specific price target for triggering 'reserved' spectrum in 600 MHz auction
FCC to vote on proposed incentive auction rules in December