Stage 2 of the FCC’s incentive auction of 600 MHz airwaves came to an unexpectedly abrupt end this morning after a single round of bidding.
Bidders offered up only $21.5 billion for TV broadcasters’ airwaves, far short of the $54.6 billion that was necessary for the event to conclude after the second stage. The FCC must now return to TV broadcasters for a third reverse auction, lessening the amount of spectrum it will make available to companies looking to use those airwaves to provide wireless services.
“That was fast,” FCC Commissioner Jessica Rosenworcel tweeted this morning. “The @FCC #spectrum incentive auction concludes phase 2 and moves on to phase 3.”
While analysts had generally agreed that the incentive auction was unlikely to end after the second stage, most predicted the round would unfold under over the next two to three weeks. Instead, forward bidding in Stage 2 was over nearly as soon as it began.
The 600 MHz airwaves up for grabs are sometimes referred as “beachfront” property because of their propagation characteristics, which had led some onlookers to predict that proceeds from the event would surpass the record $44.9 billion generated by the spectrum of AWS-3 spectrum that ended in January 2015. Indeed, Tom Wheeler said earlier this year he expected to see a “spectrum extravaganza” as companies vied for airwaves to meet ever-increasing demand for mobile data.
Despite long-standing concerns over a so-called “spectrum crisis,” though, demand for TV broadcasters’ airwaves certainly appears to have fallen short of expectations.
“I think we’re seeing more of a spectrum crackle than a crunch,” tweeted Rick Kaplan (Kaplan's tweet appears to have since been deleted), who once headed the FCC’s wireless bureau and now serves as the executive vice president of legal and regulatory affairs at the National Association of Broadcasters.
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. And as Barclays analysts noted earlier this week, the gap between the two is still significant entering the second phase of forward bidding.
“The bid-ask between what the broadcasters want and what the operators are willing to pay continues to be quite wide,” Barclays analysts wrote this week in a research note. “As we have highlighted in the past, spectrum value in the reverse auction will be determined by the maximum of the present value of the station’s FCF (free cash flow) stream and the per-MHz POP value agreed to be paid by operators. Consequently, we believe there are likely to be additional rounds to eliminate broadcasters for whom this equation is not satisfied.”
Ironically, then, the abrupt end to Stage 2 may signal that the incentive auction will take longer to wrap up than many had initially expected. The event may require a fourth stage – or even a fifth – which could easily stretch into next year.