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By Kyle Daly
The Federal Communications Commission Oct. 13 announced a $54.6 billion target cost to clear television broadcasters off certain airwaves in the second stage of bidding in its incentive spectrum auction.
The agency is trying to free up more spectrum for companies such as AT&T Inc. and Verizon Communications Inc. to handle exploding wireless data traffic. The target figure is based on what broadcasters have told the agency they want to be paid to give up their airwaves licenses. But it is well above what most auction watchers believe the wireless industry is prepared to pay for those licenses. The announced target doesn't include an additional $1.95 billion the FCC wants to collect to cover auction expenses and costs to shift broadcast signals to different airwaves. The auction is likely to go through at least three stages before the bidding wraps up.
Wireless carriers will start bidding on the spectrum Oct. 19. If bidders did meet the second stage target, broadcasters such as CBS Corp., Sinclair Broadcast Group Inc. and Gannett Co. Inc. would give up 114 megahertz (MHz) worth of spectrum nationwide. Of that amount, 90 MHz could be developed for wireless uses. The remaining 24 MHz of airwaves would be used for guard bands between signals to prevent interference.
If the auction doesn't close in the second stage, the FCC will again run both sides of the auction—the “reverse” portion in which broadcasters agree to prices at which they will give up spectrum licenses and the “forward” portion in which wireless carriers bid to acquire those licenses—with a lower target figure. The FCC will repeat the two-step process until the amount of license bids matches the agency's target figure.
After closing the auction, the FCC will oversee the complex process of moving broadcasters onto new wavelengths. Broadcast industry insiders warn that process, called repacking, could run into unforeseen complications and delays.
Citing “tepid carrier interest,” Bloomberg Intelligence analysts John Butler and Matthew Kanterman said in a Sept. 29 report that total bids for airwaves may only ever reach around $28.2 billion. AT&T is committed to spending $9.4 billion, but bids will likely drop off from there, they said. Butler and Kanterman estimated that Comcast Corp. and Verizon Communications's Verizon Wireless subsidiary are each likely to spend just half that much, with T-Mobile US Inc. likely to spend around $5.5 billion.
Walt Piecyk, a telecom analyst at BTIG LLC, said in an Oct. 6 note that he expects a total of $22 billion to $30 billion in winning bids by the time the auction closes for good.
The first stage of the auction ended Aug. 30 after reaching $23.1 billion in bids, well below the $88.4 billion in total clearing costs the FCC targeted for the stage.(2016 TLN 20, 10/1/16).
The FCC releases the total number of bids per market after each round of bidding in its spectrum auctions. The commission won't disclose which company is bidding on what spectrum until the auction closes. Given the pace of bidding in the first stage of the forward portion of the auction, however, Kanterman said in an interview that there doesn't seem to be any evidence of a dark horse bidder such as Dish Network Corp. or Comcast making any surprise moves that would drive up bidding.
Kanterman pegged the overall appetite for spectrum among wireless carriers at around 60 MHz, which would require broadcasters to give up a total of 78 MHz. That means there could be as many as three more stages of bidding after the second stage. But if the FCC's target drops as much after the second stage as it did after the first, Kanterman said, the auction could close sooner.
Roger Entner, an analyst at Recon Analytics LLC, told Bloomberg BNA the drop in the FCC's target cost was greater than he expected.
“We're coming closer to sanity, but we're still far away,” he said. “I think it would take another stage or two, at least,” for the auction to finish.
Broadcasters hoping for a windfall from the auction remain optimistic.
“The auction is going exactly as planned. It was not designed for speed but rather to find the equilibrium between sellers and buyers,” Preston Padden, former executive director of the Equal Opportunities for Broadcasters Coalition told Bloomberg BNA via email. The now-disbanded coalition was established to mobilize broadcasters interested in taking part in the auction.
Still, the complex technical process of moving broadcasters onto other frequencies to make way for the winning wireless providers won't be quick. Broadcasters will have a total of 39 months from the close of the auction to stop transmitting their signals over relinquished spectrum. Wireless operators will then need to complete extensive testing before they can use the spectrum for mobile services.
The agency released a tentative repacking plan Sept. 30 . Under the plan, the repack would proceed in 10 phases, with broadcasters grouped into phases by a formula intended to minimize interference and disruption. The complexity of repacking would also come into play under the plan, with stations that are more technically challenging to repack going into later phases to give them sufficient time to prepare for the switch.
The FCC is hosting a webinar for broadcasters to weigh in and hear more about the plan Oct. 17. The agency is accepting public comments on the repack process through Nov. 15. A broadcast industry source told Bloomberg BNA that broadcasters are primarily concerned that 39 months and a $1.75 billion fund to cover repack costs won't be enough time or money to successfully get broadcasters off the airwaves that are to be repurposed for wireless.
Even if grouped into phases, broadcasters around the country will be scrambling to compete for a limited number of engineers, consultants and broadcast tower professionals to ensure a smooth transition, the source said. Unforeseen issues as prosaic as harsh weather could further cause delays or complicate the way the FCC intends to group stations.
Kevin Fisher, president of broadcast consulting firm Smith & Fisher LLC, told Bloomberg BNA he gives the FCC a “50/50 shot” of pulling off the repack within 39 months.
“It'll be interesting to see what happens,” Fisher said. “Any hitch or glitch could derail the whole plan.”
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