Let the Bidder Beware: FCC Takes Hard Line On FM Bid Withdrawal Rules

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By Robert Emeritz  

Re-establishing its policy of strict adherence to the auction bid withdrawal rule, the Federal Communications Commission upheld Jan. 14 a decision of its Wireless Telecommunications Bureau denying requests from five bidders in an auction of FM broadcast construction permits for relief from the payment obligations arising from their withdrawals of provisionally winning bids (Barry P. Lunderville, College Creek Broadcasting, Inc., and Cumulus Licensing LLC Petition for Reconsideration Connoisseur Media, LLC Application for Review Nassau Broadcasting Holdings, Inc. Petition for Reconsideration, FCC, FCC 13-7, 01/14/13).

When establishing the procedures for a particular auction, the Commission may, under the competitive bidding rules, elect to allow bidders to withdraw provisionally winning bids prior to the close of the auction. Bidders that withdraw bids must pay the difference between the withdrawn bid and the subsequent winning bid, if the subsequent winning bid was less than the withdrawn bid. No payment is owed if the subsequent winning bid is more than the withdrawn bid.

During an auction of FM construction permits, five petitioners withdrew provisionally winning bids in the later rounds (second half) of the auction. When the permits involved remained unsold at the close of the auction, the Bureau imposed interim bid withdrawal payments of three percent of the withdrawn bids, as then required by section 1.2104(g) of the FCC's Rules.

The bidders sought reduction or cancellation of their assessed bid withdrawal payments. The Wireless Bureau found that none of the petitioners had demonstrated any basis for such a waiver, and the Commission agreed.

The Commission noted the importance of the bid withdrawal payment requirement to the fulfillment of the statutory objectives set forth in the grant of the Commission's authority to award licenses by auction. “By forcing each bidder to consider carefully the costs that may be incurred by withdrawing a bid, the rule deters 'insincere bidding' that may interfere with auction dynamics, including by distorting price information. Regardless of bidder motives, insincere bids can reduce the efficiency of the competitive bidding mechanism,” the Commission observed, particularly when the withdrawal occurs later in the auction, when other bidders have fewer opportunities to adjust their strategies.

“Whatever the reason for such bids, the bid withdrawal payment requirement 'compels bidders who may ultimately withdraw to consider the external consequences of both how much they bid and the timing of their withdrawal.' Setting bid withdrawal payments at an appropriate level also 'precisely' protects the government from the loss of revenue associated with bid withdrawals.”

The Advance Precedent

All five petitioners claimed that the Commission had established grounds for a waiver in a earlier decision, Advance Acquisition, Inc. Request for Waiver of Bid Withdrawal Payment, 22 FCC Rcd 18846 (WTB 2007). In addressing Advance's request, the Commission notes, the Bureau found the final bid withdrawal payment in that instance to be “exceptionally high in comparison with previous bid withdrawal payments in that it is the only bid withdrawal payment ever assessed that both exceeds $4 million and represents more than 200 percent of the [subsequent] winning bid for the permit or license”; that is, the bid withdrawal payment was “higher than necessary to serve the purpose of the rule.”

The Commission rejects the Advance principle. “We believe that our pre-Advancebid withdrawal decisions outline a much more objective waiver policy with respect to bid withdrawal payments that best promotes the purposes of the auction rules and the integrity of the auction process, while allowing for waivers in special circumstances where the application of the rule does not serve its purposes or otherwise does not serve the public interest,” the Commission rules, “expressly overruling the Bureau's analysis in that decision.”

“The payments owed here were a direct consequence of each bidder's own decisions and actions, including its bidding strategies, after being fully informed of the auction rules and procedures that would apply to its bids. Neither our auction rules, nor any actions of Commission staff, caused the petitioners to make the specific bids they submitted on the subject construction permits in Auction 37. Only a bidder can assess the value to it of the license/construction permit and make the decision to submit a specific bid amount. Under such circumstances, it is fair to both the bidder withdrawing its bid, and to the other bidders who formulated and submitted their bids under the same rules and constraints, to hold all bidders to the consequences of their bidding decisions,” the Commission concludes.


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