FCC Adopts Incentive Auction Procedures
At its open meeting today, the FCC adopted its much-anticipated Incentive Auction Procedures Public Notice, providing details about the auction officially scheduled to begin March 29, 2016. Although the actual Public Notice has yet to be released, the FCC did issue a News Release describing some of the adopted procedures.
Although many of the procedures adopted today relate to the “forward auction” for mobile broadband providers, the FCC took steps to simplify the “reverse auction,” in which broadcasters (licensees of full power and Class A TV stations) will be selling spectrum back to the FCC for repurposing. Today’s simplification includes elimination of the Commission’s proposal for “dynamic reserve pricing” that would have allowed the FCC to reduce prices offered to broadcasters in a previous round, as that would have created uncertainty about whether the last prices offered could be relied on.
Similarly, the FCC has also eliminated its proposal to allow broadcasters to place intra-round bids, which would have allowed them to indicate a price at which they would be willing to sell in between the Commission’s last two offers. As a result, TV stations will now only be able to accept or reject the FCC’s offer in each round. However, the FCC said it would make information available to broadcasters in each round of the auction regarding channel vacancies so that they can make a more informed decision about whether to accept the FCC’s current bid or drop out of the auction.
A controversial part of today’s action involves the FCC’s decision to allow some TV stations to operate in the so-called “duplex gap,” which is the spectrum between wireless uplink and downlink frequencies. This decision could reduce the number of stations needed to relinquish spectrum, resulting in lower FCC bids to stations. However, it also could increase interference between wireless communications and broadcast stations operating in the duplex gap. This led to the dissent of the two Republican FCC Commissioners.
How the Reverse Auction Will Work
What we currently know about the reverse auction is that the FCC will begin by offering all full power and Class A TV stations a high opening bid designed to encourage stations to participate in the auction. In each round, the FCC’s offer will drop, apparently by approximately 5% from the previous offer, and stations will have the option in each round whether to accept or reject the new lower bid. Once enough stations have dropped out of the auction, leaving only as many participating stations as the FCC needs to provide sufficient spectrum for the forward auction, the bids will become final and those stations who have accepted the last bid offered by the FCC will be required to relinquish their frequencies for that price.
Relinquishment will mean either turning in a station’s license for cancellation or agreeing to share a 6 MHz channel with another licensee in the same Designated Market Area (DMA). Of course, licensees who choose the channel sharing option will likely have to share any FCC auction proceeds with the “sharer” station willing to give up part of its 6 MHz band for this purpose. Any station willing to relinquish its spectrum for the channel sharing option will either have to enter into a channel sharing agreement prior to the auction or indicate its intent to enter into such an agreement after the auction in its FCC auction application.
Stations will also have the option of choosing less a less drastic alternative than relinquishment, consisting of an agreement to move to the VHF band. A move to the “low” VHF band (channels 2-6) will result in an FCC auction payout approximately 2/3 of the payout for relinquishment, while an agreement to move to the “high” VHF band (channels 7-13) will result in an FCC auction payout approximately 1/3 of the payout for relinquishment.
Stations that choose not to participate in the auction, as well as those that drop out of the auction when the prices offered by the FCC are deemed too low to accept, are subject to involuntary “repacking” within the station’s currently licensed band (e.g. VHF or UHF). Those stations that are involuntarily repacked will be able to seek reimbursement of their expenses from the FCC for having to change channels.
In the next couple of months, the FCC will begin accepting applications from stations interested in participating in the reverse auction. The Commission will advise stations of the anticipated opening bids for relinquishment as well as for moving to the VHF band, although the opening bids are likely to be far greater than the eventual final bids stations can expect to receive.
We will provide more details regarding the reverse auction process as they become available, or you can contact us for additional information.