Incentive Auction Is Unparalleled Business Opportunity for Broadcasters

The Federal Communications Commission has released estimates of proceeds television broadcasters could fetch in markets across the nation by relinquishing spectrum under a groundbreaking incentive auction that is aimed to free up capacity to meet America’s insatiable demand for wireless services.

An information package for broadcasters, released Wednesday by the FCC, is a crucial step in the agency’s attempt to repurpose 600 MHz of spectrum in an auction that is estimated to generate as much as $45 billion.

In large markets including Los Angeles, New York and Philadelphia, FCC staff estimated individual broadcasters could fetch hundreds of millions of dollars. Even in smaller markets that are adjacent to larger cities, such as in Providence, Rhode Island, FCC estimates broadcasters could reap tens of millions of dollars.

Broadcasters that relinquish spectrum don’t have to exit the business because they can share channels or move to a very high frequency range, according to the FCC.

FCC Chairman Tom Wheeler characterized the auction as an “unparalleled business opportunity for broadcasters” in a letter to them that was released Wednesday.

FCC officials told reporters the estimates of compensation are tied to the potential for a station’s interference – not the station’s actual value – taking into consideration the number of people a broadcast station covers and the number of overlapping signals.  

Broadcasters’ participation in the auction is voluntary, but FCC officials said that their participation is crucial to its success. The other piece of the equation is the willingness of wireless providers to participate. AT&T said in May that it planned to bid at least $9 billion in next year’s incentive auction provided there is sufficient spectrum to meet its needs.

In previous spectrum auctions, wireless providers have invested more than $53 billion, according to Scott Bergmann, vice president of regulatory affairs with CTIA-The Wireless Association.

The groundbreaking auction will mark one of the first ones since roughly $19.5 billion was raised in an auction of 700 MHz spectrum. That was in 2008 when the iPhone was a baby and before tablet computers flooded the American market.

The spectrum is important to wireless carriers because it can travel longer distances and better penetrate buildings and other obstacles than higher-band spectrum, resulting in lower costs to deploy it, according to Sprint, T-Mobile USA and others in an FCC filing.

“The U.S. wireless industry needs this spectrum, and a lot more in the near future, to meet the demands by consumers for mobile broadband access anytime, anywhere,” Bergmann said in a statement.

The information package, which was prepared by an investment banking firm and includes a letter from the IRS on the tax implications of the auction for broadcasters, is part of the FCC’s long-term strategy to entice broadcasters to return spectrum rights. FCC officials plan to go on the road for the remainder of the year and meet with broadcasters across the nation to discuss the auction.

The auction will be comprised of two parts: a “reverse auction” in which broadcasters relinquish their spectrum rights in exchange for compensation; and a “forward auction” in which mobile operators bid for licenses. Broadcasters will be provided with opening bid prices before they have to decide whether to participate in the auction, and they are only committed to accept the opening price if they participate, according to the FCC. If the price falls, broadcaster can walk away without any penalty, FCC officials said.

FCC’s compensation estimates assumed the sale of 100 MHz of spectrum in the forward auction at an average price of $1.50 per MHz-pop.