On Friday, the FCC released a new report by the investment bankers advising them on the incentive auction, Greenhill and Company. This report summarizes proposed auction procedures, but also sets out, on a market-by-market basis, the expected opening bids to be offered to TV broadcasters for the surrender of their spectrum so that the spectrum can be repurposed for wireless broadband use. And these numbers are high – seemingly meant to attract broadcasters to consider possible participation in the auction process. The opening numbers suggested by this report range from a high offer of $870 million in New York City, to a couple of million even in the smallest TV markets.
While this report, and the table of expected opening offers that is part of that report, are in a format similar very to the Greenhill report that was released several months ago (about which we wrote here), those two reports actually represent two very different numbers. The report released in the Fall set out prices that stations willing to surrender their frequencies might be expected to actually receive in an incentive auction. The numbers in this report are merely the opening offers that will be made to stations to surrender their spectrum. If these numbers attract more broadcasters willing to surrender their spectrum than the FCC needs to meet their spectrum-clearing targets (as they quite well may given the numbers being proposed), then the Commission will lower the offer in subsequent rounds of the auction, and the FCC will continue to lower the bids until they receive willing sellers of just the right amount of spectrum necessary to clear the FCC’s targets (which are yet to be set) for spectrum to be resold to wireless users.
Not every broadcaster in the markets listed can expect to receive the opening bid numbers that the FCC is suggesting. The numbers in this report are put forward as “Maximum” and “Median” numbers. The FCC is proposing to “score” their offers to stations, giving the highest offers to stations that have a large preclusive effect on spectrum changes in their markets and other close-by markets and those with a large population covered. Stations on channels with less preclusive effects, or stations with small populations covered, are likely to be below the Median numbers. Class A TV stations will have lower scores for these same reasons. These numbers are likely subject to further revision, because they do not include the results of Canadian and Mexican border coordination which may affect opening prices.
The high numbers in this proposal also reflect new expectations as to how much the subsequent sale of the spectrum that is vacated by the incentive auction may fetch when resold to wireless users. The expectations as to the value of the spectrum seem to have gone up following the FCC’s recent conclusion of the AWS auction, which received over $40 billion dollars in bids for spectrum that was, at least initially, believed to be no more valuable (and perhaps less valuable) than that to be cleared by the incentive auction. While there are now some questions about the relative value of the spectrum, the prices bid certainly seem to have encouraged the FCC to believe that the cleared TV spectrum will also have great value.
The FCC is beginning its road show this week (which we mention in our summary of February regulatory dates for broadcasters), meeting with broadcasters around the country to provide general information about the auction and to have one-on-one meetings to discuss the specifics as to what individual stations might receive in the auction. Taking advantage of these meetings, and carefully analyzing the pros and cons of auction participation will be something that all TV broadcasters will need to consider carefully in the coming months as the incentive auction comes closer and closer to becoming a reality.
Addendum – 2/9/2015, 3:00 PM – one alert reader noted that the numbers suggested in this report have been criticized as actually being too low based on the values paid in the AWS auction – contrary to our statement that the AWS valuation led to them being as high as they were – see this Wall Street Journal article on that criticism. So, if this criticism is correct, maybe the actual opening bids could be even higher!