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Auction Underwhelms

16/12/2016

WASHINGTON-The $80 billion windfall predicted from the TV spectrum incentive auction failed to materialize eight months in. While broadcasters heeded the forecast and priced 126 MHz of TV spectrum at $86 billion in the first stage of the auction, wireless providers topped out at $23.1 billion for the 100 MHz offered for sale.

Demand in subsequent stages remained tepid, despite claims to the contrary in the months preceding the auction, when spectrum fever reached an apex with the prognostication of $80 billion in revenue.

Perhaps the notion of a spectrum crisis' peddled in Washington for the last seven years is not as acute as policymakers were led to believe, said Dennis Wharton, executive vice president of Communications for the National Association of Broadcasters, after the first stage of the auction concluded in late August.

FIRST OF ITS KIND

The incentive auction, which commenced March 29, is the first of its kind, with a two-step process where broadcasters name their price in a reverse auction and wireless providers bid in a forward auction.

The process is carried out on a software platform that shuffles stations into channel assignments between reverse auction rounds as the prices fall in 5 percent decrements. At zero, the reverse auction concludes, clearing costs are posted and forward auction bidding is scheduled. If bids fail to cover clearing costs and demand equals supply in the 40 top wireless licensing areas, the process starts again at a lower clearing target.

A second stage that started Sept. 13 brought the clearing target down to 114 MHz, which broadcasters priced at $54.6 billion in October. Wireless bidders came back a few days later at $21.5 billion for the 90 MHz offered, after a single, two-hour round of bidding.

By early Dec. 1, broadcasters priced a third-stage 108 MHz clearing target at $40.3 billion, while forward-auction bidding on Dec. 5 topped out at $19.7 billion for 80 MHz, also after a single, two-hour round.

Dan Hayes, principal of PwC's Strategy& said stage three results indicated wireless providers' priorities have changed.

The relatively quick completion of the third stage of the forward auction comes as no surprise given pre-auction indications from potential purchasers and the current state of the mobile industry in the United States, he said. Despite strong commitments to date from buyers in the forward auction, top-line proceeds may struggle to make it north of $20 billion as operators' capital spending priorities have seemingly shifted away from spectrum at this time.

At press time, the auction was set to proceed to a fourth stage with the reverse auction starting Dec. 13. Depending on continued broadcaster participation, the clearing target would fall to 84 MHz.

AUCTION COULD CLOSE SOON

Clearing targets are based on 6 MHz increments- the bandwidth of a TV channel- but the spectrum is being sold to wireless providers in paired, 5 MHz blocks, with a portion designated to interference buffer zones. Consequently, buyers are bidding on less spectrum than broadcasters are selling.

This gap narrows significantly at 84 MHz because broadcast and wireless spectrum would be divided by a channel now occupied by radio astronomy. This would leave more channels for the post-auction TV station repack, meaning the FCC would have to provisionally buy fewer stations. E.g., 126 MHz left just nine TV channels in each market; 114 MHz left 11; 108 MHz leaves 12; and 84 MHz leaves 16 TV.

Marci Ryvicker
LINK: http://www.tvtechnology.com/resources/0006/auction-underwhelms/280014...
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