FCC Proposes Top Station Opening Bids Totaling $9 Billion

WASHINGTON The Federal Communications Commission is shooting to open the TV spectrum incentive auction with bids for just the top station in each market totaling more than $39 billion. The figure is derived a report by New York-based Greenhill & Co., released by the FCC on Friday and designed to motivate broadcaster participation. It came a day after executives from Fox, Tribune and ION met with FCC Chairman Tom Wheeler to talk about participating in the auction, according to a scoop by John Eggerton at B&C.

The report is the second from Greenhill. The first, released last October, provided estimated high-end compensation per broadcaster, from gross auction receipts totaling $45 billion the amount raised in the recently closed auction of 65 MHz of Advanced Wireless Spectrum. (See FCC Interference Pricing Projects $45 Billion in Proceeds )

Both Greenhill figures reflect the high-end estimates. The report released on Friday starts with a figure of $900 million to calculate opening bid prices in the reverse auction, where broadcasters agree to a sale price for their 6 MHz license. This number is then used in a calculation that considers population and interference.

In New York, for example, the maximum opening bid in the reverse auction was placed at $870 million. That figure represents the most valuable station in the No. 1 market according to the FCC's formula, and also happens to be the most valuable station in all 210 designated market areas. The October Greenhill report set high-end compensation per broadcaster in New York at $490 million.

The relationship between the maximum opening bid and high-end compensation differs in each market. While the New York station may be looking at taking 56 percent of auction proceeds, the top-valued station in Atlanta, DMA No. 9, may be looking at 19 percent, while the top station in No. 4 Philadelphia could get 59 percent, and the top station in No. 67 Wichita-Hutchison, Kan., may get 7 percent.

TV Technology asked a commission official how the agency came up with its figures.

TV Technology: Opening bid prices are based on a figure derived from $900 million for what was considered the highest-valued station. Where did this figure come from, and why then, isn't the maximum open bid price for the top station in New York $900 million?

FCC: We set an opening price of $900 million to get appropriate opening bid prices for participation. The station with the highest volume is a VHF station, so that's why it's $870 million. [VHF stations are discounted because that spectrum is worth less.]

TV Technology: New Greenhill numbers are calculated on a completely different formula than the original ones. The original one used $1.50 MHz/Pop while this one uses the $900 figure. Please clarify.

FCC: The $1.50 was set to model auction on revenues of $45 billion gross receipts, or $38 billion minus funding the public safety network, etc. We took $38 billion and sliced that up per the interference formula, [the number of people covered by signal, and the number of signals it overlaps with.] The major differences is the first Greenhill figures were estimated high-end payouts. It was a top-down approach. This is maximum opening bids designed to reflect robust auction participation.

TV Technology: TVStudy, or the updated software version of OET-69, is being used to determine pairwise interference, is that correct? What population data does it use?

FCC: We're using the Longley-Rice methodology described in OET-69, and using it in TVStudy for the inputs. We're using population data from the 2010 Census. Population input was previously 2000 Census data. Our baseline is always the methodology of OET-69. We developed the TVStudy software because we will have to continually update interference calculations during the auction.

TV Technology: The reverse auction bid pricing formula says, The base clock price is a constant amount per unit of volume. I see that volume equals interference times population, but what comprises a unit of volume?

FCC: We say, this station has the highest volume, at $900 million.' We had to come up with a scale for stations to price with lower volumes. We applied a metric of 1 million and calculated volume on scale of 1 million. We're translating the $900 million figure to apply to every other station. It's a two-step process.

We calculate the volume for every station. (Interference x population)

We rescale it so the maximum volume is 1 million. It's base clock price is then $900 per unit of volume.

TV Technology: The maximum opening bid prices reflect full relinquishment including stations that will relinquish spectrum to share a channel correct?

FCC: Yes. It's the opening bid for every station with full relinquishment.

TV Technology: Opening bids for stations moving from UHF to low VHF would be calculated at 67 to 80 percent of this relinquishment figure, correct?

FCC: Correct. We've asked for comment on where within that range to put [the discount]. Comments due Feb. 20.

TV Technology: Opening bids for stations moving to a high VHF would be calculated at 33 to 50 percent of this figure, also correct?

FCC: Yes, and we've also asked for comment on this.

TV Technology: How were these discounts derived?

FCC: We picked a range because we wanted some input. They reflect the usability of VHF versus UHF for digital TV. We recognize that for digital TV, VHF is less valuable. We'd still pay them they're getting a less effective channel but they're still giving up spectrum.

TV Technology: Please tell me again about the hierarchy of options. If I go into the auction intending to:

1. Relinquish, I can, during the reverse auction, opt instead to move to a VHF.

2. Move to a VHF, then I cannot relinquish.

3. Share a channel then what?

FCC: Correct on t

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