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Broadcast auction: The known unknowns


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Broadcast auction: The known unknowns

Opinions expressed in thispiece are solely those of the author and do not represent the views of SNLKagan.

Aftersix years of speculating about the FCC's 600 MHz BroadcastIncentive Auction, we now seem to know a bit less about a lot more. Maybethat is not surprising given the scope and complexity of the proposed two-stepauction to repurpose the nation's crucial spectrum to meet escalating demandfor wireless applications.

Hereare some key known unknowns about aprocess that feels like part manifest destiny and part musical chairs.

* How much spectrum will be cleared? TheFCC believes that as much as 126 MHz of U.S.spectrum can be freed up initially from TV stations either going dark orselling part of their individual spectrum. The initial target is around 100 MHzof spectrum to be cleared from participating stations (the reverse auction),and at least 80 MHz in order to have enough spectrum to meet the likely demandby wireless company bidders in step two of the auction (the forward auction).

Initiallythe FCC proposed in 2010 to repurpose up to 500 MHz of spectrum for wirelessbroadband use with about 120 MHz, or 20 channels, coming from existing TVbroadcasters. The FCC's National BroadbandPlan stated that 500 MHz of spectrum should be made available for wirelessbroadband within 10 years, of which 300 MHz should be available within fiveyears.

* The number of participating stations.The process of stations committing to participating in the reverse auctionbegan March 29. Participating stations will be offered progressively lowerpayments through a series of rounds with the FCC's goal to reach its targets ineach market for the amount of spectrum to be cleared. Stations are prohibitedfrom publicly disclosing the bids received or made, plus details until the endof the total auction (including step one reverse and step two forward auction).

Ihave seen numerous estimates for how many stations will go dark and how manywill opt to take a lower payment and move to another frequency where they willchannel share with another TV station. Estimates range from 10% to 20% of theapproximately 2,200 full-power and qualified Class A lower-power TV stations(1,400 full power commercial, 400 full power educational and 400 Class Astations). That implies that about 220 to 440 stations will participate. Dozensof stations have already struck pre-auction deals with spectrumspeculators.

* Who will be bidding on spectrum? OnMarch 18 the FCC announced it had received applications from 104 entities whoplan to bid for freed up wireless spectrum, including anticipated strategicwireless incumbents VerizonCommunications Inc., AT&TInc. and T-Mobile USInc., plus two high-profile companies with articulated plans to usewireless spectrum: cable and broadcast titan Comcast Corp. and satellite operator SNL Kagan senioranalyst Sharon Armbrust published a detailed analysisof the bidders on March 23.

Itremains unclear if other deep pocketed players will also be bidding, such asmedia/communications operator and financier John Malone. Unfortunately for theFCC's quest for maximum yield, media tech mega cap has said it is notparticipating. Social media giant FacebookInc. might also abstain.

We also do not know how much their bids will be because, inpart, we do not know how much spectrum will be cleared by participating TVstations. The forward auction is anticipated to end sometime in October, but itcould last longer — possibly into 2017 — if the aggregate proceeds are belowexpectations. In addition, map tacks matter. Bidders want spectrum freed up inlarge adjacent markets.

The forward auction will provide some insight into theoverall value of spectrum. As in previous auctions, we will get daily updateson where the bidding stands in terms of aggregate dollars and the averageprice/MHz pop. What we won't know is who is doing the bidding, nor what theblock assignments will be for each carrier in the end. There will be a finalpremium round of bidding at the end of the forward auction in which eachwinning bidder can top off its bids to get assigned a preferred combination ofadjacent blocks.

* How much will theauction fetch? The range is huge — from a low of $15 billion to a high of$85 billion from estimates I have seen during the past 13 months. The FCCestimated in 2014 that the auction could gross over $45 billion. In January, aBloomberg surveyof eight Wall Street analysts came up with $33 billion of auction proceeds. InFebruary, J.P. Morgan peggedthe take at $25 billion to $35 billion. A note from Wells Fargo Securities inFebruary said that someestimates were as low as $15 billion. You can handicap it yourself based onvalue per MHz per pop and total MHz sold. Check out SNL Kagan's matrix in aJan. 19 analysisfrom Armbrust.

Last year, however, when most analysts believed that thebig-cap tech media companies would be aggressive bidders, auction estimates ran$60 billion to $85 billion. All proceeds from the auction will go toward payingdown the national debt, as deemed by the U.S. Congress when it approved theauction in 2012.

* How will TVbroadcasters and viewers be impacted? This may turn out to be the mostcontentious aspect of the auction. The U.S. Congress has given stations 39months to complete the technical aspects of "repacking" their channelpositions (channel mergers, channel moves, etc.) and only $1.75 billion forcosts. But that does not include repacking the translators and other necessaryinfrastructure that extends the broadcast signal. Beyond that, the promisingnew broadcast standard ATSC 3.0 could theoretically help more stations fit intoless spectrum, according to a December 2015 reporton the auction by public broadcasting publisher

The NAB counters that eight to 11 years is a more reasonabletime frame to complete a repack. Eager wireless bidder T-Mobile published its ownstudy that says 39 months is more than enough time to complete the repack. TheNAB countered that wireless carriers know little about the challenges TVbroadcasters face. And so on — the spat is chronicled in TV NewsCheck's update.

One suggestion that seems to make sense — from variousindustry analysts, plus a major wireless bidder, AT&T — is to swap out thathard line 39-month deadline for a series of deadlines covering all of thephases of the repack.

The FCCand the NABboth have comprehensive websites covering all aspects of the auction andrepack. Even using the most positive language, however, just about everythingrelated to this auction is long on speculation and short on demonstration.

Given the stakes, however, there's no turning back now.