Last April, the broadcast industry was abuzz with the need to register previously unlicensed earth stations in order to reduce the chance of future displacement. In April 2018, the deadline for submitting the registrations was announced, and after two extensions, all fixed-satellite service (FSS) earth stations in use prior to April 19, 2018 that operated in the 3.7 to 4.2 GHz band were to be registered with the FCC by October 31, 2018.
Originally intended as an “innovation band” for the testing of new wireless broadband services, the Citizen Broadband Radio Service (CBRS) was created in 2015 to permit commercial and federal spectrum users to operate in the same spectrum band. By utilizing smaller geographic areas for licenses, and short-term authorizations lacking an expectation of renewal, the CBRS was seen as a test bed for a variety of different wireless broadband services, including those of rural wireless broadband service providers.
To that end, the FCC created two new classes of licenses, Priority Access Licenses (PALs) and General Authorized Access Licenses (GAAs). GAAs are permitted to operate anywhere within the CBRS band, so long as incumbent licensees and PALs are protected. PALs are required to protect the incumbent licensees, and will receive protection from GAAs. A key component of the CBRS licensing scheme is the implementation of a central database, the Spectrum Access System (SAS) (had enough acronyms yet?), maintained by third parties who will coordinate among licensees to prevent interference.
At its October meeting, the FCC revised its rules for the service with the stated goal of further encouraging the rapid development of 5G technologies. The revised rules were adopted in response to petitions filed by CTIA and T-Mobile in 2017 which proposed several changes to the original 2015 rules. The FCC sought comment on those proposals, which suggested several changes to the Priority Access Licenses, including adjusting the size of the geographic license, expanding the initial and renewal terms for licenses, and adopting performance standards. Although the FCC did not fully adopt the proposals, the revised rules make significant changes before the FCC has even issued the first CBRS authorization.
License Area: Under the 2015 rules, PALs were to be issued based on census tracts. The intent was to encourage local broadband development, especially in rural areas that may not receive service by nationwide carriers. By highlighting the difficulty of managing the licensing and build-out of service in 74,000 separate census tracts, CTIA, T-Mobile and several other parties argued that the FCC should expand the PAL geographic area to the more-manageable Partial Economic Areas. Ultimately, the FCC rejected that proposal, but instead expanded the PAL geographic area to county-based authorizations.
License Terms: In 2015, the FCC was concerned about the warehousing of spectrum, so it limited the license term of PALs in a particular geographic area to two sequential three-year periods, with no option for renewal. Several parties filed comments arguing that the three-year limit for licenses would serve as a roadblock to robust investment by wireless companies. The FCC has now agreed and extended the initial term to ten years. The FCC also modified its rules to permit licensees to renew their PAL authorizations.
Performance Standards: In light of its decision to extend the license term and permit renewals, the FCC imposed a “substantial service” performance standard for services operating in the CBRS band. For mobile and point-to-multipoint services, a licensee must demonstrate that it provides service to at least 50 percent of the licensed service area. For point-to-point service, a licensee must demonstrate that it provides at least four links in areas with a service population of 134,000 people or less, and at least one link per 33,500 people in service areas with a population greater than 134,000 people. This showing will be required when the licensee files its license renewal application.
Competitive Bidding: Finally, the FCC decided to grant PALs in accordance with its competitive bidding auction rules, permitting applicants to claim bidding credits as “small” or “very small business” entities, as a rural service provider, and/or if they propose to serve qualifying Tribal lands.
Support for the proposed rule changes was first signaled by then-Commissioner Pai and Commissioner O’Rielly in their concurring statements when the original rules were adopted in 2015. Because the FCC is still working on approval of the various SAS database proposals, and because there was a change in FCC leadership in January 2017, it was possible for the petitioning parties to seek revision of the 2015 rules before the FCC issued its first CBRS authorization. To date, the FCC has not issued authorizations for PALs or GAAs, but it is possible that new authorizations could be issued in 2019. Thus, while the rule changes will not impact any existing PAL or GAA licensees, these changes will have a significant impact on the operation of the CBRS band in the future.
The FCC will take a number of significant actions in the final months of 2018 to facilitate the development of 5G, the fifth generation of wireless cellular technology. First, at its October meeting tomorrow, it will vote on making a portion of mid-band spectrum (2.5 to 4.2 GHz) available for 5G use. Second, it will launch in November the first of two high-band 5G spectrum auctions scheduled for 2018. Now is therefore a good time to take a look at what 5G is, and what impact it promises to have.
Looking back, the primary benefit of the transition from 3G to 4G was a significant speed boost, which allowed users to, among other things, stream YouTube and upload videos to social media platforms like Instagram without much waiting. Once implemented, 5G is expected to deliver download speeds anywhere from 10-100 times faster than 4G, with speeds of up to 20 gigabits per second. 5G users will also experience significantly less latency, i.e., the time between when you click on a link and when the network responds. While 4G latency is about 9 milliseconds, mature 5G systems will reduce latency to around 1 millisecond.
Mature 5G networks will use high-band spectrum (24 GHz and above), which is capable of transmitting significantly more data than 4G, but is limited to much shorter distances. 4G towers currently deliver service for up to 10 miles, while high-band 5G towers will only deliver service for up to 1,000 feet (about 3 football fields).
In addition, high-band 5G spectrum has a shorter wavelength than spectrum used for 4G, making it more difficult for these signals to penetrate solid objects such as walls and windows. To overcome the distance and signal penetration challenges, 5G will require vast networks of small-cell sites located on a diverse array of real estate platforms, with the small-cells anchored by larger cell towers. To streamline the deployment of small-cells, the FCC in March adopted new rules to reduce regulatory impediments to building out small-cell infrastructure, and in September adopted rules requiring state and local governments to approve or deny small-cell applications within prescribed time periods. Not surprisingly, the new rules are unpopular with local governments, who object to any federal interference with their local site review processes.
There are numerous potential innovations and business models that can utilize 5G’s faster speeds, lower latency, and increased connection capacity. Most agree that 5G will deliver seamless 4K video streaming and instant downloads of large files, but it could also dramatically change how users, including machines, access the Internet. Currently, the primary option for residential and enterprise broadband customers is cable or fiber. With speeds of up to 20 gigabits per second (and no need for wire infrastructure), 5G could disrupt the delivery of fixed Internet access as we know it.
5G will also allow the Internet of Things to flourish. Specifically, it will allow vastly more “things” to connect to cell sites and remain connected to the Internet without the need to connect through smartphones or Wi-Fi. 4G can connect about 2,000 devices per square kilometer, while 5G will connect about one million over the same area. For example, 5G could facilitate thousands of driverless cars in the same city talking to each other to coordinate efficient traffic flow without the need for passengers to open an app on their phone, or even to have a phone.
Another potentially transformative use of 5G is remote medicine. For example, given the high speed and low latency of 5G, medical procedures could be performed using robot arms controlled by doctors in a different part of the country or world, harnessing almost instantaneous data transmission and lowering geographic barriers to treatment. Similarly, augmented and virtual reality gaming, shopping, and other experiences should blossom under 5G.
Rollout of 5G will be gradual. Following pilot programs in 2018 in select cities, wireless carriers are expected to launch the first iterations of widespread 5G networks in the United States in 2019. 5G-enabled smartphones are also expected to be released in 2019. The first 5G networks will likely use low (600 to 900 MHz) and mid-band (2.5 to 4.2 GHz) spectrum already possessed by wireless carriers, rather than the high-band spectrum that will make up the majority of spectrum auctioned by the FCC for 5G use. As a result, initial 5G networks will only scratch the surface of 5G’s potential, delivering speeds ranging from 10% faster than 4G to three times as fast. Mature iterations of 5G networks that use high-band spectrum are expected to arrive in 2-4 years.
We’ve said it before, and we’ll say it again: If you wait until the last minute to submit an online FCC filing, be prepared to bang your head against your desk while you struggle to log in to a filing system that often melts down when thousands of filers simultaneously attempt access. Fortunately, the FCC appreciates the limitations of its filing systems, and has frequently granted extensions where the system collapse was sufficiently apparent. And so it was with today’s C-Band earth station registration deadline, which the FCC announced this afternoon would be extended to October 31, 2018.
As many of our readers are aware, the FCC issued a temporary freeze earlier this year on applications for new or modified fixed satellite service (FSS) earth stations and fixed microwave stations in the 3.7-4.2 GHz band (the “C-Band”) and concurrently opened a 90-day window during which entities that own or operate existing FSS earth stations in the C-Band could file to register their earth stations or modify their current registrations. The purpose of the filing window was to give the FCC a better idea of whether and how to open up the band to other shared uses while giving those with constructed and operational (but currently unregistered or unlicensed) earth stations an opportunity to secure some degree of interference protection as the FCC moves to open the band. In June, the FCC extended the filing window another 90 days, to today, October 17, 2018.
Then yesterday, things got (predictably) weird as IBFS experienced a “large influx of earth station applications filed near the deadline,” and the filing system “experienced intermittent difficulties that have prevented some applicants from filing for licenses or registrations.” In response, the International Bureau earlier today extended the filing window for an additional two weeks, to October 31, 2018.
Consider yourself warned. If you’ve got any plans this Halloween, do not wait until the (new) last day to file. The FCC is unlikely to treat you to any further extensions.
Many thought the broadcast incentive auction was the most complex task ever undertaken by the FCC, but the ten-phase spectrum repack following the auction is running a close second. The TV stations being repacked in Phase 1 are serving as the pioneers of the repack process, and since they must complete the transition to their post-repack channel by November 30, 2018, the applicable deadlines are coming at a fast and furious pace.
The process of repacking these Phase 1 stations has led to lots of questions, and in an effort to answer at least some of them, the FCC released a Public Notice this week discussing a variety of details for stations completing the repack. Since Phase 1 will be the template for all subsequent phases, all stations being repacked should review the Public Notice with an eye toward discerning their obligations and timely meeting the various milestones.
The Public Notice also reminds transitioning stations that they can, where necessary, seek authority from the FCC to go silent, operate with alternate facilities or reduced power, remain on their pre-transition channels for a period of time, or commence early operations on their post-transition channels. All of these require filing for Special Temporary Authority and obtaining Commission consent in advance. While such flexibility will be useful for stations facing unusual repack obstacles, such stations must be sure to schedule adequate time to request and secure Special Temporary Authority from the Commission, lest they find themselves in the uncomfortable position of being forced to violate either the FCC’s repack requirements or the FCC’s operating rules (or being forced off the air entirely).
While the Public Notice provides various ground rules for stations, it also provides a lot of densely packed information on the procedures stations must follow during the repack. To assist stations, we have consolidated that information below in a concise format that will hopefully make it easier to follow. While the dates will obviously be different for stations assigned to other phases of the repack, the information below provides a good overview of the path that all repacked stations must navigate during their own repack phase. Note that the information below assumes that a station will not terminate operations on its pre-transition channel until the last day of the phase (November 30, in the case of Phase 1 stations). Stations transitioning before that time will need to adjust the other various dates accordingly.
The Public Notice makes clear that between September 14, 2018 and November 30, 2018, Phase 1 stations may test their equipment/signal and commence operating on their new channel pursuant to program test authority. The testing phase, however, is strictly for testing, and does not permit stations to simulcast content on both their pre-transition and post-transition channels. Broadcasters should be aware that some stations’ construction permits do not grant them automatic program test authority (e.g., stations transitioning to Channel 14), so those stations must build extra time into their schedules to request and obtain such authority.
Finally, the Public Notice indicates that linked stations cannot simply test their own equipment and commence operations on their post-transition channel as they choose. They must coordinate with the other stations in their phase with which they are linked by interference concerns.
The schedule for Phase 1 stations is as follows:
|September 1, 2018||Last day to provide notice of channel change to MVPDs. Any stations granted additional time or flexibility to transition by the FCC must provide MVPDs with this notice 90 days prior to commencing operation on their post-transition channel. Stations should also review their construction permits for individual notice requirements. For example, a station must provide notice of its channel change to health care facilities in its service area an “ample time before commencing operation” on its new channel, and some stations may be required to give notice to nearby AM stations, as discussed in more detail in the Public Notice.|
|September 4, 2018||Last day to request 180-day Construction Permit Extension on Form 2100, Schedule 337. Stations may request one extension of up to 180 days in which to complete construction of their new facility. An extension application must include an exhibit demonstrating circumstances that, despite all reasonable efforts by the station, were either unforeseeable or beyond the station’s control.|
|September 14, 2018||Testing Period begins.|
|September 21, 2018||File Transition Progress Report on Form 2100, Schedule 387. Transitioning stations must file a transition progress report ten weeks before the end of their assigned construction deadline.|
|October 1, 2018||Deadline for channel-sharing repacked stations to file a minor modification application. Applications must specify the host’s post-auction channel and the parameters of the sharee’s facility.|
|October 10, 2018||File Quarterly Transition Progress Report on Form 2100, Schedule 387. Transitioning stations must file a transition progress report on the tenth day following each calendar quarter, providing information regarding the steps taken during the previous quarter to construct facilities for its new channel and end operations on its current channel. This obligation ceases when a station has completed its transition and has filed a final report with the FCC indicating that fact.|
|November 1, 2018||Last day to commence consumer notifications of channel change. Any stations granted additional time or flexibility by the FCC must provide viewers with this notice 30 days prior to commencing operations on their post-transition channel.|
|November 30, 2018||Last day to operate on pre-auction channel absent FCC consent.|
|December 5, 2018||Last day to file “Pre-Auction Termination” Transition Progress Report on Form 2100, Schedule 387. Any stations that terminate operations on their pre-auction channel earlier than November 30 must file this report within 5 days of terminating operations on their pre-auction channel.|
|December 10, 2018||Last day to file “Construction Completion” Transition Progress Report on Form 2100, Schedule 387. Any stations that complete construction earlier (including before September 14, 2018) must file this report within 10 days of completion of all construction-related work.|
|December 10, 2018||Last day to file License to Cover Application on FCC Form 2100, Schedule B (full power) or Schedule F (Class A). Any stations that commence program test operations earlier than November 30 must file this application within 10 days of commencing program test operations.|
|December 30, 2018||Last day to file certification of compliance with viewer notification obligations. Any stations that complete their transitions earlier than November 30 must place these certifications in the public file within 30 days of completing the transition.|
Considering the variety of notices, reports, applications, and certifications involved in the repack process, and how tightly interwoven the associated deadlines are, stations should not dally in finalizing their repack plans. One missed deadline can quickly cascade into multiple missed deadlines, severely undercutting a station’s prospects for achieving a successful repack.
According to a newly-released Public Notice, the FCC has directed the U.S. Department of Treasury to pay all broadcasters who had winning bids in the recently concluded spectrum incentive auction. The only exceptions are those broadcasters that failed to submit sufficient banking information to the Commission for payment to be made. Since the FCC does not control the actual release of funds, it indicates it will deem the amounts as paid five business days from the release of yesterday’s Public Notice (ie, July 27). Any broadcaster expecting to be paid that is not listed in the attachment to the Public Notice will want to promptly fix any issues with its banking information so that it too can receive payment.
The Public Notice also establishes the deadline for each category of auction winner to go off-air after getting paid. For the fewer than a dozen stations actually terminating service and going permanently dark, yesterday’s announcement is a major milestone, establishing their last day of operation as October 25, 2017. These stations can actually cease operating as early as late August, but only if they start airing their required notices to viewers and sending their notices to MVPDs immediately. Those needing a longer goodbye can ask for additional time to remain on air as long as they can show the FCC good cause for continuing to operate beyond the deadline.
The approximately 30 stations that elected to move to a high or low VHF channel obviously do not face a “go dark” deadline. Instead, they will transition to their new channel much the same way as stations being involuntarily repacked. In other words, these stations will start operations on their new channels according to the FCC’s previously-announced transition phase assignments. They’ll just do so with lighter hearts and heavier pockets than repacked stations.
The majority of the stations listed in the Public Notice as being eligible for an auction payment indicated at the start of the auction (in their Form 177) that they had entered into or intended to enter into a channel sharing agreement for post-auction operation. These stations have until January 23, 2018 to cease operating on their current channel and commence operations on their shared channel. If a station’s “intention” to enter into a channel sharing agreement has not yet been realized, it will have until January 23, 2018 to get that done. In addition, the FCC is allowing channel sharing stations to request up to two 90-day extensions (until July 2018) if they need it.
The timing of yesterday’s announcement effectively means that auction winners whose channel sharing partner was assigned to a new channel as part of the repack will have to transition twice—once to their sharing partner’s pre-transition channel, and a second time to their partner’s repacked channel. Since the first transition phase testing period does not begin until September 14, 2018, even a channel sharee obtaining both 90-day extension periods would have to get special dispensation from the FCC or go dark for some period of time if it wants to avoid having to do a two-step transition.
While bidding in the first-ever broadcast incentive auction has been over for months now, today’s Public Notice is a major step in finally closing the book on that auction. The U.S. Treasury will be sending auction payments out over the next few days, and once that is done, all eyes will be on the repack itself. Given last week’s implosion of the FCC’s filing system under the strain of the initial round of repack construction permit applications and reimbursement claims, the repack promises to be a challenging endeavor for both broadcasters and the FCC. However, for those broadcasters whose pockets are flush with auction payments, the repack might seem just a little less burdensome.
Ever since the idea of holding an incentive auction to reclaim and repurpose broadcast spectrum for new wireless uses first surfaced, a major concern has been how to balance full power stations’ need to replicate their pre-auction signal coverage with low power television (LPTV) and TV Translator stations’ need for displacement channels in the remaining television band. Throughout the process, the FCC has announced a number of initiatives aimed at balancing those needs.
Included among these efforts is the FCC’s creation of a new category of translator for full-power TV stations to fill in loss areas, a special filing window for LPTV, TV Translator and analog-to-digital replacement translator stations seeking displacement channels, and rules permitting LPTV and TV Translator stations to channel share, both among themselves and with full-power stations. Until last week, stations in these secondary services have had to stand on the sidelines and wait to see how these initiatives play out. That changed last Friday when the FCC released a detailed Public Notice outlining procedures and timelines applicable to LPTV, TV Translator, and replacement translator stations during the repack.
Most significantly, the FCC announced its intent to open a Special Displacement Window in the first quarter of 2018. The FCC stated that it anticipates releasing a public notice in November or December of this year that will give 60 days’ warning of the opening of the Special Displacement Window, which will remain open for 30 days.
Only LPTV, TV Translator, and analog-to-digital replacement translator stations that were “operating” on April 13, 2017 will be eligible to file displacement applications in the window. To be deemed an “operating” station, the station must have constructed its facilities and filed a license to cover application by that date. These stations can file a displacement application in the Special Displacement Window if they are displaced by a full-power or Class A TV station being repacked in Channels 2 through 36, or if they are on a channel higher than 36 and are displaced by the flexible uses envisioned by the FCC for the portion of the broadcast band repurposed via the auction.
In the filing window, applicants will have to provide interference protection to other users in the repacked TV Band and in adjacent bands, including land mobile operations, existing LPTV, TV translator and analog-to-digital replacement translator stations, full-power and Class A TV stations that were not repacked, repacked full-power and Class A TV stations as specified in the FCC’s Closing and Reassignment Public Notice, and full-power and Class A television station facilities specified in applications filed in either of the two priority windows occurring prior to the Special Displacement Window.
Helping to balance those restrictions, displaced stations may specify as their displacement channel the pre-auction channel of a station being repacked or which relinquished its spectrum, subject to the condition that operations on the displacement channel cannot commence until the full-power or Class A TV station currently occupying the channel vacates it. To assist stations in developing their displacement proposals, the November/December public notice announcing the Special Displacement Window will also contain updated channel availability information identifying locations and channels that displaced stations cannot propose in their displacement applications.
To avoid a “race to the courthouse” when the window opens, all applications filed in the Special Displacement Window will be deemed to have been filed on the last day of the window for purposes of determining mutual exclusivity. In other words, an application filed on the first day of the window will have no higher processing priority than an application filed on the last day of the window. In cases of mutual exclusivity, the parties will be given an opportunity to resolve the mutual exclusivity among themselves via engineering amendments or settlements.
If applications remain mutually exclusive after the settlement period, the FCC will give priority to any application filed by a full-power TV station for displacement of an analog-to-digital replacement translator station or for a new digital-to-digital replacement translator station. The analog-to-digital replacement translator stations were authorized to fill in areas of a full-power station’s analog contour that were lost in the digital transition. The digital-to-digital replacement translator stations are a new class of station intended to serve a similar role in filling in areas of a full-power TV station’s digital contour that its repacked facilities can no longer reach.
Full-power TV stations can apply for new digital-to-digital replacement translator stations beginning with the opening of the Special Displacement Window and continuing through July 13, 2021. Whenever filed, digital-to-digital replacement translator applications will have priority over all prior new, minor change, and displacement applications filed by LPTV and TV Translator stations. If applying this priority does not resolve mutual exclusivity among applications filed in the Special Displacement Window, the FCC will resort to conducting an auction among the applicants. Continue reading →
To use a metaphor those headed to Vegas for the NAB Show will appreciate, two of the three wheels on the Spectrum Repack slot machine had stopped spinning, and all eyes have since been anxiously watching that third and final wheel. The first stopped spinning on January 13, 2017 when the Reverse Auction concluded. The second stopped on March 30, 2017 when the Assignment Phase of the Forward Auction came to an end. The third wheel stopped this afternoon with the release of the FCC’s long-awaited Incentive Auction Closing and Channel Reassignment Public Notice. That Public Notice formally marks the end of the Incentive Auction, and publicly reveals which stations got cherries and which stations got lemons in the auction and repack.
According to the FCC, there were 175 TV stations that sold spectrum in the auction for just over $10 Billion in total. Of these 175, 30 are moving to a VHF channel and 133 have indicated that they will be channel sharing with a station that did not sell spectrum in the auction. That suggests only twelve stations nationwide sold their spectrum with the intent to go dark permanently.
For those stations that did not sell spectrum in the auction, the FCC indicates that 957 of them are being involuntarily moved to new channels. As a result, the Spectrum Repack looks like it will be every bit as complex and all-encompassing as many had feared.
In that regard, the Public Notice also locks in the deadlines broadcasters must meet for the 39-month Spectrum Repack, officially launching the rush to secure equipment and services needed by each repacked TV station to build out new transmitting facilities. The FCC had addressed in general terms many of the repack deadlines in various notices and webinars, but nearly all were geared to the release date of the Public Notice. As a result, while we generally knew how long the FCC was allotting for various steps of the repack, they all remained moving targets until today’s release of the Public Notice.
With the Public Notice now in hand, we have assembled below the key deadlines. Continue reading →
At the end of Stage 2 of the Spectrum Auction, I wrote about bidder fatigue and the hope that the FCC would drop its spectrum clearing target a couple of notches for Stage 3 to expedite the conclusion of a now seemingly interminable auction. Unfortunately, the FCC held fast to its incremental approach. As a result, the FCC attempted to clear 108 MHz in Stage 3, leading to a reverse auction that lasted 30 days and resulted in a $40.3B target for the forward auction. That was roughly double the amount of money bid in the forward auction in Stages 1 and 2. Also, with the Stage 2 forward auction concluding after only one round of bids, it seemed unlikely the skies would suddenly open up and start raining big-dollar forward bidders in Stage 3.
That has now proven true, as the Stage 3 forward auction commenced at 10am this morning and officially ended at 12:01pm. Like Stage 2, it lasted only a single round of bidding. Technically, it concluded even faster than Stage 2, which took 2 hours and 14 minutes before being declared over, a whole 13 minutes longer than today’s auction. Having taken six years to reach this point, the fact that we are measuring entire auction stages in minutes is disappointing to say the least.
The good news? The FCC is apparently feeling at least some urgency to move the auction along to a conclusion, announcing today that it anticipates launching the Stage 4 reverse auction on Tuesday, December 13. Unfortunately, with the Stage 1, 2, and 3 reverse auctions taking 28 days, 30 days, and 30 days respectively, even a fast-moving Stage 4 can’t conclude the auction in 2016.
While the forward auction bid totals have dropped in every stage of the auction as the amount of spectrum being sold has dropped ($23.1B in Stage 1, $21.5B in Stage 2, and now $19.7B in Stage 3), the totals have been fairly consistent. To declare the auction concluded, the FCC will at a minimum need forward auction payments to cover the reverse auction total, the $1.75B for repacking, and the several hundred million in auction expenses incurred.
As a result, the spectrum clearing target will likely need to drop until the total bids in the reverse auction are less than $17B. That would allow the FCC to cover the reverse auction payments for spectrum plus the roughly $2B in repacking costs and auction-related expenses if the forward auction still brings in $19B or so. However, since the total forward bids have dropped a bit in each stage, it’s reasonable to assume that trend will continue, meaning total reverse auction bids will need to drop significantly below $17B for the auction to finally conclude. That’s quite a way from today’s $40+B target and, barring some surprises, makes it likely the auction will see a Stage 5 and perhaps a Stage 6, taking us far into 2017.
When the National Broadband Plan was announced by the FCC in 2010 as a way of repurposing spectrum while reducing the federal deficit, broadcasters were, for the most part, decidedly uninterested in the reverse auction. Only after the FCC presented sky-high valuations for broadcast spectrum in the Greenhill Report did shareholders insist broadcast companies take a closer look. It now looks like that initial disinterest was fully justified, with most broadcasters having spent more on their auction participation and forgoing deal opportunities during the “quiet period” than they can ever hope to derive from the auction itself.
So broadcasters’ first instinct regarding the Spectrum Auction may well have been the right one. And that part about the excess auction proceeds reducing the federal budget deficit? Turns out that’s not happening either.
With great anticipation, the Stage 2 Forward Auction commenced at 10am this morning. It officially ended at 12:14pm, when the FCC announced:
Bidding in the forward auction has concluded for Stage 2 without meeting the final stage rule and without meeting the conditions to trigger an extended round. The incentive auction will continue with Stage 3 at a lower clearing target.
As I wrote less than a week ago, there was never much hope that the Stage 2 Forward Auction would bring in the $57B or so needed to cover the FCC’s bidding commitments and associated costs in the Stage 2 Reverse Auction. The Stage 1 Forward Auction concluded at a paltry $23B, and a sudden jump in bidding to nearly $60B in Stage 2 was definitely going to be a bid too far. However, as we discussed last week, spectrum auction groupies are basically split into two camps: those who think that wireless bidders were holding back in Stage 1 to conceal their resources and bidding strategies, and those who thought Stage 1 represented the high water mark, with the total amount bid going down as the amount of spectrum being cleared dropped with each stage. Based on this morning’s results, the latter group is growing.
Not that we should be surprised. With the FCC starting the bidding where the bids left off in Stage 1, the main reason for bidding in Stage 2 was to correct for any refinements of bidding strategy since Stage 1. Based on Stage 2 concluding after only one round of bidding, it appears that the wireless bidders had already refined their strategies before Stage 1 commenced, and didn’t see any reason to change their approach now.
The rapid conclusion of the Stage 2 Forward Auction does appear to have surprised the FCC a bit. The FCC announced this morning that:
The FCC expects to release a public notice next week announcing details about the next stage, including the clearing target for Stage 3, and the time and date at which bidding in Stage 3 of the reverse auction will begin.
While this language is quite similar to the language that concluded Stage 1 (except for the addition of “expects to”), it certainly contrasts with recent statements from the FCC about its intent to accelerate the auction process, including its statement (later modified) that the Stage 2 Forward Auction would commence “on the next business day after the close of bidding in Stage 2 of the reverse auction.”
So the big question now is whether the FCC will continue to slowly reduce the clearing target (126 MHz in Stage 1, 114 MHz in Stage 2, and now 108 MHz in Stage 3?) as it previously indicated it was bound to do, or whether it can make a more significant reduction that brings the forward and reverse auction dollar figures much closer together. While some have argued that there is no reason for the FCC to expedite the process, and that remaining on the slow and meticulous path of very incremental clearing targets converts the greatest amount of broadcast spectrum to wireless use, bidder fatigue is definitely beginning to set in. More importantly, the sooner the auction is concluded, the sooner spectrum is freed for its newfound purpose, so the delay is not harmless.
In addition, the continued applicability of the rule on prohibited communications during the auction has put much of the TV broadcast industry into a cryogenic state, particularly with regard to station sales. Dragging the process out any longer than necessary causes real economic harm, and the impact only grows as station owners recognize there will be no windfall and want to move quickly to sell stations they otherwise would have sold several years ago.
With forward auctions now measured in hours, it is clear that it is the reverse auctions where significant time is being lost in concluding the Incentive Auction. The Stage 1 Reverse Auction lasted 28 days, and the Stage 2 Reverse Auction lasted 30 days. Unlike the Forward Auction, which went from 14 days to half a day, the Stage 2 Reverse Auction still consumed significant time, even with a reduced spectrum clearing target. More rapidly reducing the spectrum clearing target is the most efficient way of moving new spectrum to wireless use, commencing the broadcast repack, and putting broadcasters back on the road to normalcy.
After six years of the National Broadband Plan and its key component, the Spectrum Incentive Auction, it’s getting hard for broadcasters to remember what normal feels like.