Wireless Trumps Television: FCC Incentive Auctions of the TV Spectrum

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By Sam Hampton

Responding to novel technological needs and market forces, the FCC has developed a program of incentive auctions. The agency is working to allocate more spectrum to wireless broadband services. The 2010 National Broadband Plan introduced the incentive auction as a voluntary, market-driven system to efficiently allocate the spectrum in a new technological climate; the plan was given congressional authorization in 2012. The FCC issued a notice of proposed rulemaking in September 2012, detailing proposed procedures for these incentive auctions; rules were adopted in May 2014.

The first auction under the new rule regime was Auction 97, which concluded in late January 2015. The auctioned licenses were for the Advanced Wireless Services (AWS-3) spectrum, covering the 1700MHz and 2100MHz blocks. Auction 97 set revenue records; gross bids for the auction totaled nearly $44.9 billion on over 1600 licenses. Furthermore, just 31 bidders purchased these licenses, principally wireless carriers such as AT&T, which alone bid nearly $18.2 billion. The resulting revenue was more than double the previous auction of the 700MHz auction, which took place in 2008.

The FCC is planning another incentive auction, to happen in early 2016 (it was originally scheduled for mid-2015). This time, television broadcasters will be asked to auction their spectrum licenses. The spectrum at issue, the 600MHz range, is much more desirable than the range sold off in Auction 97; this range reliably carries mobile service, especially in rural areas. In the words of Ellen Satterwhite, a former FCC employee, “This is beachfront property. We’re not going to get this quality of spectrum, or this much spectrum, on the market in the foreseeable future. Or as Tom Wheeler, the chairman of the FCC, puts it, it is “a once-in-a-lifetime opportunity.”

The actual auction procedures are complicated, but happen in two main parts. There is first a reverse auction, where the FCC will set a price to pay broadcasters as low as possible while still getting a sufficient number of regional broadcasters to participate. Then the forward auction to bidders, likely mobile carriers, will take place, where the highest bid will win. Profits will go to the US Treasury.

However, the auction is not without controversy. Some broadcasters groups see the initial bids in the reverse auction as grossly undervaluing the spectrum. Moreover, the spectrum being offered up is what allows small and public broadcasters to effectively operate. The sale could lead to industry decline and reinforce the dominance of cable and satellite television providers. Finally, the forward auction is also controversial, as the FCC attempts to allocate the spectrum to ensure that smaller carriers like Sprint and T-Mobile can compete with the dominant players, Verizon and AT&T.

Still, the auction represents the opportunity for a true win-win: the broadcasters receive substantial payments, as does the US treasury, and the spectrum is converted to the most productive use given technological changes.

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