Here's What's Next For The Spectrum Auction

 Last week, President Obama signed into law legislation authorizing an incentive auction of broadcast spectrum as a means of transferring spectrum from TV to wireless broadband, where the FCC and others policymakers have concluded it will eventually be badly needed.

To get a handle on how the auction would work and what it all means to TV broadcasters, TVNewsCheck Editor Harry A. Jessell spoke with John Hane, a Washington communications attorney with the firm of Pillsbury Winthrop Shaw Pittman.

As Hane sees it, the FCC's big job is to induce enough stations in the most densely populated areas to give up their spectrum for auction with the guarantee of a definite payoff — a payoff established by a preliminary reverse auction.

He also says that broadcasters who choose to hang on to their spectrum are protected to a certain extent by the safeguards that NAB lobbyists had built into the authorizing language, especially a provision that says the FCC has only one shot at the TV spectrum.

It will take years for a motivated FCC to conduct the necessary rulemakings and implement the auctions, he says. But each broadcaster needs to pay attention to what's going as the auctions and attendant repacking will shake up the entire TV band. "If I can't outrun the bear, then I want to outrun the other guy. I want to get the best new assignment in my market," Hane says.

An edited transcript follows:

Explain how the incentive auction would actually work.

The FCC is going to try to clear broadcasters completely out of the top end of the UHF TV  band so it can create new licenses there. To do that successfully, it needs some stations in the Washington-Boston corridor, the major markets of the West Coast, some border areas and a few other places to be willing to sell their licenses.

So, the first step is for the FCC to get a sense of how many stations in those areas might be willing to sell. It has a lot of ways of figuring that out, but it won’t know for sure until it has run a so-called “reverse” auction. In a normal auction, the seller finds the highest price a buyer will pay. In a reverse auction, the buyer — the FCC — will find out the lowest prices at which stations may be willing to sell their licenses.

For the reverse auction, stations in each geographic grouping will submit bids identifying the lowest price at which they are willing to sell. The FCC will notify each station whether its bid was accepted, and those whose bids were accepted will be obligated to sell after the forward auction.

In the forward auction, the FCC simply sells to the highest bidders, presumably wireless carriers. If all goes well, the forward auction will yield enough money to pay off the broadcasters who participated in the reverse auction, cover the repacking costs of the broadcasters who didn't volunteer spectrum and still deliver a big check to the treasury.

What happens if the total from the forward auction is less than that from the reverse auction?

The law requires the auction to at least break even. So if the forward auction doesn't yield enough money, then no TV licenses are reclaimed and no new wireless licenses are issued.

Once the FCC has conducted the reverse auction, it will have enough information to repack the TV band to consolidate and maximize the spectrum available for the forward auction. Is that correct?

Yes. The FCC can’t design the licenses it wants to sell until it knows how much spectrum it can clear. And to figure that out, it has to have a good idea of how many stations are willing to tender; how efficiently it can re-pack remaining stations; and what constraints it will face along the Canadian and Mexican borders.

There’s probably a huge, huge difference in the whole auction depending on whether a half-dozen stations in a few key markets are in or out. The amount of spectrum cleared nationwide would be much greater if 18 stations in New York, Baltimore-Washington and Los Angeles bid versus 12. Those aren't the only critical markets, but you get the idea. The FCC really needs volunteers in areas of high population density.

What's involved with the repacking?

Repacking means moving all stations nationwide out of the bands to be auctioned. So you will have repacking even in markets where there was no reverse auction.

Each station that doesn’t sell will be subject to having its license modified. Many or most will receive different channels and many may be assigned different power levels or in some cases even different transmitter sites.

We can only guess at the rough outlines of the auction at this point. The new law gives the FCC a huge amount of flexibility to design both auctions, and allows them to be conducted separately or at the same time.