TV Incentive Auction Outlook Seen Uncertain, As Unanswered Questions Abound

Many questions remain about the extent to which the four major carriers will commit substantial dollars to the auction, especially given the very real possibility of an attempted Sprint/T-Mobile combination, industry lawyers said. “It seems like it’s hard to judge [the question of] are the broadcasters going to show up,” said a lawyer who represents small carriers, who predicted that all of the major carriers will participate in the auction.

Former FCC Commissioner Robert McDowell said one lesson from the past is that less complicated auctions tend to be more successful. “The truth is nobody knows where this will end up exactly,” McDowell said. “The commission still has several pivotal orders to issue and even then both buyers and sellers have a lot of tough business decisions to make.” The incentive auction is “the most complicated spectrum auction in world history, literally, and that alone will give pause to a lot of key players,” he said. “It’s too soon to tell.”

"That’s the $64,000 question, whether it’s going to be a success or not, whatever that may mean,” said Rick Kaplan, executive vice president of NAB and former chief of the FCC Wireless Bureau. Key questions include what the realistic pricing looks like when it comes out of the commission, he said. “The level of trust between the FCC and broadcasters has to get better,” he said. “Right now, very few broadcasters are interested in the auction. That doesn’t mean that can’t change or won’t change.”

Most analysts are focusing on broadcasters, but carriers are also crucial, Kaplan said. “Is there a Sprint/T-Mobile tie-up and how does that affect things?” Another big question is whether AT&T and Verizon will have much remaining “thirst” for spectrum if they end up buying most of the licenses in the AWS-3 auction scheduled to start in November, said Kaplan.

The FCC should push the incentive auction back to give T-Mobile and Sprint more time to “fix their balance sheets, especially given the limited bidding advantages it provided these weak carriers in the auction rules,” said BTIG analyst Walter Piecyk. The AWS-3 auction “should provide enough funds for FirstNet, so there is no reason to charge forward to auction spectrum that will take years to reconfigure and clear anyway,” he said. The startup costs for FirstNet, the first responder network, are to be paid for through auction proceeds.

All stakeholders will naturally present “a somewhat biased view to the FCC” to influence the “structure/timing/restrictions” in the auction, said Armand Musey, managing director at Goldin Associates, which provides advice to telecom and other clients. “Even if the FCC could get everyone’s completely honest view, things can change quickly between now and the auction.” A major merger or entrance on the scene of a new key player and all bets are off, Musey said. The human element is also key, he said. “A CEO at one major carrier may just change their mind about bidding strategy at the last minute -- there are just not enough major carriers for this to just average out."

"Under the best of circumstances, predicting auction outcomes is difficult,” said Public Knowledge Senior Vice President Harold Feld. “Here, we have numerous added factors and non-traditional players, such as broadcasters, with no track record on how they will behave.” Everyone has a “pet theory” about what will make the auction a success, Feld said. Opinions vary on whether broadcasters will “naturally” want to sell spectrum and whether the big issue is making it affordable for broadcasters, he said.

"Worse, carriers and broadcasters both have incentives to behave strategically, threatening to limit their participation unless the FCC optimizes the auction for their particular benefit,” Feld said. “Political actors have incentive to behave strategically as well to advance their political aims. As politicians and participants find allies, they encourage each other’s strategic behavior to the detriment of figuring out what really matters."

But Preston Padden, executive director of the Expanding Opportunities for Broadcasters Coalition, representing unidentified TV station owners interested in selling channels in the auction, said Tuesday he sees reason for optimism. The FCC is “making real progress” on providing guidance to broadcasters about prices they can expect to see in individual markets, with a document likely after Labor Day, he said. FCC staff is working hard “on many of the priorities that our coalition has identified,” he said. “We're very, very encouraged.”

Padden has fielded a growing number of phone calls in recent weeks on the auction, in some cases from broadcasters previously not interested in selling their licenses, he said. “We have signed up a few new members in the last couple of weeks."

Padden’s group recently met with top officials from the FCC Incentive Auction Task Force and Media Bureau to discuss channel sharing, said a Monday filing yet to be posted by the commission. “For channel sharing to be viable for most broadcasters, the FCC must provide broadcasters with the utmost flexibility in channel sharing arrangements.” The group cautioned that the reversionary interest rule should not apply to channel sharing arrangements and argued that the commission should not permanently designate channels as shared in the TV table of allotments.