NAB Sees Real Dangers in Parts of Incentive Auction NPRM

Three weeks after the FCC released the NPRM (http://xrl.us/bnvzq5), questions remain about how many TV broadcasters will sell their channels and how much spectrum will be cleared for sale for carriers to use to deploy wireless broadband. FCC officials are set to further explain the proposal at an educational forum Friday afternoon at FCC headquarters (http://xrl.us/bnv2hq).

The “vast majority of broadcasters, at least those that I speak to, are planning ... to continue to provide broadcast service and to provide all of the content that they have to the public, to their audiences,” Mago, the association’s general counsel, said. “They want to continue to serve their communities in the way that they have in the past and that they want to do well into the future.”

The NPRM’s theory is that broadcasters that don’t sell their licenses won’t be affected, Mago said. “You have to recognize that those broadcasters will be forced to relocate,” she said. “There is a forced relocation element in all of this. No one quite knows how that’s going to work and what exactly it’s going to do to the service contours and to the ability of the stations to continue on in the future."

Gary Epstein, head of the FCC’s Incentive Auction Task Force, on the same program with Mago, said the commission will make the channel repacking as transparent and simple as possible. “I have said a number of times and in a number of different forums that the complexity will be under the hood,” he said. “What I mean by that is when the broadcasters come into the room we want to make it simple for them to bid. That really doesn’t have anything to do with making the repacking mechanism or the interference mechanisms completely foreign to the broadcasters or anybody else.” Repacking will be “an open and transparent process” and “all the stakeholders, including the broadcasters, will be invited to help us design that process and do it in the most efficient manner."

Epstein encouraged industry players to file comments on the NPRM. “The FCC has consulted with some of the world’s economics and auctions experts to begin that process of designing the incentive auction,” he said. “With our notice we seek comment from experts around the country to further improve, refine and even replace our current proposals.” Epstein noted that the February spectrum law providing the FCC with authority to hold the auction requires the FCC to “repack television stations that, one, do not bid in the reverse auction, or two, if they bid, their bids are not accepted.”

Industry and FCC officials told us one big question is whether the proposed rules are too complicated and whether broadcasters might have trouble lining up expert advice. One FCC official said broadcasters are concerned that the agency hired so many of the U.S.’s leading auction experts to craft its proposals that many leading economists are disqualified from providing advice on navigating the auction rules. The official noted that most law firms with auction experts already work for the carriers and won’t be available to provide broadcasters with counsel on the upcoming auction.

"If there’s a coming stampede of broadcasters who intend to volunteer to go out of business, we still have not heard the hooves,” said NAB spokesman Dennis Wharton. “Tremendous uncertainty remains about the incentive auction proposal, and the NPRM unfortunately did not provide much clarity. We look forward to working with the FCC and Congress to gain greater understanding of the FCC’s plan, because NAB has never opposed the concept of an auction that is truly voluntary and fair to TV stations who will choose to remain in business.” “I think it is fair to say that the complexity of the process is a significant issue,” a broadcast industry official said Thursday. “This not only applies to the auction rules themselves, but the rules which will govern those stations that choose not to participate in the auction -- i.e., repacking. We need a lot more clarity on both sides of this equation."

"I think we will have people who will be able to help us,” Mago said in an interview earlier this month. “They come out of the woodwork and I'm pretty sure that will happen here.” Moreover, the association recently hired Rick Kaplan, the former chief of the FCC’s Wireless Bureau, to lead NAB work on spectrum and innovation policy.

Other broadcasters may decide they don’t need any advice at all. Some are already ignoring the auction, an industry technical consultant said. “They've decided they don’t want to participate and they don’t see it as a problem,” said Richard Mertz of Cavell, Mertz and Associates. But that’s a mistake even for stations that plan on keeping their spectrum, he said. “Right now it’s an NPRM and stations need to start taking a look at it."

There’s no shortage of smart economists for broadcasters to tap, said Michael Petricone, senior vice president of government affairs at CEA. “Our universities are filled with top economists. I'm sure parties in need will be able to find some,” he said. He said he expects to see continued calls over the next few years to slow down or delay the auction process. “There are a lot of stakeholders with interest in delaying and slowing this down,” he said. But moving forward quickly is important, he said.

Public Knowledge Staff Attorney John Bergmayer remains hopeful the incentive auction will be successful. “The rules for this auction are certainly complicated,” he said. “At the margins, this could make a difference. But I think it’s unlikely that broadcasters are going to leave money on the table."

A longtime wireless lawyer said broadcasters looking for counsel should be able to find it. “A lot of the carriers have started hiring auction experts, economists and law firms, but they always do that for any major auction-related proceeding,” the lawyer said. “If you've been a communications lawyer and you've been following developments, this auction is going to be really complicated, but it’s not like you can’t learn this stuff and advise your clients,” the lawyer added. “There are a lot of wireless lawyers out there in the marketplace. I don’t think all of them have been hired."

"It’s far too early to know any of this stuff, because there’s no detail,” said a former FCC official. “There’s so much detail to be filled that to even answer the question of what kind of expert you need is a huge question mark.” It would be too early for broadcasters to hire an economist “based on this NPRM, [because] they wouldn’t even know what to tell you,” the source said. “There’s just not enough filled in. There’s a lot of question marks.”

"The totality of currently known factors associated with this unprecedented auction, including relatively sound economic fundamentals of a good number of TV broadcasters in major markets ... tends to suggest expectations for unlocking additional airwaves for mobile broadband through incentive-based bidding should probably be tempered,” said Jeff Silva, analyst at Medley Global Advisors. “However, the incentive auction, even if less successful than anticipated, will take on added meaning if successfully combined with other initiatives to push more spectrum into the wireless market.”