Wheeler Delays Incentive Auction to Mid-2015, Much to Stakeholders’ Relief

"As any responsible manager knows, managing a complex undertaking such as this also requires an ongoing commitment to continuously and honestly assess its readiness and its project plan,” Wheeler said in a long blog post (http://fcc.us/18oDnKC). “I believe we can conduct a successful auction in the middle of 2015. To achieve that goal, there will be a number of important milestones along the way.” The agency’s incentive auction task force will give updates about the timeline and milestones in a presentation at the January FCC meeting, Wheeler added. Wheeler, during a question period following his Dec. 2 policy address in Ohio, said the auction timetable would be coming soon and cautioned against rushing. In mid-November, observers said a delay would not be surprising, but FCC officials were reassuring at least one stakeholder that the auction was on track to be held in 2014 (CD Nov 21 p1).

Changing the timeline to mid-2015 “is exactly the right thing to do,” said Blair Levin, an Aspen Institute fellow and Gig.U executive director. “From the perspective of getting this spectrum in use, it would be good to do this earlier -- but this is a very complicated auction. They're trying to address the problem of reallocation in a way that hasn’t been done before, so it’s far better to get it right.” Levin praised Wheeler for focusing “on the right way to get this auction done, not just on the right way to articulate it. It’s good to have someone who’s very focused on the details of managing this process."

The Senate Commerce Committee set an oversight hearing on the auction for Tuesday at 2:30 p.m. in 253 Russell. Witnesses will be FCC Incentive Auction Task Force Chairman Gary Epstein, AT&T Vice President-Federal Regulatory Affairs Joan Marsh, Progressive Policy Institute Senior Fellow and Navigant Economics Managing Director Hal Singer, Competitive Carriers Association President Steve Berry, Expanding Opportunities for Broadcasters Coalition Executive Director Preston Padden, NAB Executive Vice President Rick Kaplan and Public Knowledge Senior Vice President Harold Feld.

Several of these Senate Commerce witnesses lauded the delay while stressing the complexity of the auction. AT&T’s Marsh called the timeline “both prudent and reasonable,” in a statement. “The 600 MHz incentive auction is by far the most complex auction proceeding ever undertaken anywhere in the world,” Marsh said. “The Commission must persuade two different sets of auction bidders to participate in two separate but inter-related auctions. While those auctions proceed, the Commission must conduct a dynamic repacking analysis that protects and repacks the broadcasters that remain.” AT&T remains “eager to see new spectrum allocations brought to market as soon as practical,” she added.

"While additional spectrum is an immediate need, I agree it is even more important that the FCC take the time to get the design and rules of the auction right,” Berry said in a written statement. “The auction must ensure that all carriers -- large and small, urban and rural -- have the opportunity to bid on and win additional spectrum.” Berry urged the FCC to opt for smaller license sizes and “appropriate” spectrum aggregation limits as a way of upping participation. CCA also wants the FCC to complete the mobile spectrum holdings proceedings, which would give carriers more certainty, Berry said.

"I'm glad the FCC is being both realistic and transparent about this,” Feld told us. “Everyone agrees it’s better to take the time to do this right than it is to stick to what many of us thought was a much too optimistic deadline.” The statutory deadline is not for another eight years, he said, saying there’s also a spectrum auction scheduled for next month and that “things are looking up” for the 1755 MHz auction. Spectrum needs are more long term than urgent, he said. The FCC and Wheeler have made it “very clear this isn’t getting forgotten on the back burner or needlessly delayed,” Feld said.

Representing broadcasters that may be interested in selling spectrum, Padden praised the schedule as “thoughtful and realistic,” commending Wheeler and the task force. Padden’s prepared testimony before Senate Commerce for next week’s hearing argued the FCC will have to make several adjustments to attract a “critical mass” of broadcasters to the auction (CD Dec 6 p15). NAB President Gordon Smith said “the most important goal is to get the auction done right,” given the auction’s complexity. NAB wants “a successful auction that delivers spectrum for broadband while ensuring a vibrant future for broadcasting,” he said in a statement.

"Carriers are bumping up against spectrum constraints that can only be met with more equipment (which raises incremental costs) or higher prices (to manage the congestion directly),” Navigant’s Singer told us by email. “Both options lead to higher prices, which is bad news for wireless consumers. Ideally, we could free up additional spectrum as quickly as possible. If 2015 is the soonest possible to conduct an open, well-run auction, however, then I understand the delay.” Singer has represented AT&T, a major potential player in the auction.

"Proponents of asymmetric spectrum caps have failed to meet their evidentiary burden of establishing any evidence of impairment among carriers that lack low-frequency spectrum,” Singer plans to tell Senate Commerce Tuesday, according to his prepared testimony. “This Committee should ask the FCC: How has this alleged impairment manifested itself? With persuasive evidence of impairment leading to supra-competitive price or reduced output, it would be reasonable to consider asymmetric spectrum caps. But in its absence of such evidence, this policy appears designed solely to benefit certain competitors at the expense of broadband consumers and taxpayers.”

Wheeler emphasized a successful auction requires “several key ingredients,” which he cited in his post. “We absolutely must make fact-based policy decisions in an open and transparent manner,” he said. “We must also exhaustively test the operating systems and the software necessary to conduct the world’s first-of-a kind incentive auction. This includes ensuring that such systems are user-friendly to both broadcasters and wireless carriers who will participate.” Wheeler said he has spent more time working on this auction than any other single issue since confirmation.

Under the timeline proposed, the FCC would review policy recommendations as part of a report and order early in 2014 and then vote on it in spring. Wheeler pointed to developing auction procedures as key: “In the second half of next year the Task Force plans to release an Auction Comment Public Notice and a Procedures Public Notice that will provide additional details and seek comment on how the specific parts of the auction will actually function. Getting the right policy and procedures for the auction is only half the job. For the incentive auction to be a success, we must also ensure that the operating systems and software to run it work from the moment the first bid is placed, until the final broadcast station is relocated or ‘repacked.'” Wheeler emphasized rigorous testing of software and system architecture and a planned mock auction as well as software demonstrations for those who will need to use it.

Other observers and stakeholders offered support. House Commerce Committee ranking member Henry Waxman, D-Calif., commended Wheeler for “an aggressive, yet achievable time frame” and his “commitment in ensuring all the procedural and technical challenges will be fully addressed before the auction takes place.” House Communications Subcommittee ranking member Anna Eshoo, D-Calif., also cheered what she called “a well-thought out plan” that “ensures a path forward for meeting our nation’s growing demand for wireless broadband.” The new schedule is more realistic, said Stifel Nicolaus in a research note. Stifel believes the timetable will provide comfort to broadcasters worried about an FCC rush.

"By pushing out the incentive auction date and crafting solid bidding guidelines, the FCC can improve chances of generating the level of auction receipts necessary to satisfy policy goals and revenue obligations,” said Jeff Silva, a Medley Global Advisors analyst, in a note to clients. “Removing an artificial deadline for the incentive auction also lessens the drain on FCC resources otherwise required for other priorities, including the IP transition.”

CTIA President Steve Largent welcomed the news and called the auction “essential to unleashing necessary additional spectrum for mobile broadband.” T-Mobile is “very supportive of getting it right,” said Vice President-Federal Regulatory Affairs Kathleen Ham. Dish Network Deputy General Counsel Jeffery Blum said “providing a clear roadmap is important for the public and industry.” Association of Public Television Stations President Patrick Butler lauded Wheeler’s “transparency in sharing this timing” with industry as well as the thorough testing of the auction mechanisms. CEA Vice President-Regulatory Affairs Julie Kearney wrote a blog post (http://bit.ly/195Wnyf) praising the FCC for “moving full speed ahead” in the auction. “Obtaining additional spectrum for wireless broadband and other services remains a top goal of CEA and our members,” Kearney said.

"For potential bidders, the important thing is to get a general sense of timing so they know whether to be raising money for the auction or looking to possible acquisitions for more immediate spectrum needs,” Feld said. “The FCC is providing that, and I think the industry appreciates it.” (jhendel@warren-news.com),