Incentive Auction Start in 2016 Appears Increasingly Likely, Industry Observers Say
The FCC appears increasingly likely to stick to its latest timetable and begin the TV incentive auction in early 2016, industry officials said Friday. Chairman Tom Wheeler already moved the proposed start of the auction back once, from mid-2015. On Wednesday, White House Council of Economic Advisers Chairman Jason Furman urged the FCC to hold the auction early next year, in his remarks at a Georgetown Center for Business and Public Policy event (see 1503180044). “The success of the last auction is an argument for the importance of the next auction,” he said. Industry observers said a 2016 auction likely was in the cards regardless of the White House push.
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Just two months ago, the timing of the auction appeared in doubt. At CES in January, four of the five FCC commissioners appeared to endorse a pause in work on the auction in light of the record bidding in the AWS-3 auction (see 1501080032). Democratic Commissioners Mignon Clyburn and Jessica Rosenworcel later clarified they didn't necessarily want the start of the auction to be delayed.
“Despite the White House's pressure on the FCC to force an auction sooner rather than later, it's a matter of good government to try to make it work efficiently and fairly rather than quickly,” said a lawyer who represents broadcast and wireless industry clients. A former FCC spectrum official said Wheeler committed to address reserve spectrum in the incentive auction process and seek more comment on designated entity rules during last week’s hearings on Capitol Hill: “There's a lot that needs to get done between now and 2016.”
Paul Gallant, analyst at Guggenheim Partners, said Furman’s comments likely won’t have a material effect on when the auction takes place. “The chairman has been publicly committed to early 2016 for a while,” he said. “That doesn’t mean it’s a lock. Litigation is one of several risks.” BTIG analyst Walter Piecyk said the firm predicted in the aftermath of the AWS-3 auction that the incentive auction was 70 percent likely to start in early 2016, up from earlier predictions of 30 percent.
Wheeler doesn't need much White House prompting to hold the incentive auction on time, several broadcast attorneys told us. “He's determined to hold it in 2016,” said former FCC Chairman Richard Wiley, head of Wiley Rein's communications practice. White House pressure isn't pushing the auction to be held in 2016, the chairman himself is, Wiley said. Though some broadcast attorneys mentioned possible pressure from wireless companies to delay the auction, they said the White House should be less of a factor in holding the auction next year than Wheeler's own desire to do so.
Preston Padden, executive director of the Expanding Opportunities for Broadcasters Coalition, said the results of a recent SNL Kagan study the group commissioned “documented the financial capacity and incentive of the wireless carriers to bid robustly next January removing any plausible argument for delay.”
The success of the incentive auction depends on balancing two uncertainties, Goldin Associates Managing Director Armand Musey said. The first is whether AT&T and Verizon, “after spending far more than they expected in the AWS-3 auction, will have the financial ability to bid aggressively in another spectrum auction in early 2016,” Musey said. On the other hand, if the auction is delayed the FCC could “miss an opportunity to sell when the market is as hot as it has ever been," he said. “Rising interest rates, lower carrier profits and other factors could cause spectrum prices to drop.”
"This is a balancing act for the FCC because, on the one hand, it is important to free up more spectrum,” Free State Foundation President Randolph May said. “On the other hand, it is important to get the auction rules right so the auction has the best chance of succeeding. When the two goals conflict, I'd err on the side of taking enough time to get the rules right.” The FCC already has overcomplicated the auction by using it to skew competition policy, he said. “This diminishes the chances for success and for taxpayer return."
The success of the AWS-3 auction has “imbued” broadcasters and the government “with the urgency of a gold rush to expedite” the incentive auction, regardless of what lessons they should have learned from the earlier spectrum sale, said Roger Entner, analyst at Recon Analytics. It's unclear how much Dish Network’s bidding strategies inflated AWS-3 prices or whether carriers will be able to “tap the financial markets again for tens of billions of dollars so quickly” after the last auction “even if there wouldn't be a Title II shadow looming over industry profitability,” Entner said.