Incentive Auction Quiet Period Likely Unusually Long for Carriers, Broadcasters

The initial step for carriers and other buyers in the forward auction will be filing short-form applications, which describe the ownership of the bidding entity and what markets company is interested in pursuing, as well as any bidding agreements. Filing of short form applications starts the quiet period, limiting business discussions between bidders under anti-collusion rules.

The FCC allowed itself some wiggle room on timing. Gary Epstein, chairman of the FCC Incentive Auction Task Force, said after the FCC meeting last week that the agency will start accepting applications from broadcasters and the wireless companies “in the fall.” The FCC is expected to release a timetable very soon, an agency official said Thursday.

The auction procedures public notice, released Tuesday, clarifies that bidders in the forward auction will have to make upfront payments only after the initial clearing target and associated band plan scenario has been determined by the reverse auction. “This timing will enable an applicant to take into account the number of spectrum blocks in the band plan scenario associated with the initial clearing target when determining the amount of its upfront payment,” the notice said. Specific instructions are to come in an upcoming applications notice. Industry officials expect that PN in early September.

Quiet Period Hurdles

Wireless industry lawyers with carrier ties told us Thursday they expect an unusually long quiet period limiting discussions between potential wireless bidders that file short-form applications for the forward auction and between broadcasters.

In the recently concluded AWS-3 auction, which involved only wireless entities, the quiet period started Sept. 12, and ended Feb. 13, two weeks after the conclusion of the auction. Since the forward auction likely won’t actually start until late April or May, the quiet period could run into the summer, the wireless lawyers said.

Carriers take the anti-collusion rules very seriously, said a wireless industry lawyer. “It does create a chilling effect on normal business operations, whether it’s roaming or spectrum swaps or interconnection agreements,” the lawyer said. “It’s hard to predict the effect the quiet period will have on the broadcast sector,” said a former FCC spectrum official. “This is brand new for broadcasters and it remains to be seen whether they will take as conservative an approach as the wireless entities do.”

The FCC has done a good job of getting all of the pieces in place for the incentive auction, said Steve Berry, president of the Competitive Carriers Association. “Because the auction is complex and novel, it is incredibly important for the commission to give carriers, especially small rural and regional carriers, enough time to conduct proper due diligence and explore financing opportunities,” Berry told us. The FCC “must be ever mindful of the chilling effect that the FCC’s anti-collusion rules can have on carrier negotiations outside of bidding strategies,” he said. “The shorter the anti-collusion period, the better for the wireless ecosystem. I hope the FCC will give carriers and broadcasters as much time as possible by setting the short-form application deadline for late fall, thus shortening the ‘quiet period.’ All of these things will help to enhance participation in the auction.”

The FCC delegated many decisions to the Wireless Bureau, said Fred Campbell, executive director of the Center for Boundless Innovation in Technology and former chief of the bureau. “Though the FCC required the bureau to issue a public notice for the applications process at least 60 days before the deadline for filing applications and announced a March 29, 2016, date for broadcasters to commit to their initial bid preference, the bureau still has significant flexibility over the timing of the initial filings,” he said.

Delay Possible

The FCC might delay the auction start, giving carriers more time to plan, or change the short-form application deadline, experts said.

“Considering the FCC was still developing a reverse auction application form when it adopted the procedures public notice a few days ago and still hasn’t released all the technical details for determining initial bids and bid processing, it’s also possible the March 29 start date will be pushed back,” Campbell said. “The FCC has delayed auctions in the past, and a delay in the incentive auction wouldn’t be too surprising given its complexity.”

Carriers should have plenty of time to make decisions about the auction, said Adonis Hoffman, former chief of staff to Commissioner Mignon Clyburn. Hoffman is now at think tank Business in the Public Interest. "With the auction schedule and procedures in place, bidders should have ample time to arrange financing,” he said. “After all, we're talking about companies with deep pockets and a long view of the market. I am told that the smart prospective bidders already have models and logarithms in place, including options. Remember, this is not a game for the faint of heart."

“The later the short-form applications are due the more participants will show up as you give them more time to ‘get all ducks in a row,’” said Roger Entner, analyst at Recon Analytics. A prolonged quiet period “would not bode well and probably prevent some parties from participating,” he said. “For an auction of such importance and magnitude, one would think the FCC would do everything it could to maximize the number of participants by having the deadline as late as possible.”

The quiet period will be tricky because it involves broadcasters, said Paul Gallant, analyst at Guggenheim Partners. “So it’s a little uncertain how things like network-affiliate discussions and maybe even retrans are affected by the anti-collusion rules,” he said. “The FCC wants to prevent collusion without disrupting business discussions that are central to the media ecosystem.”

“Carriers and broadcasters need to be pushed to start making these decisions -- the auction is extremely complicated and it is too easy to avoid the steep learning curve given the conventional wisdom that this auction would never happen until 2017 or even later,” said a lawyer who represents wireless carriers in FCC auctions. “The FCC needs to send clear signals regarding time frames so interested parties become fully engaged and educated on the relevant issues. The capital market is always in flux, but auction revenues tend to decline more when the economy is sagging rather than growing.”

FCC Webinar

In a channel sharing webinar Thursday (see 1508130053), Wireless Bureau attorney Erin Griffith said the deadline would come this fall, 60 days after opening bid prices for all auction eligible stations are released. The application deadline is particularly important to TV broadcasters because it affects all auction-eligible stations and is also the date on which the incentive auction’s anti-collusion rules are expected to take effect. Those rules include a prohibition against broadcasters discussing any bid information or bidding strategy information, and its specific scope is not yet clear, several broadcast lawyers told us. “There is confusion among broadcasters and their attorneys into how these rules will affect stations day to day,” said Wilkinson Barker broadcast attorney Rosemary Harold.

Broadcasters that have agreed before the incentive auction to channel share are exempt from those communication prohibitions, and the short-form deadline is also the date by which they must turn their agreement into the FCC to take advantage of that, said IATF Chief Policy Counsel Dorann Bunkin during the webinar. Stations that agree to share after that deadline will be bound by anti-collusion communication rules and have to wait until after the auction is complete to execute their sharing agreements, Bunkin said.

By the short-form deadline, auction-eligible stations need to submit an application identifying the relinquishment options they would accept in the auction, such as going off air or a move to low VHF, said Wiley Rein broadcast attorney Ari Meltzer in a blog post. That application is “a binding commitment,” but stations will have another opportunity to specify a preferred bidding option, Meltzer wrote. Stations have to pick their preferred option for the initial round of bidding by March 29, and after they do so, they can only change to an option “lower” in the FCC auction hierarchy, he said. That hierarchy is: “(a) off-air, (b) move to low VHF, (c) move to high VHF, (d) exit,” he said. After the March 29 deadline, the FCC will send stations letters telling them if they're qualified to participate in the reverse auction, Meltzer said.