FCC Sets High-Clearing Auction Target, With Lengthy Reverse Auction Expected

FCC officials said Friday that of the blocks offered, 99.6 percent will have 15 percent or less impairment. At 126 MHz, there is a maximum of 4,160 blocks of spectrum that could be made available in the U.S., and of that amount, the FCC will offer 4,048 licenses, officials said. Of the licenses to be sold, 3,999 are 0 percent impaired. Just 18 licenses nationwide have impairments of 15-50 percent, officials said.

The FCC sent out final status letters to each applicant Friday, telling broadcasters the status of their offers to sell their spectrum, the agency said. The FCC said in a notice that it will release a bidder user guide May 5, hold a bidder tutorial for the reverse auction May 18 and allow qualified bidders to review the system May 23-24. The FCC said it will hold one bidding round per day the first two days, then two rounds on day three. As is typical for auctions, the FCC said the Wireless Bureau may further accelerate the schedule as the reverse auction continues.

“The amount of the initial clearing target gives little to no indication on how much spectrum the auction will clear or how it will be valued,” BTIG analyst Walter Piecyk told us. “The high quality of spectrum seems to counter Verizon’s vocal critiques about impairment.”

Wells Fargo said the high clearing target wasn't a surprise. “Given that we still are not certain of how much demand there will be on the FORWARD side, there is a high probability that this 126 MHz clearing target is not met in the first stage of the auction,” the firm said in a note to investors. “At this point, we would not be surprised for the auction to go well into Q4.”

A broadcast lawyer said the high clearing target likely ensures multiple stages and a longer auction and means the FCC would have to raise $90 billion or more to pay off broadcasters. The continuing question is whether bidders in the forward auction will come in anywhere close to that amount, the lawyer said.

Some major markets will offer relatively little spectrum, according to a chart released by the FCC Friday. For example, in Los Angeles, the second-largest market, only five unimpaired blocks will be for sale because of Mexican impairment and other congestion issues. Only four unimpaired blocks will be for sale in San Diego for similar reasons. Stakeholders speculated as late as last year that nothing would be available in those markets, but an agreement with Mexico on the 600 MHz band allowed some spectrum to be offered in the auction (see 1507240051).

Among the 10 largest markets, New York has nine unimpaired blocks and one block with up to 15 percent impairment, according to the chart. In Baltimore-Washington, seven unimpaired blocks and one with minimal impairment are listed. Philadelphia has eight unimpaired blocks and one with minimal impairment. Cleveland is the largest market with a block at higher than 15 percent impairment.

Focus Shifts to Wireless Industry

“Now the onus is on the wireless industry to demonstrate there is significant demand for 600 MHz spectrum,” NAB President Gordon Smith said in a news release.

“Today’s announcement reflects the voluntary decision by many broadcasters that this auction truly is a once-in-a-lifetime opportunity,” FCC Chairman Tom Wheeler said in a statement. “The 126 MHz initial clearing target ensures that wireless carriers and other forward auction bidders have their chance to compete for the maximum amount of low-band ‘beachfront’ spectrum.”

A 126 megahertz clearing target is “huge,” former FCC Chairman Reed Hundt told us. “The willingness to sell shows broadcasters anticipate huge demand for spectrum for the transition to 5G,” he said. “That will be a multiband greenfield opportunity -- low frequency, middle frequencies, high frequencies. If you don't buy a ticket to all three, you cannot be part of the 5G transformation.” The numbers all show broadcasters know their spectrum is more valuable for 5G than the current business model, Hundt said: “Content is moving to the wireless and wireline broadband platform, and that content is dragging broadcast spectrum along with it into the brave new world.”

Fred Campbell, who oversaw the 700 MHz auction as chief of the Wireless Bureau, said the clearing target is good news for the wireless industry. “It will help enable larger, more efficient channel sizes that should make the band attractive to mobile bidders and ultimately, a win for consumers,” said Campbell, now executive director of Tech Knowledge.

“Clearing 126 megahertz seems likely only if broadcasters in key markets are not planning to hold out for a large windfall, and if the three largest mobile carriers are willing to spend big,” said Michael Calabrese, director of the Wireless Future Program at New America. “Even then, we wonder how the commission will return to the Treasury the billions that Congress said is expected for deficit reduction in the 2012 law authorizing the auction. It’s a failure if nearly all the bids go to broadcasters who enjoy free use of the public airwaves.”

“It couldn't start any better for the FCC than this,” said Roger Entner, analyst at Recon Analytics. “Broadcasters are interested in selling their spectrum and it’s at the high-end of the spectrum. Now we get to the hard part, figuring out how much companies are actually willing to pay.”

The auction is “getting a boost” from the rising expectations about the value of 5G, said Richard Bennett, free-market blogger and network architect. “As networking firms that aren't invested in wireless in a significant way, such as cable companies, digest the impact that fast 5G wireless will have on their businesses, many will find it prudent to stockpile licenses as a hedge. If this sort of hedging becomes something everyone is doing, prices will soar.”

"All criticism aside, Wheeler is finally showing some balance when it comes to the broadcasters,” said Adonis Hoffman, chairman of Business in the Public Interest and a former aide to Commissioner Mignon Clyburn. The high clearing target suggests the auction could be a win for broadcasters, wireless and the U.S. Treasury, he said. "With this step in the right direction, it would be nice to see the other shoe drop in favor of the low-power guys, who deserve more than they stand to get out of this windfall.”

CTIA, the Competitive Carriers Association and Telecommunications Industry Association issued statements saying the clearing target is good news. “Achieving this target would be a big step towards ensuring that communications networks can support exploding mobile broadband demand,” said TIA President Scott Belcher. “CTIA is encouraged to see so much interest in the FCC’s incentive auction, which will play a critical role in making spectrum available for 4G LTE and 5G technologies,” said President Meredith Baker in a blog post.

“Competitive carriers desperately need access to additional spectrum, and we knew there was significant wireless carrier interest in participating in this auction,” CCA President Steve Berry said. “We are pleased broadcasters feel the same.”