Low Incentive Auction Average Price Won't Mean Failed Auction, Attorneys Say
The current average price per MHz pop in the incentive auction below the threshold needed to trigger the final stage rule won't lead to a failed auction, attorneys following the process said in interviews Monday. It may mean the auction is less likely to close in the current Stage 4 (see 1612050062) than is commonly thought, they said. To trigger the final stage rule, the average auction price this stage must reach $1.25 per MHz POP for the most valuable spectrum. When the reverse auction starts Tuesday (see 1612090028), the price will be a fraction under $1.22 per MHz pop, said the public notice announcing Stage 4.
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One official who follows the auction said larger carriers could use the price gap to cause the auction to fail on purpose. Other lawyers said they don't think that's the case. They said the gap could make it harder for the auction to close than some analysts had expected.
The average MHz per POP price in Stage 4 was determined by the previous rounds' bidding, while the $1.25 per MHz POP threshold for the final stage rule was a figure determined by the FCC months ago, attorneys said. At the time, it was widely believed the auction would have no difficulty staying above that threshold, they said. One lawyer said the low average price is likely caused by some blocks of spectrum in Los Angeles that have been receiving zero bids, significantly bringing down the average price. To bring that up, forward auction bidders would need to bid on that spectrum, or to otherwise increase their demand for the top frequencies in the auction, attorneys said. AT&T, T-Mobile and the Incentive Auction Task Force declined to comment.
If the average price per-POP doesn't rise, the auction will proceed past Stage 4 even if the forward auction generates enough money to cover the clearing cost determined by the reverse auction, analysts said. If that happens, it's likely to be arrested in a later auction stage, said an attorney, since by Stage 6, the un-bid-upon blocks of spectrum in L.A. will no longer be on offer in the auction. The lawyer said that likely would cause the average per-POP price to rise. Several analysts focused on Stage 4 as a likely spot for the auction to close because the 84 MHz band plan doesn't contain the guard bands that previous plans did, freeing more spectrum to repack broadcasters. Since the broadcasters will be easier to repack, the price for their spectrum will drop, attorneys said.
Large wireless carriers that don't need the 600 MHz spectrum on offer as much as their smaller competitors do might be able to exploit the price gap to their advantage, said one auction watcher. If they don't up their bidding on the more valuable spectrum, the auction could keep slipping stages until it fails, the official said. That's unlikely, since there's no reason the smaller wireless companies couldn't bid on that spectrum themselves, thus raising the price, several attorneys said.
The auction won't close in Stage 4 unless the reverse auction clearing cost falls precipitously, said Justin Nielson, senior researcher for S&P Global Market Intelligence. Stage 3 closed at just over $40 billion, and in Stage 4, that number likely would need to fall to under $30 billion, Nielson said. Enough spectrum is on offer in Stage 4 that the major bidders should be able to all "get what they want," while remaining "fairly conservative" he said. At lower stages, the bidding could get more competitive, he said.
"In an auction like this, we shouldn't expect a linear rise in prices," said Public Knowledge Senior Vice President Harold Feld. There are incentives for the forward auction bidders not to bid aggressively in stages where the prices and the reverse auction clearing cost are too high, he said. Feld doesn't believe the MHz POP price gap will be an issue since the prices in Stage 4 should fall enough to incite competitive bidding, he said.