Reverse Auction Ends Stage 4 With $10 Billion Clearing Cost
The reverse auction portion of Stage 4 of the FCC incentive auction concluded Friday, as expected (see 1701100060), at a cost of $10.05 billion to clear 84 MHz, said the agency's Public Reporting System. That's a more precipitous drop from Stage 3's approximately $40 billion clearing costs than many analysts had predicted, they told us, and could indicate the auction may reach its final stage during the upcoming forward auction.With the cost of the repacking reimbursement fund and the auction added, the forward auction will need to raise a total of $12,011,676,822, according to the Incentive Auction Task Force. "I would expect that there will be enough interest among wireless bidders to close the incentive auction," said BIA/Kelsey Chief Economist Mark Fratrik, saying he was only “cautiously” optimistic. “If there is a God, Stage 4 closes,” said Preston Padden, an auction consultant to broadcasters.
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Fratrik said it's not clear whether the auction will close since it's difficult to know the dynamics among the wireless bidders. Analysts have overestimated the demand for the 600 MHz spectrum before, Fratrik said. Wireless bidders are nearly certain to generate enough money to cover the clearing cost, but must also bid the price of the spectrum to over $1.25 per MHz POP to satisfy the auction's final stage rule, a broadcast attorney familiar with the auction told us. When the forward auction starts this week, the spectrum on offer will be $1.22 per MHz POP. NAB didn't comment.
A big drop in price was expected, analysts said, since the Stage 4 band plan makes it easier for broadcasters to be repacked, reducing the cost of their spectrum. The band plan for Stage 4 doesn't include “guard bands” to protect against interference, thus leaving more room for repacking, analysts said. But analyst forecasts were more in the $20 billion or $30 billion range rather than $10 billion. The price dropped so much because there was room for most broadcasters “with any sort of working business model” to be repacked, said the broadcast attorney. At this stage, only broadcasters willing to take very little money are having their spectrum bought, the attorney said. The lower price could be an indication many broadcasters didn't find the prices high enough to sell their spectrum, said Justin Nielson, senior researcher for S&P Global Market Intelligence.
The low price amounts to a “firesale,” said LPTV Spectrum Rights Coalition Director Mike Gravino in an email. “The ball is now squarely in the court of the wireless industry to bring things to a close," emailed PwC analyst Dan Hays. “While a fifth stage of the auction is still not out of the question, it is now far from a certainty.” The incentive auction "was designed to find a mutually acceptable equilibrium price among market participants," said CTIA Vice President-Regulatory Affairs Scott Bergmann in a statement. "We continue to be encouraged that the auction is working as planned, and remain optimistic that the auction will produce a significant infusion of spectrum that will help maintain our global leadership in wireless.” Bidding in the Stage 4 forward auction is expected to start Wednesday, the Incentive Auction Task Force said.