Auction BlockThe Federal Communications Commission, by a 3-2 vote along party lines, adopted a framework for the forthcoming incentive auction of broadcast television spectrum.  It may be several days or weeks before the FCC releases the full text of the Report and Order, which reportedly exceeds 400 pages, including appendices.  However, the FCC released a staff summary, a press release, and a summary of upcoming proceedings, that provide many details about the Report and Order.  The summary below includes information from those documents and the FCC open meeting.

Reverse Auction

The reverse auction is the mechanism by which the FCC will reclaim broadcast spectrum for reallocation to mobile broadband.  Only full power and Class A television stations (both commercial and non-commercial) will be eligible to participate in the reverse auction.  Licensees with pending enforcement matters will be permitted to participate; however they will be subject to an escrow process if their bids would result in their holding no broadcast licenses.  In terms of participating in the auction, broadcasters will have four options: (1) relinquish their license and discontinue broadcasting; (2) relinquish their 6 MHz of spectrum to share a single 6 MHz allotment with another television station (“channel share”); (3) accept reassignment from a UHF to a VHF channel; or (4) accept reassignment from a high VHF channel to a low VHF channel.  In an earlier post, we described each of these options in detail.

The auction itself will be conducted as a “descending clock auction,” meaning that the FCC will offer each auction-eligible station prices for one or more of the above bidding options.  Broadcasters will then indicate in a pre-auction application if they are willing to relinquish their spectrum rights at those prices.  Once the FCC knows which stations are and are not participating in the auction, it will determine the maximum amount of spectrum that it can reallocate – a clearing target.  Each round, the FCC will lower its offer price and broadcasters will indicate their choice at those prices.  Generally, once a station declines the FCC’s offer, it will be repacked.  However, the FCC will utilize “intra-round bidding,” where broadcasters will be asked to indicate the price between the opening and closing prices of that round at which they would choose a different option or drop out of the auction.

The FCC will continue to offer lower bids to a station until the station can no longer be repacked at that clearing target, in which case the Commission will purchase the station at the current offer price as long as the “final stage rule” for the auction is satisfied.  The final stage rule is effectively the closing condition for the auction.   There are two components to the final stage rule.  First, by statute, the auction cannot end unless the total revenues generated in the forward auction are sufficient to: (1) pay all broadcasters relinquishing their spectrum; (2) cover the FCC’s auction expenses; and (3) cover the $1.75 billion repacking fund.  Second, the FCC has established a complex formula under which forward auction revenues must exceed certain pre-determined benchmarks.

Under the auction anti-collusion rules, beginning on the date that broadcasters must submit their short form application until the date on which the FCC announces the results of the reverse auction and repacking process, all full power and Class A licensees will be prohibited from communicating directly or indirectly with any other full power or Class A licensee or forward auction applicant about a reverse or forward auction applicant’s bids or bidding strategies.

The FCC will maintain the confidentiality of information submitted by each licensee until: (1) the results of the reverse auction and repacking processes are announced, if the station is a winning bidder; or (2) at least two years after the results of the reverse auction and repacking processes are announced, if the applicant will remain on the air.

Stations that submit winning bids in the reverse auction will receive their auction proceeds “as soon as practicable” following the auction and will be required to relinquish their spectrum within three months of receiving payment.

The Report and Order indicates that a station interested in channel sharing may propose to change its community of license if: (1) it cannot satisfy digital coverage requirements from the new location; (2) the proposed community is in the same DMA; and (3) the new community meets the same allotment priorities as the existing community of license.  The Commission also will require that channel sharing agreements include “certain key provisions regarding licensee rights and responsibilities.”

Forward Auction

The forward auction is how the FCC will sell reclaimed spectrum to wireless carriers and other bidders looking to license that spectrum for mobile broadband use.  Although broadcasters generally are not concerned with forward auction issues, there are two issues that will directly affect the broadcast industry: (1) how much revenue the forward auction will generate (and, therefore, how much money the FCC will have available to pay broadcasters); and (2) how the FCC will construct the 600 MHz band plan, which will impact the availability of dedicated spectrum for wireless microphones and could result in inter-service interference issues if not handled properly.

The amount of revenue generated by the forward auction is important to broadcasters interested in participating in the auction because the auction will not close until the final stage rule (described above) is satisfied.

There are two specific details that could affect how much revenue the forward auction will generate.

First, the FCC has decided to use partial economic areas (“PEAs”) as the geographic unit for forward auction licenses.  PEAs are a subset of economic areas.  Smaller and rural carriers have argued that licensing smaller geographic areas will allow them to compete for licenses outside major population areas without forcing them to pay heightened prices for metropolitan areas that they cannot afford.

Second, in a related proceeding on spectrum aggregation, the Commission determined that it would limit the amount of spectrum that carriers already holding licenses for the most low band spectrum can obtain through the incentive auction.  This may have the practical effect of limiting the amount of spectrum that AT&T, Verizon, and certain other carriers obtain even if they are willing to pay a higher price than other bidders.

As to the 600 MHz band plan, the FCC will pair uplink and downlink bands in 5 MHz “building blocks.”  The uplink portion of the band will begin at channel 51 and expand downward, followed by a duplex gap, followed by the downlink portion of the band.  Notably, the band plan is structured to accommodate variation in the amount of spectrum recovered in different geographic areas.  On one hand, this prevents a “least common denominator market” from defining the amount of spectrum that can be reallocated nationally.  On the other hand, this raises the prospect of inter-service interference, which the FCC plans to address in a subsequent proceeding.

Ongoing Broadcast Operations

There are several ways that the incentive auction will affect future broadcast operations, but the two most direct are the repacking of the broadcast spectrum, and the removal of two dedicated channels for wireless microphones.

Repacking – Through repacking, the FCC will consolidate those TV stations remaining after the auction into a smaller swath of spectrum to leave a continuous band of spectrum for wireless broadband use.  Even stations currently assigned to lower channels could be repacked to create a more efficient and tightly-packed broadcast band.

Under the Spectrum Act, the Commission must make “all reasonable efforts” in the repack to protect both the population served and coverage area of broadcast stations.  The Report and Order implements these protections by: (1) declaring that a full power station’s “coverage area” means its service area, while a Class A station’s “coverage area” means its protected contour; (2) indicating that “population served” will be measured by specific viewers rather than number of viewers; and (3) stating that channel assignments that would reduce a station’s population served by more than 0.5 percent will not be allowed.  To determine a station’s coverage area, the Report and Order says that the FCC will use “the methodology described in OET-69,” but with updated computer software and input values (e.g. population and other data).

Although the Spectrum Act only requires the Commission to protect licensed facilities as of February 22, 2012, the Report and Order will extend protection to four additional classes of facilities:

1)      New full power television stations that were authorized, but not constructed or licensed as of February 22, 2012;

2)      Full power facilities authorized in construction permits issued to effectuate a channel substitution for a licensed station;

3)      Modified facilities of full power and Class A station that were authorized by construction permits granted on or before April 5, 2013; and

4)      Minor change facilities authorized to implement Class A stations’ digital transition.

Low power and television translator stations will not be protected.  However, the FCC will open a special filing window for displaced low power and translator stations to request a new channel.  The FCC also will initiate a rulemaking proceeding to consider other methods to mitigate the impact of the repacking process on LPTV and TV translator stations.  LPTV stations and TV translators will not need to abandon their channels until the new operator intends to commence service on those channels.  Wireless providers will be required to provide 120 days’ notice to the incumbent user(s) before commencing operations.

With regard to expenses, the Spectrum Act establishes a $1.75 billion TV broadcaster relocation fund to reimburse expenses that broadcasters and MVPDs incur as a result of the repack.  Shortly after the Commission announces that the incentive auction has ended and the repacking process is effective, the FCC will borrow some or all of the $1 billion available to it for reimbursement of relocation costs.  The Commission will then issue an initial allocation to eligible stations and MVPDs through designated accounts in the United States treasury to be draw against as expenses are incurred.  The Commission will make additional funds available, as needed, prior to the three year deadline for all reimbursements.  The FCC has delegated authority to the Media Bureau to establish a list of eligible expenses and estimated costs and to calculate the allocation for each station and MVPD.

With regard to the timing of the repack, the FCC will provide each station with three months from the effective date of the repack to file construction permit applications or to request alternate channels or expanded facilities on their new channels.  Broadcasters will then have up to 36 additional months to transition to their new channels (although the Commission will adopt specific deadlines for each station).  Stations may request extensions of their construction deadlines; however, no station will be permitted to continue operating on a reassigned or reallocated channel more than 39 months after the repacking effective date.  This is significant because a report recently commissioned by the agency indicated that, even under optimal circumstances, it could take 42 months to complete new facilities at a super-complicated site such as Sutro Tower in San Francisco.

Wireless Microphones – As part of the repacking, the Commission will eliminate the current two reserved channels for wireless microphones.  Instead, broadcasters and cable programming networks will be permitted to operate licensed wireless microphones in a portion (believed to be 4 MHz) of the duplex gap.  In addition, any user will be permitted to operate wireless microphones in the guard bands on an unlicensed basis.  Wireless microphone users also will be able to operate on unused television channels and to register through the TV bands database registration system for protection from unlicensed TV White Space devices.

The FCC also indicated that it will initiate a separate proceeding to address the needs of wireless microphone users over the long term.

What’s Next?

The FCC has committed to provide broadcasters with information about the mechanism of the auction, an auction timeline, and potential opening bids sometime this summer.

The Commission also will release, in the coming months, an Auction Comment Public Notice.  This Public Notice will seek comment on implementation of the rules established in the Report and Order, including:

  • The methodology for determining starting prices in the reverse and forward auctions;
  • The “adjustment factors,” such as a station’s potential for interference, that affect the value of a station in clearing spectrum;
  • The specific benchmarks that the FCC will use for determining the final stage rule;
  • How much market variation to accommodate;
  • How prices will change from round to round; and
  • Details about the mechanics of the auction.

Thereafter, the Commission will provide detailed information and instructions in an Auction Procedures Public Notice.

The FCC also plans to initiate five separate proceedings that relate to the incentive auction:

  • The Commission will adopt rules regarding “inter-service interference” between television and wireless broadband operations;
  • The Commission will initiate a rulemaking regarding the future of LPTV and TV Translators;
  • The Commission will consider changing its Part 15 rules to allow use of TV White Space devices in the repacked television spectrum, in the 600 MHz Band guard bands, and on Channel 37;
  • The Commission will initiate a proceeding relating to the long-term needs of wireless microphone users; and
  • The Commission will review its designated entity rules, which primarily will affect the forward auction.

Many critical issues regarding the incentive auction remain to be resolved.  We will continue to provide coverage of ongoing incentive auction issues on our Twitter feed (@WileyonMedia) and on this blog.  As always, please contact us with any questions.

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