Auction BlockFull-power TV stations in Los Angeles could receive as much as $570 million for participating in the incentive auction and relinquishing their spectrum, according to a report prepared by an investment firm and released by the FCC today.  The report provides estimated compensation on a market-by-market basis, including the maximum and median compensation for full-power and Class A stations.  According to the report, the top-five markets based on the highest potential payouts to full-power stations are: Los Angeles (DMA rank No. 2), New York (DMA rank No. 1, $490M), Philadelphia (DMA rank No. 4, $400M), Hartford-New Haven (DMA rank No. 30, $280M), and San Diego (DMA rank No. 28, $250M).

The report used a “top-down” methodology that first estimated the revenues in the forward auction based upon a clearing target of 126 MHz, with 100 MHz auctioned for wireless use at an average price of $1.50 per MHz-pop.  The report then derived a station’s potential compensation from its “value in the nationwide repacking process,” which is based upon the number of stations with which a station’s contour interferes (aka the station’s “interference volume”), the total coverage population of these constrained stations, and “spectrum scarcity” in the station’s market (i.e. channels available for the repack).

In short, the report, which qualifies its estimate based on “auction methodology currently under development,” suggests that the more difficult it is for the Commission to repack a station, the more valuable the station will be in the auction.   For instance, Houston market (DMA 9) has the same maximum value — $52M – as the Lafayette, IN market (DMA 189).  In addition, several DMAs outside the top 50 but adjacent to densely packed markets, including Providence, RI-New Bedford, MA (DMA 53), Wilkes Barre-Scranton, PA (DMA 54), Flint-Saginaw-Bay City, MI (DMA 68), Toledo, OH (DMA 76), Springfield-Holyoke, MA (DMA 114), Santa Barbara-Santa Maria-San Luis Obispo, CA (DMA 123), and Palm Springs, CA (DMA 148), all have maximum payouts of at least $100M.

However, the report comes with several caveats, and as Chairman Wheeler cautions, “the numbers are not the exact amounts you can expect to be paid in the auction.”  First, the report assumes a clearing target of 126 MHz, which may not be achievable in certain markets.  Second, the report does not account for any scoring methodology, which will be the subject of a forthcoming Auction Comment Public Notice.  Third, the report does not account for dynamic reserve pricing, a concept introduced in the Report and Order that would allow prices to continue descending until a certain interference threshold is reached.  The report also assumes that the FCC will need to reserve $5 billion of forward auction revenues to pay for FirstNet, while noting the Commission’s statements that it is “optimistic that the proceeds from the H Block and AWS-3 auctions will be sufficient to fully fund amounts for FirstNet.”

The report urges broadcasters interested in participating in the auction to “determine the current value of their spectrum usage rights and establish an internal ‘walk away’ price at which they would not elect to participate.”

In addition to providing pricing information, the FCC also released a letter from the Internal Revenue Service providing guidance on the potential tax consequences of both revenues received for license relinquishment and reimbursement for relocation costs.

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