Top10As David Letterman delivered his final Top Ten list the other night, we got to thinking about compiling a top ten list of our own.  With the Broadcast Television Incentive Auction high on many broadcasters’ minds, we thought that would be a good place to start.  So, in tribute to the late night legend, we present our top ten questions that broadcasters have about the Incentive Auction.

  1. When Do I Need to Decide Whether to Participate in the Auction and When Will the Auction Begin?
  2. How Much is My Station Worth in the Auction?
  3. What is Dynamic Reserve Pricing (DRP)?
  4. How Can I Benefit From the Auction If I Want to Continue Broadcasting?
  5. If the FCC Accepts My Bid, When Will I Get Paid and How Long Will I Have to Vacate My Current Channel?
  6. If I Do Not Participate in the Auction, Will My Station Definitely Be Repacked?
  7. How Long Will My Station Have to Transition to its Post-Auction Channel?
  8. Is There Anything I Can Do Now to Prepare for the Repack?
  9. Will the FCC Cover the Full Extent of My Repacking Costs?
  10. Will There Still Be a Channel for My LPTV or TV Translator Station After the Repack?

Click “continue reading” for the answers.

  1. When Do I Need to Decide Whether to Participate in the Auction and When Will the Auction Begin?

In the December 2014 Auction Comment Public Notice, the FCC stated that it intends to begin accepting applications from broadcasters in the fall of 2015 and to start the bidding process in “early 2016.”  The Commission has not publicly deviated from this timeline, but there are two primary issues that could affect it: (1) the agency has a number of open auction-related proceedings to resolve (although it may not need to resolve all of these proceedings before the auction); and (2) pending and/or future litigation could delay the auction either if a court issues a stay of the auction or if a party prevails against the FCC, thus requiring changes to the auction rules or procedures.

The FCC will announce the exact deadline for broadcasters to submit their applications for the auction when it releases the Auction Procedures Public Notice this summer.  The Commission will provide opening prices at least 60 days before this deadline.  By registering for the auction, a station is committing to relinquish its spectrum at the opening price (but no lower).

  1. How Much is My Station Worth in the Auction?

It is difficult to predict at this time how much any individual station will be worth in the auction.  Ultimately, the value of a station in the auction depends on two factors: (1) whether the station is located in an area where spectrum is scarce, requiring the FCC to purchase television stations to free up spectrum; and (2) the relative value of that station compared to similarly situated stations.

Under the descending clock auction format adopted by the Commission, every station will receive an initial price, from which the station’s ultimate value can only go down.  How far down depends on the factors referenced above.  Some stations might receive their opening prices (subject to dynamic reserve pricing, discussed below), while others might receive nothing.

The FCC has not yet adopted a formula to determine each station’s opening price.  In the December Auction Comment Public Notice, the Commission proposed to determine a unique price for each station based on: (1) the interference-free population served by the station; (2) the number of other stations that could not be placed on a co-channel or adjacent-channel if the station is repacked; and (3) the band in which the station operates.  The FCC proposed to scale the results so the highest priced station would receive an opening bid of $900 million, before adjusting for the station’s band. Under the FCC’s proposal, high-VHF stations would receive bids between 50-67% of the scaled price and low-VHF stations would receive bids between 20-33% of the scaled price.

We caution against reading too much into the Greenhill documents released by the Commission when trying to determine the value of a specific station.  The October 2014 Greenhill Book purported to provide “estimated high payouts that illustrate the economic potential of the auction.”  These prices were based on a formula developed by the FCC staff, not on any actual auction simulations.  Thus, the document included a long disclaimer, noting that “actual compensation may be higher or lower.”  The February 2015 Greenhill Book, meanwhile, replaced these “estimated high payouts” with calculations of actual opening prices based on the formula in the Auction Comment Public Notice.  For most stations, these numbers do not reflect the amount that the station will actually receive if it chooses to participate in the auction, but just the high point from which a station’s “value” will fall as the reverse auction bidding progresses.

  1. What is Dynamic Reserve Pricing (DRP)?

Dynamic reserve pricing (DRP) is a mechanism proposed by the FCC to allow it to offer high opening prices without committing to actually pay those prices to any stations.  Under the FCC’s proposal, the Commission will establish before the auction an impairment threshold, which reflects the amount of impairment the FCC is willing to accept to wireless licensees operating in the new 600 MHz band post-auction.  This impairment could come from television stations in Canada or Mexico or from domestic television stations assigned to a channel in the new 600 MHz (wireless) band because there are no channels available in the repacked UHF band.  In the Auction Comment Public Notice, the FCC proposed to set the impairment threshold at 20% of weighted pops.

Until the impairment threshold is reached, DRP would remain on, and the FCC would continue to drop the price for all stations—even if some would have no available channel on which to be repacked.  If any of those stations were to drop out while DRP was on, it would likely lead to a broadcast station being assigned a channel in the new 600 MHz (wireless) band.  The FCC would not start buying stations until DRP is off.

DRP is highly controversial and has faced much criticism from broadcasters and wireless carriers alike.  One of the major criticisms of DRP is that it is too complicated, so if you are having a difficult time getting your head around the concept, you probably are not alone!

  1. How Can I Benefit From the Auction If I Want to Continue Broadcasting?

Broadcasters who want to participate in the auction and still continue broadcasting have two options.

First, a station can submit a bid to move from its current band to a lower band.  These bids will receive a discounted price based on the value of the band to which they are going (i.e., a bid to go from UHF to low-VHF will receive more than a bid to go from UHF to high-VHF, but still less than a bid to go off the air).  Stations considering a bid to move to a different band should consider the different characteristics of signals in each band and any effect that could have on their business plan going forward.

Second, a station can submit a bid to channel share.  Channel sharing entails one or more stations relinquishing their spectrum usage rights, but retaining their license to “channel share” with another station.  A channel sharing agreement can involve two or more stations.  Under a draft order currently on circulation at the FCC, stations would have flexibility to determine the business terms of channel sharing arrangements.  The primary requirement would be that each station would have to retain sufficient capacity to broadcast at least one standard definition signal.

  1. If the FCC Accepts My Bid, When Will I Get Paid and How Long Will I Have to Vacate My Current Channel?

The FCC will begin paying stations on a rolling basis as it issues licenses to successful forward auction bidders.  Once broadcasters receive their payments, they will have three months to terminate operations on their pre-auction channels.  This applies both to stations exiting the business and stations that are channel sharing (meaning that stations may need to begin channel sharing before moving to their post-auction channels).

  1. If I Do Not Participate in the Auction, Will My Station Definitely Be Repacked?

Due to the number of variables involved, it is difficult to predict which stations will be repacked in advance of the auction.  The FCC has proposed to prioritize its optimization algorithm to keep stations on their existing channels.  Nevertheless, a substantial number of stations will have to be repacked to accommodate the new 600 MHz (wireless) band.  The higher a station’s channel assignment, the more likely that it will be repacked.   Nevertheless, under the FCC’s current proposals, even a station on a high UHF channel might not be repacked in areas where the Commission has to place one or more broadcast television stations in the 600 MHz band.

  1. How Long Will My Station Have to Transition to its Post-Auction Channel?

Shortly after the auction closes, the FCC will issue a Channel Reassignment Public Notice in which it will specify the channel assignments and technical parameters for all television stations that must change channels.  These repacked stations will have three months from that date to file a minor change application seeking a construction permit for their new facilities.

Although the FCC has adopted a transition period of 39 months from the issuance of the Channel Reassignment Public Notice, it will assign variable construction deadlines to each station.  Thus, while some stations might receive up to 36 months from the date their new construction permits are issued, others will receive a shorter period of time.  The deadlines “may vary by region, by the complexity of construction tasks, or by other factors the Media Bureau finds appropriate.”  Stations may receive a single extension of up to six months to complete construction; however under the current rules, stations receiving extensions still will be required to cease transmissions on their pre-auction channel within 39 months of the release of the Channel Reassignment Public Notice.  Thus, some stations may have to go off the air for some period while completing their construction.

  1. Is There Anything I Can Do Now to Prepare for the Repack?

Until stations know the channel on which they will be repacked, there is very little that they can or should do to prepare.  Although stations might be able to conduct tower studies in advance, the cost of such studies would not be reimbursed if the station is not repacked.  Accordingly, we cannot recommend that stations take these or other efforts.

Later this summer, the FCC will issue an Eligibility Public Notice listing the facilities eligible for protection in the repacking process.  Stations will then have thirty (30) days to file a Pre-Auction Technical Certification Form certifying that the FCC’s database technical information is correct.  The form also asks broadcasters to provide certain detailed information about their technical facilities (e.g., transmitter make, model, and power; details about antenna, transmission line, and antenna support structure).   Broadcasters can review the form and begin collecting the requested information at this time.

  1. Will the FCC Cover the Full Extent of My Repacking Costs?

Maybe.  Congress has allocated $1.75 billion to a TV Broadcaster Relocation Fund to cover repacking-related expenses incurred by broadcasters and multichannel video programming distributors (MVPDs).  Only stations that are assigned to a new channel will be eligible for reimbursement from this fund.  The adequacy of the fund will depend on both the number of stations assigned to a new channel and the costs incurred by each repacked station.

Within three months of the release of the Channel Reassignment Public Notice, broadcasters and MVPDs will be required to submit to the FCC an estimate of their relocation-related costs.  Once the Media Bureau reviews this submission, it will issue an initial allocation to a Treasury account established for each licensee.  Commercial broadcasters will receive an initial allocation of up to 80 percent of their estimated costs, while noncommercial educational stations will receive an initial allocation of up to 90 percent of their estimated costs.  Stations can draw down form their Treasury account as expenses are incurred.  During a true-up period between the completion of construction and the end of the reimbursement period, broadcasters and MVPDs will be required to document their actual expenses.  The Media Bureau will review this information and, if required, issue a final allocation.

  1. Will There Still Be a Channel for My LPTV or TV Translator Station After the Repack?

Under the Spectrum Act, the FCC is only required to protect full power and Class A television stations in the repacking.  The Commission has thus far declined to exercise its discretion to protect additional stations, including LPTV and TV translator stations.  The FCC has committed to open a special filing window, after full power and Class A stations have had an opportunity to request alternate channels or expanded facilities, for LPTV and TV translator stations that are displaced in the auction to select a new channel.  There is no guarantee, however, that there will be a sufficient number of channels for displaced LPTV and TV translator stations.

The FCC has proposed to reserve one unused television channel in each area for shared use by wireless microphones and unlicensed devices.  This would have the effect of removing at least one channel from the number of channels available for displaced LPTV and TV translator stations.  A notice of proposed rulemaking seeking comment on that proposal has been tied up at the FCC for more than three months.

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