Under the final stage rule, the proceeds from the forward auction (net of bidding credits and impairment discounts) must be sufficient to cover incentive auction costs, which include: (1) the aggregate of broadcaster clearing costs, (2) approximately $226 million to cover the FCC’s costs for conducting the auction, and (3) $1.75 billion for the TV Broadcaster Repacking Fund. Accordingly, the forward auction must generate $88.4 billion for the auction to close in the first stage.
Although this stage of the reverse auction is over, the quiet period remains in effect! During the quiet period, broadcasters should not disclose any information about any station’s bids or bidding strategies. Information covered by this rule includes, but is not limited to: (1) whether the station made an initial commitment in March; (2) whether the FCC declared the station “not needed”; (3) whether the station dropped out of the bidding at any point; (4) whether the station became frozen at any point; (5) whether the station entered into a channel sharing agreement; and (6) any non-public information that the station learned from the FCC’s bidding system (including prices and the station’s vacancy index). The quiet period will continue until the FCC issues a public notice announcing the results of the forward and reverse auctions.
What happens next? Forward auction applicants have until this Friday to submit their upfront payments to the FCC. After the July 4th holiday, the FCC will issue the Qualified Bidders Public Notice, which will include additional details about bidding in the forward auction, including both practice and mock auctions that the FCC will conduct prior to the start of the clock phase. The forward auction clock phase cannot begin until 15 business days after the FCC issues the Qualified Bidders Public Notice, so even if the FCC issues the public notice on Tuesday, July 5, the forward auction cannot begin until the last week of July. We would not be surprised if the forward auction does not begin until early August.
How long will the forward auction last? Unlike the reverse auction, which had a fixed number of rounds, the forward auction is an ascending clock auction that will continue as long as there is active bidding. Moreover, the FCC has not yet announced how many rounds it will conduct each day. There are two additional components of the forward auction that will affect the duration of the auction. First, if bidding in the clock phase comes close, but does not satisfy the final stage rule, then the FCC will conduct an extended round of bidding to try to close the auction. Second, if the bidding satisfies the final stage rule, the FCC will hold an assignment phase (where bidders will bid on specific licenses from the generic categories that they won), which will begin five business days after the end of the clock phase. Thus, it is reasonable to allocate 2-3 months for the forward auction, which could take us into October or even early November.
Will I be able to track the progress of the forward auction? Yes. Once the forward auction clock phase begins, the FCC will publish on its Public Reporting System a graphic depicting the progress toward meeting the final stage rule, which will allow the auction to close in the current stage. For those interested in more granular information, the FCC will also release the following information for each category of license in each PEA in the just completed round: the supply, the aggregate demand, the price at the end of the last completed round, and the price for the next round.
What happens if the forward auction revenues are insufficient to satisfy the final stage rule? If the forward auction revenues are insufficient to satisfy the final stage rule, then the FCC will move to a second stage of the auction. The second stage of the reverse auction will begin no sooner than five business days after the conclusion of the prior stage of the forward auction. Only stations whose status at the end of the first stage was “Frozen – Provisionally Winning” will be eligible to participate in the second stage. Stations that voluntarily exited or were not needed will not be included in the second stage. We will provide additional information about a second stage if it becomes necessary.
If my bid is successful, when will I get paid? The FCC will make incentive payments to broadcasters only after it has collected payments from winning bidders in the forward auction and issued 600 MHz licenses, which likely will take 1-2 months after the FCC issues its public notice announcing the results of the auction. If the auction closes in a single stage, the FCC likely will begin distributing proceeds in late Q4 2016 or sometime in Q1 2017.