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FCC Broadcast Incentive Auction for Dummies: What is it, why do we need it and what will it mean for our future?

Comments  /  Megan Olson

4-14-16 FCC Spectrum Auction Illustration

On Tues. March 29th, many of us were blissfully unaware of the fact that the FCC started its broadcast incentive auction. This process involves the selling of broadcast spectrum rights, owned by local TV stations, to the FCC – who in turn will attempt to sell them to wireless broadband providers to address the increasing demand for hi-speed wireless broadband access.

So what does this mean to all of us? A lot, actually, so we’ve put together a brief Q&A that will explain what’s happening and how it will have a profound impact on the future of communications in the US.

 

What is the Spectrum?

The broadcast or radio spectrum is a group of radio waves used for telecommunications. TV stations are granted licenses by the FCC to use this spectrum in a given geographic area for broadcast purposes.

Why is the Incentive Auction necessary?

Consumers need hi-speed wireless service, which is provided through a wireless spectrum. The spectrum is in short supply and will not be able to support our growing dependence and demand. Congress recognized this problem, and instructed the FCC to initiate the auction to repurpose valuable airwaves currently being used by TV stations for broadband and Wi-Fi.

How does the Incentive Auction work?

First, broadcasters are given the option of selling their spectrum rights to the FCC through a reverse auction. Wireless broadband providers can then bid to buy their spectrum rights in a forward auction. The difference between what is paid for by the FCC and what the rights sell for is kept by the US government for government initiatives.

What if a Station decides to keep its Spectrum Rights?

If a station chooses not to sell their spectrum rights, they will stay on the air but may be forced to move to a new channel. This is part of the FCC’s nationwide mandatory repacking process. The FCC will move to “repack” stations/signals to make room for large blocks of spectrum. For stations that do not sell their rights, they will be required to upgrade signals and equipment to comply with new FCC requirements, which will be very costly.

Where will the Auction impact TV stations most?

The FCC is focusing on buying spectrum in large markets, geographically adjacent markets and larger, congested DMAs where there are many signals. So, we may see stations channel changes for stations in bigger markets who already have digital signals. At the opposite end, you may see small, local TV stations who cannot afford to upgrade their equipment/system, even with government assistance.

What are the benefits of the Incentive Auction?

Aside from addressing the increasing demand for wireless spectrum, this will pave the way for increased broadband availability across the country. Consumers will see improved coverage, better and quicker online service (particularly with video), and we may see 5G speeds as a result. Also, it’s no secret that the US Government will make a profit off this process.

How is the Auction going?

The FCC put restrictions on two of the largest wireless bidders in the auction to protect smaller companies and create more competition, but this action is making the auction less competitive than originally expected. As a result, prices may be driven down and stations may think twice about selling their spectrum for fear of making less on the sale than originally anticipated. Some initial price estimates for station signals are astounding and may be too good of a deal to pass up: WCBS-TV’s signal is reportedly worth $900M, KCBS-TV’s signal at $545M, and a small station in Glendive, MT is valued at $1.2M.

Also, there is growing concern about the $1.75B in funding set aside by Congress to assist stations who do not want to sell. Many believe this will not be enough to make these stations financially whole. A bill has been proposed for additional funding to help the repackaged stations as a result.

What does MW think?

We’re more than two weeks into the auction process, yet we still have no idea how many of the TV stations we are currently buying will be on the air this time next year. And, of the stations that choose to keep their spectrum rights, we don’t know where they will be relocated. What we do know is that this will be the last opportunity for a wireless provider to buy spectrum. And, with more than 100 bidders identified by the FCC before the auction even started, this could lead to huge sales by stations, big bids by wireless companies and astounding profits for the government.

We will know more in June or July, after the station auction concludes and the wireless auction begins. In the meantime, we believe that this could be the start of a revolution, making way for bigger, faster and better communications. #MediaMatters

Sources:

http://www.cpb.org/spectrum

http://www.forbes.com/sites/stevepociask/2016/03/11/fccs-tangled-web/#1e337a351e40
http://gizmodo.com/why-you-should-care-about-the-fcc-spectrum-auction-1767717579

http://variety.com/2016/tv/news/tv-spectrum-auction-fcc-1201740467/