Bidding activity quickly stalled in the forward auction portion of the ongoing FCC 600 MHz incentive auction, which is likely now looking at a 2017 conclusion
Well, that was quick.
The Federal Communications Commission needed just one round of bidding in the second stage of forward auction activity for its ongoing 600 MHz incentive auction proceedings to realize telecom operators are not interested in meeting the financial demands of television broadcasters.
The latest action kicked off this morning with the first round of forward auction bidding and ended just under two-and-one-half hours later with the FCC calling a halt to stage two. Total potential winning bids topped out at $21.5 billion, which was enough to meet the first component of the auction’s final stage rules, but did not meet the requirements to continue bidding action nor obviously the $56.5 billion requested by television broadcasters.
“Bidding in the forward auction has concluded for [stage two] without meeting the final stage rule and without meeting the conditions to trigger an extended round,” the FCC noted. “The incentive auction will continue with [stage three] at a lower clearing target.”
Stage two included a total of 114 megahertz of spectrum offered up by broadcasters as part of the reverse auction process that finished up last week after about a month of activity. Those spectrum resources were repackaged into 90 megahertz of clean spectrum for which telecom operators were then bidding.
The trimming of total spectrum up for bid in phase two has resulted in a reduction in the number of 10-megahertz spectrum blocks available in most markets. For instance, the availability of spectrum consolidated into partial economic areas centered on markets like New York City, Chicago and San Francisco has been trimmed from 10 to nine. However, the number of licenses centered on Los Angeles has increased from five to six this time around.
Stage one of the proceedings initially included 126 megahertz of total spectrum, which broadcasters were seeking more than $86 billion for in terms of compensation, with telecom operators ending their bidding activity for the 100 megahertz of clean, repackaged spectrum after bids hit the wall at $23 billion.
Analysts were a bit taken aback by the shortness of stage two, though noted it remains likely the proceedings could continue for several more stages and well into next year.
“The rapid close of the second stage of the forward auction shows just how delicate the balance of supply and demand is for the 600 MHz spectrum in question,” explained Dan Hays, principal at PwC’s Strategy& division. “Unlike the first stage of the auction, which saw a gradual decrease in demand over multiple rounds, the demand profile in the second stage’s single, forward round fell off quite rapidly. Based on the pattern, this could well indicate the sudden exit of one nationwide license being sought, as demand in nearly every major market fell simultaneously from 10 licenses to nine. … Today’s results have further increased the odds that stage three of the auction, which we expect to commence toward the end of October or early November, will be followed by a fourth stage as well. As a result, we could well see auction activities trail into early 2017.”
While a number of established telecom operators are among the 62 qualified to bid in the proceedings, including AT&T, Verizon Communications and T-Mobile US, auction rules prevent much commentary on their participation strategy. Wireless communications trade association CTIA did release a brief comment on the close of stage two.
“We always expected the incentive auction to be a multistaged process,” said Scott Bergmann, VP of regulatory affairs at CTIA, in a statement. “We continue to believe this auction will produce spectrum for the wireless industry that’s key to our nation’s economy and meeting consumer demand.”
Those comments echoed ones made by FCC Chairman Tom Wheeler prior to the beginning of the 600 MHz incentive auction.
“The auction is a market-based mechanism for matching supply with demand,” Wheeler explained. “Until the forward bidding concludes, we will not know whether the demand meets the large supply offered by broadcasters. Depending upon that response, it’s possible that we would need to move to additional stages to find the level where demand meets supply. The commission intentionally designed the auction to account for the possibility that supply and demand might not match at the initial clearing target. It’s something we planned for and we’re fully prepared to implement if the need arises.”
The National Association of Broadcasters was succinct in its response to the latest bidding activity.
“NAB is surprised by the results of wireless carrier bidding in the second stage of the FCC’s TV auction,” said NAB’s EVP of communications, Dennis Wharton, in a statement. “Broadcasters look forward to the third stage of bidding and a successful completion of the auction.”
Hays noted it is likely there will be some consternation from the broadcast community following the latest activity, however the process does appear to be moving as planned, if not as hoped.
“The lack of upward motion in the total forward auction proceeds may be disheartening to many broadcasters who were eagerly awaiting a further narrowing of the gap after reducing their own clearing cost by over 35% just last week,” Hays explained. “However, it is important to remember that this is all taking place very much by design; the auction is working as planned in an attempt to find a level of spectrum clearing where supply matches demand.”
If the FCC continues on its scheduled plan, phase three of the auction will look to clear 80 megahertz of clean, repackaged spectrum for its forward auction component, though most preauction forecasts noted the sweet spot in terms of the number of bidders and potential interference issues with available spectrum is likely a fourth stage with 70 megahertz of cleared spectrum.
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