FCC Hires Firm To Help Convince TV Stations To Participate In Spectrum Auction

Chuck Bednar for redOrbit.com – Your Universe Online
In an attempt to win over TV stations reluctant to participate in next year’s spectrum incentive auction, the US Federal Communications Commission (FCC) has recruited an investment bank to draft a pitch document designed to highlight the benefits of participating, the Wall Street Journal reported on Tuesday.
According to WSJ writer Gautham Nagesh, the document will be sent to every US broadcaster eligible to take part in the 2015 auction, and will include dollar-value estimates in each market. “The broadcasters have thrown up roadblocks throughout the process and are currently challenging aspects of the FCC’s order in court,” he explained, “though they say they are fine with the auction as long as it remains voluntary.”
In order to help win over the skeptics, FCC Chairman Tom Wheeler has hired investment bank Greenhill & Co. to prepare the document with the goal of convincing stations that the auction – during which they will take bids to sell airwaves and either cease operations or relocate to a new channel – will provide them with a unique opportunity to earn extra money by parting with unwanted or unused spectrum.
“The auction represents in many ways an existential threat to the broadcasting industry, as it could result in dozens of stations going off the air,” Nagesh said. “The latest information from the FCC indicates the auction could affect more stations and markets than initially thought, partly because of the high projected prices stations can expect to receive for their spectrum in large urban and suburban markets.”
The incentive auction, which is set for mid-2015, will give wireless carriers their first opportunity to purchase low-frequency spectrum – but doing so will require television stations to be willing to part with them first, according to Rishika Sadam of Reuters.
Many station owners have been reluctant to commit to either going off the air or exchanging airwaves with one another, Sadam added, and Wheeler believes much of that centers around uncertainty that they would be properly compensated for their airwaves. An FCC official also said that the document will make it clear that the auction is not mandatory, and that TV stations are free to back out of the auction at any time.
“The success of the auction hinges on TV stations first volunteering to relinquish airwaves, for example going off air or sharing frequencies with another station,” explained Alina Selyukh, also of Reuters. “As broadcasters bid to sell their spectrum, wireless companies would bid to buy it, determining how much TV stations get paid.”
“Many TV station owners have been leery, unsure of the value of the sale or its risks,” Selyukh added.
The new packet, however, will show FCC projections which indicate that small and medium market TV stations could receive compensation comparable to those in Top 10 markets, where spectrum is considered to be the most valuable for wireless carriers. Representatives from Greenhill and the FCC also plan to meet with television executives in person over the next few months in order to explain the auction benefits, officials told Reuters.
“Senior FCC officials concede the presented estimates are high-end, based on an ‘optimal’ scenario where broadcasters give up 126 megahertz (MHz) of spectrum, which would mean 100 MHz ultimately would be sold to wireless companies to raise $45 billion,” Selyukh explained. “Other evaluations have estimated that 84 MHz of spectrum would be cleared for the auction, though FCC officials argue that may not necessarily mean less money raised depending on the size of the bids to buy that spectrum.”
The Commission’s estimates suggest that a station in the Wilkes Barre-Scranton, Pennsylvania region, which is the 54th largest television market in the US, could receive up to $150 million or a median of $140 million – more than a network in Washington, Boston or San Francisco, Reuters said. A station based in New York, the largest TV market in America, could get a maximum of $490 million or a median of $410 million, the news organization added.
“The FCC official cautioned that the figures are approximations, and said in many cases the final price would be lower depending on the demand for spectrum in specific markets,” said Nagesh. “The prices represent the value of a station’s spectrum, not the business as a whole, and in many cases appear to exceed the value of the stations themselves particularly with respect to smaller stations in large cities and suburbs.”
Like New York, larger markets such as Los Angeles ($340 million) and Philadelphia ($230 million) were among those markets where spectrum is expected to net the highest prices. However, smaller markets like Wilkes Barre-Scranton; Providence, Rhode Island and Palm Springs, California were also expected to have spectrum valued at more than $100 because of their proximity to larger urban areas, and even full power stations in secondary markets like Youngstown, Ohio, and West Palm Beach, Florida were expected to have a median value in excess of $90 million.
“The FCC’s model assumed the auction would produce revenue of $45 billion and free up 100 MHz of spectrum for the wireless carriers. Those figures can be adjusted depending on auction participation,” the Wall Street Journal reporter added. “The final formula used by the FCC to price stations must be approved by a commission vote, but the model uses a formula that should produce a similar result.”