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Auction Creeps Past $22B as Aggregate Demand Plummets in Top Markets

By Diana Goovaerts | August 30, 2016

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Could the end be near?

The net proceed figure for the FCC’s forward spectrum auction on Tuesday crept past $22 billion as aggregate demand dropped to equal supply in most of the nation’s top markets.

As of the close of the first round of bidding on Tuesday morning, the auction pulled in $22.3 billion of the necessary $88.4 billion in net proceeds.

At the end of Round 25, demand outstripped supply in just two of the top 25 markets in the country, marking a stark contrast from earlier rounds of bidding where aggregate demand for the top three markets was exponentially higher than supply. The holdouts in the top 25 were Los Angeles, Calif., where aggregate demand for eight blocks surpassed the actual supply of five blocks and Cleveland, Ohio, where there remained demand for five blocks where only one is available.

Out of all 416 markets after Round 25, BTIG’s Walter Piecyk noted just 24 had more demand than supply.

In a blog post, TMF Associates President Tim Farrar speculated that the dramatic change in demand came courtesy of a major bidder who was previously trying to drive up prices but is now trying to limit its exposure in the auction. According to Farrar’s analysis of bidding habits, that bidder is likely Dish Network.

“(In Round 24) a bidder dropped 2 blocks in New York and 3 blocks in Los Angeles, without moving this eligibility elsewhere, somewhat similar to what happened on Friday, when one or more bidders dropped 5 blocks in Chicago, 3 blocks in New York and 1 block in Los Angeles during Round 20.” Farrar wrote. “However, a key difference is that a significant fraction of the bidding eligibility that moved out of NY/LA/Chicago during Round 20, ended up being reallocated to other second and third tier markets, whereas in Round 24, total eligibility dropped by more than the reduction in eligibility in New York and Los Angeles. It is natural that a bidder such as T-Mobile (or Comcast) would want licenses elsewhere in the country if the top markets became too expensive, whereas if DISH’s objective is simply to push up the price, then DISH wouldn’t necessarily want to bid elsewhere and end up owning second and third tier markets.”

Between Rounds 24 and 25, demand dropped dramatically again in the top two markets of New York, N.Y. and Los Angeles, Calif., dipping from aggregate demand of 17 and 12 blocks, respectively, to demand for 10 and 8 blocks, respectively.

Farrar said the most recent change “very likely means that Dish has given up” and Stage 1 of the auction will soon close. Bidding in the auction is scheduled to drop down to two rounds on Friday with a full suspension of bidding on Monday in observance of the Labor Day holiday. Regular bidding in three one-hour rounds per day is slated to resume on Sept. 6.

Previous estimates from Piecyk and others suggested Stage 1 of the auction could run through the end of September, with a Stage 2 reverse auction beginning in early October.  

Both Piecyk and Farrar, however, have forecast it will likely take up to four stages to bring the broadcasters’ price benchmark in line with forward auction bidding. In Stage 4 of the auction only 70 MHz of spectrum would be available.


Filed Under: Telecommunications (Spectrum)

 

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