The FCC said Tuesday it was moving into Stage 2 of its incentive auction after bidding in Stage 1 failed to meet the $88.4 billion mark required to trigger the final stage rule.
The move came after bidding abruptly flat-lined in Rounds 25 through 27 Tuesday, inching up from $22.3 billion in net proceeds after Round 25 to $22.45 billion at the close of Round 27. Total auction proceeds amounted to $23.1 billion.
The slack in bidding appeared to have come courtesy of a sharp drop in aggregate demand in the nation’s top markets between Rounds 24 and 25. In that period, demand plummeted from 17 and 12 blocks respectively in New York, N.Y. and Los Angeles, Calif. to just 10 and 8 blocks, respectively.
By the end of Round 25, demand remained above supply in just two of the nation’s top 25 markets and a mere 24 out of the FCC’s 416 designated markets.
“Today’s auction results are unsurprising, albeit disappointing to some,” Dan Hays, a Principal with PwC’s Strategy& consulting group, said. “The results demonstrate just how much pressure the mobile industry continues to face to limit its capital spending. This is especially true amidst fierce price competition and ahead of the expected launch of 5G networks in the next few years. When the curtain is pulled back, we also expect that it will show the hesitancy many speculators and new entrants have when betting on long-term spectrum investments.”
For Stage 2, the FCC will drop the spectrum clearing target from 126 MHz to 114 MHz, which is expected to result in a corresponding dip in the price target set by broadcasters. In a public notice distributed Wednesday, the FCC said aStage 2 reverse auction tutorial will be held Thursday, Sept. 1 and will be followed by the start of bidding on Tuesday, Sept. 13.
Stage 2 reverse auction bidding will open with one round on opening day and will fall into two two-hour rounds per day from 10 a.m. to noon and 3 p.m. to 5 p.m. Bidding in the Stage 2 forward auction will commence the next business day after the reverse auction closes, the FCC said.
Hays said it would not be out of the question for clearing costs to be cut in half in Stage 2 due to “increased competition among broadcasters participating,” but BTIG’s Walter Piecyk was less sure prices would drop so quickly.
“This will reduce that $88 billion clearing target, but it is difficult to predict by what amount as some broadcasters still might require large payouts to clear that amount of spectrum,” Piecyk wrote in a Wednesday note. “We expect the clearing target to more than halve by Stage 4 and perhaps as early as Stage 3.”
In light of Tuesday’s shift, Piecyk bumped up his auction timeline, calling for the Stage 2 reverse auction to close by the end of September and the Stage 2 forward auction to begin in mid-October.
Piecyk maintained that additional Stages may be necessary, but noted “it is looking more likely that the auction can conclude before year end particularly if the Clearing Target drops enough by Stage 3.” If the auction runs beyond that, Piecyk said forward auction bidding in Stage 4 could feasibly begin by the end of this year and wrap up in early 2017.
This story has been updated with information from the FCC’s Wednesday public notice.
Filed Under: Telecommunications (Spectrum)