After the FCC announced a new $40.3 billion price target following the close of the Stage 3 reverse auction on Thursday, some analysts were quick to pounce and place the blame on broadcaster greed.
But it turns out the broadcasters don’t have as much a hand in setting the bar for forward auction bidders as one might think.
According to FCC Incentive Auction Task Force Senior Advisor Charles Meisch, the clearing cost is determined by two “separate but related” factors – neither of which is set by broadcasters – and those are: the number of station licenses the Commission needs to buy and the price the Commission needs to pay to purchase those stations.
“First, each time the auction moves to a new stage at a lower spectrum clearing target the Commission needs to buy fewer station licenses as more UHF channel spaces open up in the TV band,” Meisch explained. “Moving from Stage 1 (126 MHz) to Stage 2 (114 MHz), for instance, the UHF band gained two additional channels (30 and 31) into which the auction system could repack stations as they drop out of bidding. From Stage 2 to Stage 3, the UHF band gained just one additional channel (32). The number of channel spaces gained in each stage plays a role in the size of the reduction in the clearing cost from stage to stage.”
Analysts have previously noted the clearing target dropped 37 percent between Stage 1 and Stage 2 when two additional channels were gained but only 26 percent between Stage 2 and Stage 3 when only one additional channel was freed up. From Stage 3’s 108 MHz band plan to the 84 MHz plan that might be used in a potential Stage 4 auction, Meisch pointed out the UHF band would gain four additional channels.
The other factor – the price the Commission needs to pay to acquire those stations – actually decreases each round, and broadcasters have no choice but to accept if they want to stay in the auction, Meisch said.
“Second, the need to buy fewer licenses also drives down the prices paid to individual reverse auction bidders as the Commission lowers its price offers,” Meisch noted. “As the number of licenses needed to clear the spectrum target falls, bidders must accept lower prices if they want to remain part of the group of winning bidders.”
The Stage 3 forward auction began Monday morning and is scheduled to include two rounds of bidding from 10 a.m. to noon and 2 p.m. to 4 p.m. – if bidders let it get that far.
In Stage 2, forward auction bidders closed up bidding in just one round. With the current $40.3 billion target well above bids amounting to $21.5 billion, several analysts including BTIG’s Walter Piecyk have predicted a fourth stage will be necessary.
We’ll have to wait and see, but if we get there, the Stage 4 target won’t be all broadcasters’ fault.
Filed Under: Telecommunications (Spectrum)