Broadcasters Can't Control Incentive Auction Prices
Broadcasters in the incentive auction have no ability to influence prices they get for their spectrum in the reverse auction, an Incentive Auction Task Force spokesman said in an interview Friday. Since the reverse auction closed at a stratospheric $86 billion, some auction watchers have been suggesting that price was partially caused by broadcasters holding out for big numbers. That's not the case, according to the FCC, explanatory blogs about auction mechanics and a tweet from broadcast-side auction consultant Preston Padden using the term “uninformed blather” to describe quotes in a recent article (see 1607200072).
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Though financial analysts have ascribed the $86 billion price tag for broadcast spectrum to broadcaster “discipline,” their resolve had nothing to do with it, said broadcast attorneys (see 1606290081). “In each round of the reverse auction, the FCC makes price offers to TV stations, who decide whether or not to accept them. Not the other way around,” said a blog post by Wilkinson Barker telecom and media lawyer Jonathan Cohen, who helped design the auction's structure. Before each new reverse auction round, the FCC ran a simulation to see if it could repack broadcasters remaining in the auction to new channels in the TV band, said NAB Executive Vice President Rick Kaplan in a blog post. Stations that could be repacked continued to have their price drop, while stations that couldn't be repacked were frozen at their current price, Kaplan said. “A station that was frozen and is a provisional winner didn’t set its price, it’s simply in line to receive what the FCC was offering when the FCC determined that it didn’t have anywhere left to put the station in the new television band.”
Prices in the reverse auction were particularly high because the high clearing target appears to have led to many broadcasters freezing at their initial price, Cohen said. “For all we know, however, a great many TV stations that are now possible 'winners' in the reverse auction might have been willing to keep accepting price offers below their frozen prices,” said Cohen. “It was the auction design -- freezing station’s buy-out prices when that station could no longer be repacked -- that set the prices, not the broadcasters.”
The auction being “the most convoluted and complicated auction ever conceived” is why analysts and auction watchers have sometimes laid the blame for the high cost of the reverse auction and the likelihood of multiple stages at the feet of broadcasters, said Recon Analytics analyst Roger Entner. Cohen agrees, he said in an interview. “It's understandable,” Cohen said, saying aspects of both the forward and reverse auction had never been attempted before. If the auction is designed so that many broadcasters froze at their highest possible price, that design isn't optimal, said Michael Calabrese, director of the Wireless Future Program at the New America Foundation. If the FCC went into the auction knowing many broadcasters would freeze at their initial bids, “that's not much of an auction,” Calabrese said.
The auction's design created “an illusory price,” Entner said. To get to a real one, broadcaster and wireless spectrum buyers would be forced to play out multiple stages of the auction that could have been avoided, he said. Chairman Tom Wheeler has said the auction is a mechanism designed to find the market price of spectrum, and the multiple stages are how it operates. If the FCC had skipped to a lower stage or offered less money up front to broadcasters, auction participation would have been different and not as much spectrum would be cleared, an agency official told us. The FCC said it won't skip stages in the auction.