FCC Incentive Auction Update
Stage 1 of the reverse auction ended on June 29 after 52 rounds, with the FCC announcing that the sum of all “provisionally winning” reverse auction bids in this stage totaled $86,422,558,704 (the “Stage 1 Clearing Cost”). Attention will now move to the initial stage of the forward auction process, for which upfront payments by applicants were due on July 1.
The FCC’s rules for the incentive auction provide that, in order for the auction to close, the revenues generated in any stage of the forward auction must meet the FCC’s so-called “final stage rule,” which in Stage 1 of the forward auction would require total forward auction revenues in that stage to exceed the sum of the Stage 1 Clearing Cost plus the $1.75 billion set aside to reimburse costs incurred by TV stations that are assigned new channels plus the FCC’s administrative costs in conducting the incentive auction (estimated at $226 million). Thus, if Stage 1 of the forward auction generates at least approximately $88.4 billion, the incentive auction would close in Stage 1 and TV stations that currently are reverse auction winning bidders will be paid the amount of their provisionally winning bids at a later date.
If, however, Stage 1 of the forward auction generates does not generate this amount, the incentive auction would move to a second stage, in which the FCC will set a new spectrum clearing target lower than the 126 MHz target used in Stage 1. If a Stage 2 is needed, it would begin with resumption of the reverse auction no earlier than five business days after the unsuccessful conclusion of Stage 1 of the forward auction. In Stage 2 of the reverse auction, a larger post-auction UHF band would make it feasible to repack at least some of the stations whose clearing prices were “frozen” in Stage 1, meaning that some stations would see their price offers fall from their previously frozen levels. The conclusion of the Stage 2 reverse auction would establish a new revenue requirement for Stage 2 of the forward auction. This process could be repeated until a stage of the forward auction meets the final stage rule.
As a reminder, the FCC’s anti-collusion rule remains in effect until the FCC announces the conclusion of the incentive auction, which may be many months from now. Accordingly, all parties should continue to maintain strict confidentiality about bids or bidding strategies, including whether a particular TV station has dropped out or is a provisionally winning bidder.