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FCC Outlines Broadcast Incentive Auction Proposal

The FCC released its 205-page (including addenda) incentive
auction framework proposal on Tuesday, and it is suggesting broadcasters may
prefer a multiple-round, "dynamic" auction rather than one with a
single round of sealed bids, where the decision not to sell in that first round
would be "irreversible."

The proposal, which launches a process with mostly questions
and requests for comment, was adopted as a notice of proposed rulemaking on Sept.
28. Final rules aren't expected to be voted on until mid-2013, with auctions
slated for 2014.

The FCC is proposing two options for the reverse auction
that compensates broadcasters for giving up spectrum for re-auction to the
highest bidders -- presumably wireless broadband providers. The first option
the FCC describes as a "single-round, sealed bid procedure, in which
bidders would specify, during a single bidding round, the payment they would be
willing to accept in exchange for relinquishing various spectrum usage

The second is a multiple-round, "dynamic" auction
the FCC describes this way: "Bidders would indicate their willingness to
accept iteratively lower payments in exchange for relinquishing rights. For
example, in a descending clock auction prices would start high and decline over

"As the price ticks down, stations would indicate whether
they would be willing to relinquish certain spectrum rights at the current
prices. Those that would still be willing to relinquish rights would remain
active in the clock auction, while those that found the current prices for all
the relinquishment options too low would decline all the offers, exit the
auction, and continue broadcasting in their pre-auction band. The exit decision
would be irreversible. We could also offer bidders the option of submitting a ‘proxy
bid' in advance of the clock auction indicating the minimum payment they would
be willing to accept in exchange for relinquishing spectrum rights, making it
possible for bidders to submit bids just once. The clock auction would then use
the proxy bid to generate and submit bids dynamically on behalf of the

The FCC suggested the dynamic version would be better for
broadcasters since they would not have to determine at the outset the exact bid
they would accept. It said the single-round version might be better for the
commission, since it would likely require less complex software and be easier
to administer.

The NPRM also proposes two different algorithms to help
figure out how to factor repacking into the bidding process, since not all
spectrum will be equally as valuable to the FCC.

It asks for input on whether it should figure into the
repacking/auction equation the case where a broadcaster giving up spectrum
creates "white areas" without any broadcast service, thought is
suggests that adds an "additional technical constraint [that] would
increase the complexity of the repacking process, possibly requiring additional
time and resources and limiting the efficiency of the outcome." 

As to paying broadcasters, the FCC asks whether it should
pay the value of their bid, or "the highest amount it could have bid and
still have had its bid accepted," the latter which the FCC says would
compensate for lowball and highball bids.

Broadcasters have been eager to vet the plan to see just how
the auction will be structured and how broadcasters who don't give up their
spectrum will be protected when they are repacked into smaller spectrum
quarters by the FCC.

The FCC extolls the virtues of broadcasting, but also talks
about its diminishing audience and uneven uptake of multicasting as it builds
its case for some broadcasters giving up spectrum real estate.

"Broadcast television stations provide free video
programming that is often highly responsive to the needs and interests of the
communities they serve," the notice says. "Among other things,
broadcast television stations provide children's educational programming,
coverage of community news and events, reasonable access for federal political
candidates, closed captioning, and emergency information. A small but
significant segment of the Nation's population relies solely on over-the-air
broadcast television stations for video programming service."

On the other hand, says the commission:

"Although broadcast television continues to be a vital
source of local news and information for most Americans, the other offerings in
the video programming marketplace have diverted much of broadcast television's
over-the-air viewing audience over the years. For example, in 1960 virtually
all television households received video programming service by viewing a
broadcast television station's over-the-air signal. In contrast, during the
2011-2012 television season, the Nielsen Company estimates that only 10.7
million television households, or approximately 10 percent of the total, rely
solely on over-the-air broadcast television service."

The National Association of Broadcasters, in arguing for the
medium's continuing relevance and importance, says that figure is much higher,
pointing in part to increasing cord-cutting.

The FCC gives broadcasters plenty of props for news content.
"Seventy-eight percent of Americans say that on a ‘typical day' they get
news from their local broadcast television station (either directly
over-the-air, or through cable and satellite services)-more than from newspapers,
the Internet, or the radio. Likewise, the three major broadcast network
nationwide evening newscasts draw 22 million viewers (either directly over the
air, or through cable and satellite services)-five times the number of
primetime viewers for the three major cable news networks (CNN, Fox News
Channel, and MSNBC).  In fact, broadcast content draws such significant
viewership that 96 of the top 100 TV shows in the 2011-2012 season originated
on broadcast television. In addition, many households that subscribe to other
video programming sources rely on over-the-air broadcast signals for some
television sets in their homes."

And while the FCC gives broadcasters credit for taking a
three-screen approach to their future -- on-air, online and on-the-go -- it
also points out that not all broadcasters can and are taking advantage of those
opportunities, who it suggests might want to take it up on an auction offer.

"As of 2010, roughly 29 percent of commercial broadcast
television stations did no multicasting. Only a fraction of broadcasters at
this point offer Mobile DTV channels," the notice said. "Those
broadcasters that are able to take advantage of these and other opportunities
offered by an evolving marketplace have every prospect of continuing
successfully to provide the public the benefits of free over-the-air
television. For those that cannot, Congress's mandate to conduct a broadcast
television spectrum incentive auction creates alternative opportunities."

NAB president Gordon Smith has conceded there are some
spectrum speculators looking to cash in, but says there has been no stampede of
interest from his members in giving up spectrum.

John Eggerton
John Eggerton

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.