Padden: Dynamic Reserve Approach Could Doom Auction

The Expanding Opportunities for Broadcasters Coalition has revealed that its stations include eight apiece in the top two markets, stations which likely won't be giving up spectrum in the auction if the FCC tries to engineer it to reduce payments to TV station owners.

In a slide presentation on the upcoming broadcast incentive auctions for a communications policy event Tuesday in Washington, EOBC executive director Preston Padden pointed out that EOBC represents 48 MHz of spectrum in the highly congested New York  and L.A. markets (each station has 6 MHz).

In the presentation in advance of the FCC's auction comment public notice—the notice was outlined to reporters last month—Padden warned that the FCC needs to improve on the calculations of starting prices for TV station spectrum.

The FCC signaled that it would include population served as a factor in the calculation, but Padden says that if the idea is to reduce potential payments to broadcasters, that should not be the FCC's focus. Instead it should focus on attracting broadcasters. And, at any rate, he says, the success of the AWS-3 auction demonstrates that the broadcast incentive auction, potentially much more than the 65 MHz up for bid in AWS-3, will generate "an abundance of revenue" to pay broadcasters.

"Market forces, not managed caps [on payment] should determine how much each broadcaster receives," Padden said in his presentation.

Padden also says that an FCC proposal to adopt dynamic reserve pricing (DRP), allowing reserve prices to continue to decline even as they were rejected by broadcasters, would be a nonstarter. He said DRP actually stands for "discourage robust participation" or "dynamically rigging pricing."

FCC officials have said that the public notice proposals are just that, and could be adjusted after it receives comment on them. Padden has plenty to say about them.

He argues that adopting DPR would be a clear signal that the FCC is not letting market forces drive the auction. Such an approach would be engineering the auction to lowball the payments to broadcasters, which he said would not be successful because broadcasters would not sell.

"Broadcasters will see DRP for what it is: a ham-handed way to attempt to limit payments to broadcasters," he said, the result being distrust and reduced participation, including by his 80-plus EOBC members, all of which have signaled by their membership that they may be willing to sell at the right price.

Padden say that getting the starting prices wrong and attempting dynamic reserve pricing are prescriptions for auction failure, including driving EOBC members, and their top-market spectrum holdings, from the auction "in droves."

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.