Broadcasters Will Have Only Limited Information Once Reverse Part of Incentive Auction Starts
The forward part of the TV incentive auction will look to outsiders much like other FCC spectrum auctions, with the agency releasing a list of qualified bidders beforehand and making basic information available after every round, industry and agency officials said. But the reverse auction, in which broadcasters will offer their licenses for sale, is still taking shape and the FCC is likely to make little information available as that auction progresses, the officials said. Broadcasters will also get less information than is normally available to qualified bidders in standard FCC spectrum auctions. FCC Chairman Tom Wheeler will address CES Wednesday and the auction is expected to be one of his topics.
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“I think it’s very up in the air,” a broadcast industry lawyer said of how the reverse auction will look once it gets underway. “There is a lot to still be worked out and there’s not a clarity in terms of what kind of information broadcasters will have access to.” Broadcasters are focused on completing their applications, the lawyer said. “Once that’s done, people will start asking questions about what the thing actually looks like.”
In typical FCC spectrum auctions, bidders are able to develop their bidding strategy based partly on the amount of demand in the auction, wireless industry officials said. For example, a carrier knows how many bids were filed in a particular market and how much demand there is in a particular market. Broadcasters will want the same kind of information so they know what’s happening in the market and whether they’re likely to get a good price if they stay in the auction, wireless industry officials said.
But qualified reverse auction participants won't be able to see in each round how many stations are participating, but instead they will be able to see an index of vacant channels available in their market, FCC officials said. A UHF station that wants to sell its spectrum and move to VHF will be able to see an index of how many VHF slots are remaining.
Qualified reverse auction participants also won't be able to see the clock price for other participating stations, FCC officials said. If that information were available, it would give any bidder the ability to infer which other stations are still participating and what their bidding options are. The FCC has to restrict information available to reverse auction bidders because of the requirement under the Spectrum Act that it protect the identity of broadcasters and to make sure there's no strategic bidding, commission officials said.
How the reverse auction will look and feel will become more clear when the FCC offers the bidding system tutorials and holds mock auctions, agency officials said.
The FCC intends to conduct the reverse auction with complete secrecy about which other stations are in the auction and what bids are made to those stations, said Davis Wright broadcast lawyer David Silverman. “I know the FCC’s intended purpose in doing so is to avoid collusion, but it’s unclear what the harm would be in having that information,” he said. “Obviously, my clients would love to know which other stations in the market are in the auction and how much the FCC is offering those stations, but that is not going to happen. As a result, every station owner will have to decide whether they would agree to sell their station for whatever the FCC is offering. Of course, those stations that have entered into channel sharing agreements would be willing to take less money since they can continue broadcasting. Stations can also agree to take less by moving to a VHF channel, although that might require an engineering analysis to determine if the resulting loss in service area and population would be worth whatever the FCC is paying for that option.”
The reverse part of the incentive auction is “complex, cumbersome and complicated,” said Adonis Hoffman, chairman of Business in the Public Interest and former chief of staff to Commissioner Mignon Clyburn. “Even now, there are enough open issues to fill up a law school exam. The key challenge is the fundamental lack of information, not only now, but during the pendency of the auction. The blind element portends problems, especially for those broadcasters looking to move or share.” Hoffman said the FCC has had time to address the legitimate concerns of broadcasters: “By the time the auction gets underway, these problems should be resolved.”
Restricting the flow of information won’t make the auction more successful, predicted Roger Entner, analyst at Recon Analytics. “The more information available to auction participants, the better the decisions they can make, improving the chances of a successful auction,” Entner said. “Uncertainty always depresses the level of investment in and commitment to an endeavor. Whenever information is withheld, especially when the bidders know it's withheld, more cautious behavior is employed, which is generally to the detriment of the auction outcome.”
Originally, the FCC planned to tell participating broadcasters their price in each round and nothing else, said Preston Padden, former executive director of the Expanding Opportunities for Broadcasters Coalition. “In response to EOBC advocacy, the FCC agreed to provide broadcasters with round-by-round information on the remaining channel vacancies in their band,” he said. “It was EOBC’s view that this revision, the elimination of [dynamic reserve pricing] and other changes added significantly to broadcasters' tremendous opportunity in this auction.”