Phase 1 of Incentive Auction Ends With $22.4 Billion in Net Bids
Stage one of the forward part of the TV incentive auction closed Tuesday, at $22.4 billion in net proceeds. Supply and demand hit an equilibrium in the largest markets, triggering the FCC bringing the stage to a close, under rules approved for the auction, in the final round of the day. The auction had slowed considerably in recent days. A stage closes when there's no more excess demand for Category 1 blocks in the top 40 partial economic areas (PEAs), the size of the license being sold in the auction.
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“Bidding in the forward auction has concluded for Stage 1 without meeting the final stage rule and without meeting the conditions to trigger an extended round,” the FCC said in an announcement. “The incentive auction will continue with Stage 2 at a lower clearing target. The FCC will release a public notice announcing details about the next stage, including the clearing target for Stage 2, and the time and date at which bidding in Stage 2 of the reverse auction will begin.” The target for stage one was $88.4 billion.
“What is clear is that in the last several rounds is the pace at which bidders were shedding eligibility has accelerated,” Jonathan Cohen, lawyer at Wilkinson Barker, told us earlier Tuesday. Cohen helped with the design of the first spectrum auctions. Closing stage one moves bidding to stage two but whether stage two will be the final stage is “still an open question,” he said.
“The move to 10 percent increments and subsequent slowdown in bidding” led to the quick end of stage one, said BTIG analyst Walter Piecyk. “That is great news for most parties involved, although I would guess broadcasters would have liked to have seen a much higher level reached by forward bidders at the end of stage one.” The pace of the auction was recently accelerated with a move for 5 percent increases each round to 10 percent (see 1608250060).
“Procedurally, the auction is working as planned,” said Craig Moffett, analyst at MoffettNathanson.“But it is hard not to be a bit skeptical of the whole thing given the huge spread between the bid and the ask. The bid is the real world and the ask is fantasyland. We’re obviously not going to approach anything like $86B, so we’re not going to clear anything like 100 MHz."
“This will allow us to proceed to more reasonable clearing targets that will allow us to have an auction where bids for spectrum exceeds the value of what broadcasters would like to have,” said Roger Entner, analyst at Recon Analytics.
Some industry observers remain pessimistic about the auction. “Demand has dropped off a cliff,” bad news for broadcasters, said a broadcast industry lawyer. A lawyer who represents carriers detects a growing sentiment the auction will come in lower than some earlier predictions, perhaps billions of dollars below the record AWS-3 auction.
A former FCC spectrum official said judging whether the auction is successful depends on the lens through which an observer is watching. A broadcast industry lawyer said prices will rise as the agency cuts the number of licenses for sale in later stages and competition heats up.
“We are still quite deeply in the area of wishful thinking regarding what some folks hope the spectrum is worth,” Entner told us. “The $20-something billions should be a good benchmark of what will be a reasonable goal.”
“It’s hard to handicap the incentive auction at this stage because so much remains secret,” said Richard Bennett, free market blogger and network architect. “But if the auction successfully transfers a significant amount of spectrum from legacy to current applications, we should consider holding an incentive auction for government-held spectrum. There’s a great deal of waste in government bands, so licensing to commercial carriers that can service both public and private networks would be a win for the economy.”
Satellite consultant Tim Farrar said there has been a recent move of demand from top markets like New York, Chicago and Los Angeles to smaller markets. Farrar, who had correctly predicted Dish Network’s big push in the AWS-3 auction, said the movement might be tied to the satellite operator.
Movement in the incentive auction "suggests that DISH has been reducing its exposure in the top three markets, in order to prevent itself from becoming stranded with too much exposure there,” Farrar said in a Monday blog post. “My guess is that DISH exited completely from Chicago in Round 20 and is now reducing exposure in New York and Los Angeles after bidding initially for a full complement of licenses there (i.e. 10 blocks in New York and Chicago and 5 blocks in Los Angeles).” Farrar predicted the auction eventually could hit $40 billion, with as much as 80-90 MHz of 600 MHz spectrum repurposed for wireless broadband.