Incentive Auctions Simple? Think Again

Wed, 11/02/2011 - 12:02pm
Maisie Ramsay

CHICAGO - On the surface, it seems so easy: let television broadcasters sell their airwaves at auction to spectrum-hungry wireless operators. Broadcasters get cash, operators get spectrum, everyone's happy. At least, that's how it's supposed to work in theory.

But dig below the surface a little bit, as speakers at a 4G World panel did, and you'll uncover a multitude of factors that complicate the FCC's seemingly simple plan to repurpose underused television spectrum for mobile broadband.

"We haven't opposed incentive auctions as long as they're voluntary and don't affect our service area, but there are a lot of things that the FCC hasn't thought about, and that is the main concern," said Bruce Franca, vice president of science and technology at the National Association of Broadcasters (NAB). Franca appeared on the panel alongside executives from AT&T, Sprint, the FCC and well-known industry analyst Roger Entner.

The NAB has some major reservations about the FCC's incentive broadcast auction plan. Aside from lingering unease about whether the auctions will be truly voluntary, one of the NAB's top concerns is what will happen to broadcasters who don't participate.

Those broadcasters probably won't be able to stay in their channels because of interference problems. If the auctions go through, the NAB estimates that 672 stations in channels 31-51 will have to relocate to lower channels, a process known as repacking. By comparison, just 174 stations had to be moved to new channels for 700 MHz auctions in 2008 that accompanied the transition from analog to digital television.

Those stations can be relocated, but the process could be extremely complicated along the U.S. borders with Mexico and Canada, where international treaties between the countries require broadcasters to avoid interference with stations across the border.

If the FCC is dead-set on opening the full 120 MHz it thinks it can get from the auctions, it's going to be "very difficult... unless they take stations off the air," Franca said.

That's what worries the NAB: Broadcast television stations will be forced off the air if the incentive auctions are allowed to move forward because there won’t be enough space to accommodate them on other channels. It’s a situation that is especially problematic in top markets, where many channel assignments are already taken.

"This is basically going to be very, very difficult to do," Franca said.

Franca's words of warning weren't entirely unexpected. The NAB hasn't been supportive of the FCC's plans to sell off more television spectrum so soon after the last auctions and has had an ongoing tiff with CTIA over the issue.

But Franca wasn't the only person on the panel with reservations.

Trey Hanbury, the lead regulatory counsel for Sprint's spectrum dealings with the FCC, said that the structure of the incentive auctions itself poses some problems.

"There's no denying that the structure that has been discussed for the auctions is incredibly complex," Hanbury said.

Operators may not know at the outset of the auction how many licenses will be up for grabs and where they're located, Hanbury said. For instance, will broadcasters who held off putting their spectrum up for grabs at the beginning be allowed to participate once the bidding gets high? Will the FCC really force stations to move to a new channel? Will the FCC block a station from participating in the auction if it would mean the end of over-the-air broadcasts in a given market?

Another point: In most auctions, regulators only have to worry about buyers colluding on prices. But with the proposed incentive auctions, the FCC will have to deal with potential collusion on both sides. How can the FCC prevent broadcasters from conspiring with each other to increase bid prices?

"We get to a number of policy issues I don't think the FCC has really wrestled with," Hanbury said. "While we're hopeful that incentive auctions will work, there are a lot of challenges facing the commission as they consider the practical aspects of the auctions."

Jennifer Manner, deputy bureau chief for the FCC’s Public Safety and Homeland Security Bureau, didn’t comment on how the agency plans to address logistical issues for the incentive auctions. The agency has to get congressional approval before it can move forward with the plans, so it may be preemptive to worry about details before the legislation comes through.

Joan Marsh, vice president of federal regulatory affairs for AT&T, appeared unfazed by the array of issues raised by Sprint and the NAB. The bottom line, she said, is that operators need more spectrum and the broadcast auctions have to happen. After all, it’s not as if the industry hasn’t been here before; there were people who said the PCS auctions couldn’t be done, and they were ultimately proved wrong.

“It is unacceptable for us to declare this problem too hard before we’ve even tried,” Marsh said. “Yes, this is hard. But we have to try.”



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