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October 21, 2015

Once in A Lifetime: The FCC's Reverse-Auction Soap Opera

FCC Chairman Tom Wheeler said “It’s a once-in-a lifetime opportunity for broadcasters to receive a very large cash payment and continue to be able to operate their business,” as the FCC shared the opening bids for TV stations to be moved off the existing airwaves.

As a reverse auction, the law of supply and demand is flipped in the fact that the spectrum needed can be solved by a number of transaction models, so the scarcity is balanced by the amount of sellers in the market, not the buyers in the market. In other words, the initial price is probably going to go down, as the buyers find alternative ways to fulfill their spectrum needs. Currently WCBS in NY is valued the highest at $900 million, while KXGN in Glendive, MT, has an initial bid of $1.2 million.

This auction has been a concern for the National Association of Broadcasters (NAB) and it should be interesting to see how it plays out. Since it is voluntary, and the NAB has been against participation, there may be some anomalies where prices may rise and the participants may be scarce.

If the auction does not work, the FCC is going to have another painful defeat and some nasty congressional hearings.

On the other hand, if it’s a success it’s doubtful the FCC is going to get much credit, and unlike the auctions during the Clinton administration, the spectrum is not going to help balance the budget.

What is interesting is to see who will be on the buy-side. Craig Moffett, senior analyst at independent research firm MoffettNathanson LLC, has pointed out that spectrum is not a simple commodity. Some frequencies in the midrange fell in price in the last fifteen years while they increased for low-band spectrum during the same timeframe.

In theory, the properties of the spectrum associated with TV would be highly valued. However, it looks unlikely they we will see a bidding war, or a sell-off.

So while this may be a once in a lifetime event, it may also be that we do not see enough interest in the moment to impact the market. If so, this is going to be a very sad soap opera that will take up a lot of time to not change very much.

Edited by Rory J. Thompson

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