FCC Releases Auction Price Estimates in Information Packages to Broadcasters
Pricing estimates by market for the reverse portion of the incentive auction contained in information packages released by the FCC Wednesday are a major step toward getting broadcasters to participate and are likely to encourage those who hadn’t before considered selling their spectrum, said broadcast officials in interviews. The information packages, assembled by the FCC with the help of investment firm Greenhill & Co., were sent out in hard copy and electronic form Wednesday. The information is at www.FCC.gov/LEARN.
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The packages contain a market by market breakdown of maximum and median prices that full-power and Class A stations can expect to receive for their spectrum in the incentive auction. FCC staff created the estimates, assuming a 126 MHz clearing target and a spectrum price of $1.50 per MHz/pop, said senior agency officials speaking to reporters on condition they not be named. The $1.50 price point comes from AT&T’s statements that it would be willing to pay that rate, and the clearing target was chosen as a “reasonable projection” rather than as an actual proposal for a clearing target, they said. Under the assumptions in the information packet, the auction would generate $45 billion.
The prices assigned to each market are based solely on how much interference stations there generate within their footprint and to adjacent channels, the FCC officials said. The more interference a station creates, the more valuable its spectrum is, they said. This means that stations in smaller markets that are adjacent to larger, more desirable ones can still expect significant returns on their spectrum in the auction, the officials said. The information package contains a breakout of high value markets outside the top 30 designated market areas (DMA), such as Providence, Rhode Island, where full-power stations could expect a maximum price of $160 million and Class As $110 million. Class A’s tend to have lower estimated numbers because their lower-power signal generates less interference, the FCC officials said. Full-power stations in Los Angeles, the most valuable of the top 10 DMAs, can expect a maximum of $570 million and Class A’s there $310 million, the information packet estimated.
The numbers projected seem “optimistic,” said Goldin Associates analyst Armand Musey in a post on the firm’s website. But BIA/Kelsey Chief Economist Mark Fratrik, a former NAB official, said they closely match the projections he has been providing broadcasters. It’s not likely the auction will involve spectrum in every market as the information packet does, FCC officials said. Fratrik said the estimates are also likely too low in some of the larger markets. “They are estimating forward auction revenues as a national average,” he said. “The larger markets will get a higher number per MHz POP because the spectrum there is much more desirable.” FCC materials called the numbers “high-end” estimates, and Fletcher Heald broadcast lawyer Dan Kirkpatrick said they seemed “optimistic, but not wildly optimistic.”
Pittsburgh Class A owner Ron Bruno said the FCC estimates for the value of the spectrum in his market -- $21 million for Class A’s and $38 million for full-power stations -- seem in line with other predictions he has seen. The FCC price estimates are “a huge first” for anyone considering whether to participate in the auction, Bruno said, and they will “pique a lot of interest.” Bruno’s station isn’t currently auction-eligible. Broadcasters who enter the auction will be able to back out if the prices offered for their station dip below the opening price they are offered, FCC officials said. That makes it risk-free for most broadcasters, Bruno said. The information package is likely to be most effective with stations that haven’t taken steps to assess their value in the auction, broadcast attorneys said. “It’s most useful for stations that haven’t fully explored their options,” Kirkpatrick said.
Along with the pricing information, the packages contain a sales pitch designed to show broadcasters that the auction is a “unique opportunity” to get value for their spectrum, the FCC officials said. Individual deals to sell or lease spectrum to wireless companies won’t be able to command the same value that the large chunks of contiguous spectrum in the auction will, they said. The FCC will also be embarking on a “road show” to visit individual broadcasters, the FCC officials said. Their plan is to visit every eligible broadcaster, they said. During those visits, individual broadcasters will be able to request confidential, individualized estimates for their stations, the officials said.
NAB called the price estimates “a key component of the auction” and said it will work with members “to sort through this comprehensive report as they do their own homework on the upcoming auction opportunity.” The information package “affirms what competitive carriers already know -- low band spectrum is incredibly valuable and is in high demand, and greater participation by the broadcaster community will benefit consumers and the economy,” said Competitive Carriers Association President Steven Berry in an email. The package is a “highly credible, first class piece of work,” emailed Expanding Opportunities for Broadcasters Coalition Executive Director Preston Padden.