A Spectral Incentive Auction?

Given that the FCC adopted its Notice of Proposed Rulemaking to establish the parameters of its much-anticipated broadcast spectrum auctions on September 28, 2012, and released the text of that NPRM on October 2, 2012, you would think that the communications industry would now be buzzing over the details of the FCC’s long-in-the-making plan. Instead, from many corners of the industry, there has been stunned silence; not because there were any real surprises in the NPRM, but because the NPRM made clear to those not previously involved in the process the sheer enormity of the tasks ahead.

Also feeding the industry’s muted reaction is the fact that, because there were no surprises, the industry doesn’t know much more now than it did before about how the auctions will be structured. Instead, we are left with many excellent but unanswered questions asked by the NPRM, leaving the auction rules and structure a very ethereal proposition. As the annual deluge of Halloween horror movies reminds us, people are afraid of ethereal entities, and are unlikely to visit the FCC’s cabin in the woods (despite the “big money for spectrum” signs out front) until the FCC is able to remove the dark mystery from this undertaking.

On the one hand, the FCC’s staff deserves immense credit for asking the right questions on what is unquestionably the most complex undertaking the FCC has ever attempted (it makes you long for the simple-by-comparison DTV transition, which only took 13 years to accomplish). On the other hand, asking the right questions meant producing a 140 page, 425 paragraph NPRM, along with an additional 65 pages of appendices and commissioner statements.

The NPRM is a densely packed document with numerous questions and issues raised for public comment in each paragraph. Part of the problem, however, is that in order to get the entire package of materials down to 205 pages total, some of the NPRM’s questions had to be condensed so severely as to make it difficult to discern what precisely the FCC is asking about or proposing. As a result, you will note that a lot of the third-party summaries circulating are short on condensed narrative and long on direct quotes from the NPRM–often a sign that the person drafting the summary gave up on trying to figure out what the NPRM was trying to say, and decided to let the reader take a crack at it instead.

Comments on the NPRM are due on December 21, 2012, with Reply Comments due on February 19, 2013. While the FCC indicates that it intends to hold the spectrum auctions in 2014, keep in mind that once the Reply Comments are filed, if the FCC were able to resolve a paragraph’s worth of issues each and every day the FCC is open for business after that date, it would resolve the final issues in October of 2014. It would then need to release an order adopting the final policies and rules, and begin the process of setting up the reverse auction (for broadcasters interested in releasing spectrum) and the forward auction (for those interested in purchasing that spectrum for wireless broadband). Completing that process before 2015 will be extremely challenging.

Even this understates the actual time that will be required for the FCC to have a shot at a successful auction. Critically important to the success of such auctions is providing adequate time for potential spectrum sellers and buyers to analyze the final rules and assets to be sold to determine if they are interested in participating and at what price. If the FCC wants to encourage participation, it will need to ensure that potential spectrum sellers and buyers have at least a number of months to assess their options under the final rules. Otherwise, it is likely that many who might participate will not have attained an adequate level of comfort in the process to participate, or at least not at the prices the FCC is hoping to see. In that case, they will elect to remain on the sidelines.

Given the number of moving parts and these related considerations (which ignore entirely the possibility of additional delay from court appeals of the eventual rules), a 2014 auction seems very optimistic unless the FCC’s goal shifts from having a successful auction to just having any form of auction as soon as possible. While those already intent upon being a buyer or seller of spectrum would certainly prefer a fast auction since that means quicker access to spectrum and spectrum dollars and less competition for both, the FCC and the public have a vested interest in holding auctions with a broader definition of success (in terms of dollars to the treasury, less disruption of broadcast service, producing large enough swaths of spectrum to maximize spectrum efficiency, etc.).

This morning, the FCC announced an October 26, 2012 workshop focusing on broadcaster issues in the NPRM, so efforts at removing at least some of the mystery surrounding the auctions are already underway. Given that all television broadcasters will be affected by this process, whether through participation in the reverse auction or by being forced to modify their facilities in the subsequent spectrum repacking, it would be wise to participate in the workshop, which is also being streamed on the Internet.

And one last bit of good news: the workshop will be held at the Commission Meeting Room at FCC Headquarters in Washington, DC rather than at that cabin in the woods mentioned above. However, don’t be surprised if there is still a “big money for spectrum” banner over the door when you get there.