[WARNING! While Auction 94 has closed, strict federal anti-collusion rules remain in effect for several more weeks. Parties who were involved in any way in the auction – including folks who filed applications but then elected not to participate in the auction – should refrain from discussing any aspect of the auction with anyone who was similarly involved in the auction.]

Another auction of FM construction permits has come to an end (although the FCC has not yet posted the final results – we’ll update this post when that happens). Plenty of happy bidders are now presumably basking in the warm auction afterglow – because successful bidders in Auction 94 were, in many instances, able to snatch up permits for bargain-basement prices. It’s a buyer’s market out there.

Of course, as usually happens, a handful of markets saw exuberant bidding, with final price tags hitting six digits and beyond. At a cool $2.015 million, Lake Park, Florida (a community adjacent to Palm Beach) topped the bidding leader board. The Southeast also produced two $400,000+ markets – Silver Springs Shores, Florida (near Ocala) and St. Simon’s Island, Georgia. But Big Ticket permits were few and far between: of more than 110 permits on the block, only 11 fetched more than $100,000. 

On the other end of the scale, nearly three dozen permits sold at or very near the minimum prices that had been set for them. Looking for a swell Class C-0 opportunity in Grand Portage, Minnesota? It could have been yours for $750 – and even less if you could claim bidding credits. (True fact – once bidding credits are factored in, the Grand Portage C-0 will end up having cost less than $500.)

The good news for prospective bidders: two-thirds of all bidders walked away with at least one permit. By contrast, half of the bidders in last year’s Auction 93 went home empty-handed.

And the sort-of good news for the Commission: revenues from FM auctions remained steady, averaging about $48,000 per, approximately the same as in Auction 93. But don’t look too closely at that statistic. While the total of all successful bids in Auction 94 exceeded last year’s total by $1,000,000 or so, the details suggest a continuing slump in prices. In particular, the Lake Park, Florida permit – at more than $2,000,000 – dramatically skews this year’s totals, particularly since last year the highest bid amount for a single permit was a comparatively paltry $309,000 (who can forget Tishomingo, Oklahoma?). If you remove those two high-end items from each of the calculations, the per-permit average in 2012 drops to about $45K, while this year it was nearly ten grand below that, at about $36K. (By contrast, in 2004, successful bids averaged more than $500K per permit.)

And let’s not forget that the successful bids don’t reflect the effect of bidding credits, which will significantly reduce the amount of cash the FCC actually pockets at the end of the day.

But the feel-good story of this auction has got to be that of Mr. Robert E. Lee of Reno, Nevada. Mr. Lee is the proud winner of a construction permit for (we’re not making this up) Robert Lee, Texas, named after the other Robert E. Lee (i.e., the Confederate general, not the late FCC commissioner).  Gen. Lee reportedly may have set up camp nearby while serving in the U.S. Army (1856-1861) several years before the Late Unpleasantness. The town of Robert Lee, located 70 miles from Abilene, has a population of 1,000 people and will soon have a Class A on 105.7 MHz purchased with a bid of $910. Fortunately for Mr. Lee (the bidder), he’ll be on the hook for only about $600, thanks to bidding credits. Unfortunately for him, both the call signs KLEE and KREL have already been assigned to other stations – but NOT to any FM stations, so it’s at least possible that he could arrange for KLEE-FM or KREL-FM. We’re keeping our fingers crossed.

During the next few weeks the FCC will release a public notice formally announcing the winning bids and procedures that winning bidders must follow. That notice will trigger payment and paperwork deadlines, and will establish the date at which the anti-collusion restrictions will be lifted.

As we previously reported, the FCC initially received 109 applications, but, as so often happens, the herd got thinned along the way: two dozen applicants have dropped out of the running and will only be watching from the sidelines when the action cranks up on April 23, 2013.

In order to assure their place in the race, each of the 85 surviving bidders ponied up upfront payments ranging from a paltry $750 to a considerably more robust $250,000+. Upfront payments establish a bidder’s initial eligibility for the auction and the permit(s) which each bidder may bid for. When the bidding starts, however, nothing – other than common sense and financial ability – limits the amount(s) that can be bid.

Once the auction gets going, the Commission plans to conduct four bidding rounds a day at two-hour intervals. If you’re planning to bid but are feeling a little rusty on the practical details, the FCC will be conducting a mock auction on Friday, April 19. (The mock auction will be open only to qualified bidders. If you’re one of them and you want to use the mock auction to brush up on your skills, you’ll be able to access the mock auction at either http://auctions.fcc.gov or http://auctions2.fcc.gov. The Commission also recommends that bidders take a good gander at the Integrated Spectrum Auction System (ISAS) Bidder’s Guide included with the auction materials the FCC has already provided.

Other routine turf covered in the FCC’s public notice: (1) the standard reminder that winning bidders will be expected to pay for their licenses within a few days after close of the auction; (2) a similarly standard reminder that bidders must keep their applications up to date throughout the auction; and (3) a stern (but no less equally standard) reminder that the FCC's strict anti-collusion rules remain in effect. The anti-collusion rules prohibit applicants from discussing the auction with one another. “Applicants” here means anybody who filed an application for the auction, regardless of whether they ultimately qualified to bid or actually bid at all. (The gag rule gets lifted once the post-auction down payment deadline has come and gone.)

A total of 109 prospective bidders tossed in applications. Of those, 88 made the initial cut: the Commission has concluded that their applications were complete and acceptable, so they are assured of a bidding paddle and a seat in the bidders’ section (assuming, of course, that they get the necessary upfront payment filed in time). The other 21 applicants? Their submissions were lacking in one or another respect, so for the time being they’re on the outside looking in.  But we don't need to exile them to Loserville yet.  All 21 of the not-yet-in-the-door applicants should be receiving an overnight letter from the Commission laying out “the information that is required to make its application complete.” They’ll have until March 18, 2013 to resubmit corrected applications.

Any bidder – whether one of the 88 or one of the 21 – who wants to participate in the bidding  is required to wire the upfront payment to the FCC within the next week by 6:00 p.m. Eastern time on Monday, March 18, 2013.  Readers who plan to participate in the auction are advised to send your money to the FCC well before the deadline to avoid any unexpected delays.  The FCC is not sympathetic to bidders that wait until the last day; historically, the FCC has disqualified some late-paying bidders who claimed that their lateness was the fault of their banks.

Of the 109 applicants, more than half are claiming new entrant bidding credits that would allow them to pay less than their bid amounts should they win.  A new entrant with no interest in any other mass communication outlet is entitled to a 35% credit, which means they would pay only 65% of their winning bid.  Bidders who own three or fewer mass communication interests are entitled to a 25% discount as long as there is no overlap between (a) any of their current interests and (b) a market on which they are bidding.  As is typical in these types of auctions, more than a quarter of the bidders advised the FCC that they wanted to bid on all 112 markets.  Selecting all markets does not necessarily indicate that the bidder will be active everywhere; rather, it may just reflect a preference to keep the maximum number of options open . . . or it may indicate that the bidder simply pressed the “Select All” button by mistake when filling out the form.

After the FCC receives funds from potential bidders, it will release another list of those bidders who are going forward in the auction.  The next list is expected at the beginning of April. Check back here for updates.

With the 2012 book now closed on several acquisitions and mergers in the communications field, the federal government has performed its annual ritual of announcing the thresholds it will use for automatic federal review of mergers and acquisitions.  The FCC worked on several 2012 “Big Ticket” transactions including the Verizon spectrum shuffle with assets from Verizon Wireless, T-Mobile, Leap, several cable companies and others.  Still under review by the FCC is the Liberty Media acquisition of Sirius/XM. 

The FCC can review any transaction in detail before issuing an approval.  On the other hand, Congress long ago deemed that the Department of Justice and the Federal Trade Commission must review transactions that cross certain dollar amount thresholds.  The dollar amounts of those thresholds were announced in today’s Federal Register.  They are set to take effect as of February 11, 2013.  Readers considering a merger or acquisition should bear in mind that the administration automatically will be sending at least two agencies to take a closer look at transactions where either:

• the total value of the transaction exceeds $283,600,000; or
• the total value of the transaction exceeds $70.9 million and one party to the deal has total assets of at least $14.2 million (or, if a manufacturer, has $14.2 million in annual net sales) and the other party has net sales or total assets of at least $141.8 million

The new thresholds also affect the filing fees that parties to a deal have to pay the government for the pleasure of going through the review process. (Fees are split between the FTC and the Department of Justice.) For most of 2013, any deal subject to review and valued at less than $141.8 million will pay a $45,000 fee. (Used to be that deals coming in at a mere $100 million got to pay that.) For deals valued at more than $141.8 million but less than $709.1 million, the review fee will be $125,000. And if you’re proposing a deal valued at more than $709.1 million, get set to fork over a tidy $280,000.

When negotiating deals, all parties would be well-advised to bear these thresholds in mind. Once those lines are crossed, the prospect of additional (and considerable) time, expense and hassle to navigate the federal review process is a virtual certainty.

The auction will look much the same as previous sales conducted by the FCC, at least in terms of the procedures. But be prepared for disappointment if, based on the Commission’s initial listing of channels up for bids, you had your heart set on getting a station in: Newark, Maryland (not New Jersey, or even Delaware); or Arlington, Oregon (not Texas or even Virginia); or Rocksprings, Texas, Chincoteague, Virginia, or Baggs, Wyoming. All five of those channels have been pulled from this year’s auction because they had been inadvertently omitted from a 2006 version of the Table of FM Allotments. Oops. No problem, though – they’ll all presumably be available in a future auction. And anyway, you’ve still got 112 channels to bid on this time around.

Anybody looking to set up shop in the Great Northwest should be pleased, because the minimum opening bids on three Washington State channels have been slashed dramatically. Class A channels at Oak Harbor, Sequim and Sedro-Wooley (presumably not to be confused with Sheb Wooley of “Purple People Eater” fame) initially commanded minimum bids of $25,000, $20,000 and $45,000, respectively. Forget all that. Bidding for Oak Harbor will now be starting at a paltry $15,000 – that’s a 40% reduction! But wait, there’s more. Sequim and Sedro-Wooley have both been slashed by nearly 90%. The opening -- and potentially only -- bid for Sequim is a mere $1,500, and Sedro-Wooley, originally listed at $45,000, is now down to $5,000.  

All of the remaining 109 permits will start with the same prices proposed by the FCC back in September. 

Potential bidders should mark their calendars with the following important dates – and note that there has been a change in one of those important dates since our last report:

February 6, 2013 – prior to 6:00 p.m. ET – Short-Form Application (FCC Form 175) filing window deadline. The deadline for applications marks the beginning of the FCC’s very strict anti-collusion period. Bidders that intend to form consortia or otherwise partner with other bidders should have reached an agreement and disclosed it to the FCC by this deadline. Auction communications between or among bidders after this date could expose bidders to disqualification and hefty fines.

March 18, 2013 – 6:00 p.m. ET – Upfront Payments (via wire transfer). Based upon the markets that a bidder has selected in its January Short-Form Application, funds must be wired to the FCC as an upfront deposit to prove that the bidder is genuinely interested in participating in the auction.

April 23, 2013 – Auction Begins. This is a change from the initially-announced start date (i.e., March 26) that we reported in September. As we noted then – and as we advised the Commission in some formal comments – March 26 happens to fall in the middle of a number of religious holidays (first day of Passover, Tuesday of Holy Week), and also just before the start of the annual NAB convention. The postponement is intended to avoid conflicts with these.

At least a week before the April 23 start date, the FCC will let bidders know how many rounds of bidding will take place during the first few days. Depending upon the level of participation, it may take as little as a few days or as many as several weeks for the auction to end. The FCC’s anti-collusion rules will remain in effect throughout the auction (and for some time beyond the close of the bidding -- keep an eye out for an announcement of when the coast is clear).  Those rules should be carefully followed.

Anyone who has any potential interest in participating in Auction 94 should review the notice in detail.  While there’s still more than five months to go before the bidding starts, anyone interested in participating should take advantage of the time to perform due diligence about the channels they’ve got their eyes on. Remember what the Commission has said repeatedly in the past (and has said yet again in the Auction 94 Notice):

The FCC makes no representations or warranties about the use of this spectrum for particular services. Applicants should be aware that an FCC auction represents an opportunity to become an FCC permittee in a broadcast service, subject to certain conditions and regulations. An FCC auction does not constitute an endorsement by the FCC of any particular service, technology, or product, nor does an FCC construction permit or license constitute a guarantee of business success.

(And yes, in keeping with tradition, the Commission itself made that ominous advisory even more ominous with the boldface emphasis.)

The Commission is also offering an online auction tutorial, which should be available as of January 28, 2013.  (Look for an “Auction Tutorial” link on the FCC’s Auction 94 webpage.) It’s for newbies or folks who want to re-gain their auction chops.  (The online tutorial replaces the bidder seminars which the Commission offered in the run-up to previous auctions.)

Additionally, the Commission will conduct a “mock auction” on April 19, 2013, again to permit folks to dust off any cobwebs and be ready to jump right in when the bidding starts for real on April 23.

If it’s September, it’s time to gear up for the next FM auction. In keeping with that recent tradition, the FCC has announced that, come March 26, 2013, 117 new FM construction permits will be up for grabs through the usual auction process.  Heads up, though: March 26, 2013 also happens to be the first day of Passover, and the Tuesday of Holy Week, and maybe even the probable day before regular season Major League baseball begins.  So there's at least a chance that the date might move some (and if you'd support some such movement, you can file comments letting the FCC know).  But one way or another, the gears have begun turning for the next FM construction permit auction.

You can find a list of the available allotments here. While the Commission refers to 117 “new” permits, that’s not an entirely accurate description.  Of the 117 permits, 26 are re-treads from earlier auctions: 22 are back again from Auction 93 (conducted last spring), two are from 2011’s Auction 91, one hearkens back to Auction 70 (vintage 2007), and one goes all the way back to Auction 62 in 2006. The last two were sold back when, but the buyers defaulted. The other 24 didn’t move off the lot when they were first put up for grabs.

If you’ve followed the Commission’s auction process, you know that there’s plenty of paperwork to get out of the way before the bid paddles start going up on March 26 and the gavel starts coming down some time later. The first step? A request for comments on proposed procedures, upfront payments and minimum opening bids. Comments are due by October 10, 2012, replies by October 24, 2012.

It appears that the procedures the Commission has put out for comment don’t contain anything different from past FCC broadcast spectrum auctions. Still, true auction aficionados should take a close look at the fine print to make sure that they’re on top of the details. Also, if one or another permit on the list catches your eye but you think the minimum opening bid for that permit is too pricey, you can let the FCC know in your comments. (Be prepared to support your thoughts with “valuation analyses” and don’t forget to include in your comments suggested amounts or formulas for reserve prices or minimum opening bids.)  The FCC has created a special e-mail address  -- auction94@fcc.gov -- to which comments or reply comments should be sent in addition to the standard FCC filing procedures.

Given the FCC’s bold-faced disclaimer, potential bidders should take the time and make the effort now to investigate thoroughly any permits they may have their eye on. As it has in previous, similar, notices, the Commission suggests that prospective bidders watch out for “anomalies such as site restrictions or expense reimbursement requirements”, and that they also check out the availability of potential sites. A word to the wise: bidders should also be familiar with the rules regarding the National Environmental Policy Act, which can throw a monkey wrench into the best-conceived of plans.

Proposed starting bids go all the way from $500 (for Channel 240A in charming Dickens, Texas) to $75,000 (Channel 262A in scenic Lake Park, Florida). Gone, apparently, are the days of the six-figure opening bid. The vast majority of proposed openers come in under $10,000, and 14 of the permits are priced to move at a low, low $750.  Don’t assume, though, that the final bids will necessarily be in the same ballpark as the opening bids: it only takes two determined bidders to goose the price of any permit skyward. 

Exactly one-third of all the permits are located in Texas or Oklahoma.  But the remaining permits spread from Alaska to Florida and from California to Erie, New York (sorry, Hawaii and New England, no markets this time). 

In assessing the potential of any of the CP’s on the block, don’t forget the possible effect of the revisions to the “move-in” rules that took effect last year. Historically, an FM auction provided an opportunity for creative folks to figure out how an up-for-grabs channel in some obscure and distant community might be leap-frogged or hop-scotched into a more populous, and thus lucrative, situation. But in its “rural radio” decision in 2011 the Commission sought to slam the door on such things. As a result, FM auctions nowadays tend to be “what-you-see-is-what-you-get” affairs, with little if any post-auction jockeying of channels and communities. 

The FCC’s release doesn’t mention bidding credits for new entrants, but in any FCC auction you must figure that such preferences will be available. Generally, a 35% bidding credit is available to bidders who own no other broadcast stations and a 25% credit is given to bidders who own three or fewer stations (provided that none of those stations is in the same market as the target auction permit).

Check back with CommLawBlog for updates.

[WARNING! While Auction 93 has closed, strict federal anti-collusion rules remain in effect for several more weeks. Parties who were involved in any way in the auction – including folks who filed applications but then elected not to participate in the auction – should refrain from discussing any aspect of the auction with anyone who was similarly involved in the auction.]

Kiss good-bye to Auction 93 and color it gone. After eight days of auction action, on April 5 the FCC gaveled its 2012 auction of FM construction permits to a close. And while the results may not reflect any permanent trends in market values, one thing is clear: this year’s crop of FM CPs brought in less than half the total of auction proceeds generated in the 2011 Auction.

This year’s auction featured 119 permits, but only 93 of them got sold, with total winning bids amounting to a shade under $4.5 million. (Bean counters beware: the total the FCC will actually receive will come in under $4 million, thanks to bidding credits, a/k/a discounts, given by the Commission to more than half of the successful bidders.) By contrast, the 2011 auction, with a total of only 108 permits ultimately sold, netted $8.5 million (on total winning bids of more than $10.5 million). 

That slump is consistent with an eight-year trend.

The considerable downturn in proceeds may be attributable to any number of factors, including  the rough economic times and the fact that a number of the permits this year were re-treads that had already gone unsold (or, in some cases, sold but unbuilt) in previous auctions. Whatever the reason, the high rollers (and their bankrolls) stayed away in droves this year. 

Only seven of the winning bids broke $100,000. The highest winning bid, by far, was $309,000 for a Class C3 in scenic Tishomingo, Oklahoma (about midway between Dallas and Oklahoma City). A Class A in Cloverdale, California (80 miles or so up the 101 from San Francisco), was the second highest at $261,000. Coming in third was a Class A in Culver, Indiana (halfway between Ft. Wayne and Gary) – winning bid, $200,000. By contrast, even last year’s auction saw six permits go for more than $500K each.

On the other end of the spectrum, nearly a third of this year’s permits were sold for the lowest possible bid, each attracting only one bidder. And we can look for more re-tread opportunities in future auctions, since more than two dozen permits had no bidders at all.

During the next few weeks the FCC will release a public notice formally announcing the winning bids and procedures that winning bidders must follow. That notice will trigger payment and paperwork deadlines, and will establish the date at which the anti-collusion restrictions will be lifted.

As we reported last month, a total of 145 applications were initially filed by would-be bidders. Thirty-four of those didn’t make the first cut (either incomplete or rejected outright). And now, with the second cut, the field is down to 109. The precise reasons for the attrition haven’t been disclosed, but it’s a fact of auction life that potential bidders, even if their applications are accepted, are not qualified to bid if they fail to wire an upfront payment to the FCC.

The range of upfront payments ran from over $100,000 (ponied up by six different applicants) to a meager $750. The highest single upfront payment came to $350,000, but half of all upfront payments came in at less than $10K – and more than a dozen of those were less than $1,000. (The amount of an upfront payment does not limit the dollar amount of a participant's eventual, bid but it does limit the market or markets where they can participate.)

When the auction kicks off on March 27, the Commission plans to conduct four bidding rounds a day, at two hour intervals. If you’re planning to bid but feel a little rusty on the practical details, there’s going to be a mock auction on March 23rd. 

One last, very important detail. The FCC spends three pages of its 11- page announcement reminding participants that anti-collusion rules are in effect and that applicants should not be discussing the auction with one another. “Applicants” here means anybody who filed an application for Auction 93, regardless of whether they ultimately qualified to bid or actually bid at all. The gag rule gets lifted once the post-auction down payment deadline has come and gone.

Last year saw some successful (NBC/Comcast) and some not so successful (AT&T/T-Mobile) merger applications in the communications sector.  And with hope for continued improvement in the overall economic climate springing eternal, it’s possible that more large scale mergers may be in the pipeline. With that in mind, potential merger/acquisition candidates should be aware that the federal government has performed its annual ritual of announcing the thresholds it will use for automatic federal review of mergers and acquisitions. 

If a transaction exceeds a certain amount, both the Department of Justice and the Federal Trade Commission must scrutinize the deal and render an opinion about any anti-trust concerns raised by the deal.  In addition, as AT&T is acutely aware, when a large merger involves communications assets, the FCC also has no problem sticking its nose into the deal.  In fact, the FCC has its own SWAT team (formally called the Office Of General Counsel Transaction Team) to review deals.  Unlike the DoJ and the FTC, the FCC’s team is not automatically required to review deals of certain size; they could theoretically refrain from involving themselves in deals that pass the triggers described below. Note, though, that the FCC’s SWAT team – as well as DoJ and FTC – can choose to investigate smaller deals coming in below the triggers.

Readers considering a merger or acquisition should bear in mind that after February 27, 2012, the administration automatically will be sending at least two agencies to take a closer look at transactions where either:

the total value of the transaction exceeds $272,800,000; or

the total value of the transaction exceeds $68.2 million andone party to the deal has total assets of at least $13.6 million (or, if a manufacturer, has $13.6 million in annual net sales) and the other party has net sales or total assets of at least $136.4 million

When negotiating deals, all parties would be well-advised to bear these thresholds in mind. Once those lines are crossed, the prospect of additional (and considerable) time, expense and hassle to navigate the federal review process is a virtual certainty.

With only minor changes to auction rules from the past, the auction will look the same as previous sales conducted by the FCC, at least in terms of the procedures. But if you’re in the market for a channel in Llano or Centerville in Texas, or Dermott, Arkansas, or Cleveland (the one in Mississippi, not the one in Ohio), get set for some heartbreak: the Commission has removed those from the catalog of available channels up for bids. Because of pending rulemaking petitions proposing (among other things) substitution frequencies in those towns, the Commission pulled the four channels off the table for this auction. But that still leaves 119 channels up for grabs.

And there’s good news if you’ve got your heart set on the Grants Pass, Oregon channel. Originally priced to move with an opening bid of $35,000, that channel has been marked down to $15,000. One commenter argued that the original opening price was too high. Of course, that commenter’s suggested alternative price – a risibly paltry $750 – was a non-starter, as far as the Commission was concerned. Still, a reduction of more than 50% is nothing to sneeze at. (Note, though, that it would take only about nine rounds of spirited bidding for the price of the channel to get back to $35,000.)  

All of the remaining 118 permits will start with the same prices proposed by the FCC back in September. 

Potential bidders should mark their calendars with the following important dates:

January 12, 2012 – 6:00 p.m. ET – Short-Form Application (FCC Form 175) filing window deadline. The deadline for applications marks the beginning of the FCC’s very strict anti-collusion period. Bidders that intend to form consortia or otherwise partner with other bidders should have reached an agreement and disclosed it to the FCC by this deadline. Auction communications between or among bidders after this date could expose bidders to disqualification and hefty fines.

February 22, 2012 – 6:00 p.m. ET – Upfront Payments (via wire transfer). Based upon the markets that a bidder has selected in its January Short-Form Application, funds must be wired to the FCC as an upfront deposit to prove that the bidder is genuinely interested in participating in the auction.

March 27, 2012 – Auction Begins

In mid-March, the FCC will let bidders know how many rounds of bidding will take place during the first few days. Depending upon the level of participation, it may take as little as a few days or as many as several weeks for the auction to end. The FCC’s anti-collusion rules will remain in effect throughout the auction (and for some time beyond the close of the bidding -- keep an eye out for an announcement of when the coast is clear).  Those rules should be carefully followed.

Anyone who has any potential interest in participating in Auction 93 should review the notice in detail.  While there’s still more than four months to go before the bidding starts, anyone interested in participating should take advantage of the time to perform due diligence about the channels they’ve got their eyes on. Remember what the Commission has said repeatedly in the past (and has said yet again in the Auction 93 Notice):

The FCC makes no representations or warranties about the use of this spectrum for particular services. Applicants should be aware that an FCC auction represents an opportunity to become an FCC permittee in a broadcast service, subject to certain conditions and regulations. An FCC auction does not constitute an endorsement by the FCC of any particular service, technology, or product, nor does an FCC construction permit or license constitute a guarantee of business success.

(And yes, the Commission itself made that ominous advisory even more ominous with the boldface emphasis.)

The Commission is also offering an online auction tutorial, which should be available as of January 3, 2012.  (Look for an “Auction Tutorial” link on the FCC’s Auction 93 webpage.) It’s for newbies or folks who want to re-gain their auction chops.  (The online tutorial replaces the bidder seminars which the Commission offered in the run-up to previous auctions.)

Additionally, the Commission will conduct a “mock auction” on March 23, 2012, again to permit folks to dust off any cobwebs and be ready to jump right in when the bidding starts for real on March 27.

With several months still to go in 2011, the FCC is already looking ahead to Spring, 2012 – it has announced that, come March 27, 2012, 123 new FM construction permits will be trotted out on the auction block. You can find a list of the available allotments here.

While the Commission refers to 123 “new” permits, watch out. Of the 123 permits, 16 are actually unsold left-overs from Auction 91, conducted earlier this year, and one goes back to Auction 70 (in 2007). (That last item was sold in Auction 70, but the buyer defaulted.)

If you’ve followed the Commission’s auction process, you know that there’s plenty of paperwork to get out of the way before the bid paddles start going up on March 27 and the gavel starts coming down some time later. The first step? A request for comments on proposed procedures, upfront payments and minimum opening bids. Comments are due by October 7, 2011, replies by October 17, 2011.

Given the FCC’s bold-faced disclaimer, potential bidders should take the time and make the effort now to investigate thoroughly any permits they may have their eye on. The Commission suggests that prospective bidders watch out for “anomalies such as site restrictions or expense reimbursement requirements”, and that they also check out the availability of potential sites. Oh yeah, and bidders should for sure be familiar with the rules regarding the National Environmental Policy Act, which can throw a monkey wrench into the best-conceived of plans.

Proposed starting bids go all the way from $750 to $100,000 -- although the Commission is inviting comments on the opening bid levels it has come up with. The vast majority of proposed openers come in at $25,000 or less, and 14 of the permits are priced to move at a low, low $750. The priciest allotment – a Cloverdale, California Class A – will kick off at $100K.  Don’t assume, though, that the final bids will necessarily be in the same ballpark as the opening bids: it only takes two determined bidders to goose the price of any permit skyward. 

One thing to watch for this time around: the possible effect of the revisions to the “move-in” rules that kicked in earlier this year. Historically, an FM auction provided an opportunity for creative folks to figure out how an up-for-grabs channel in some obscure and distant community might be leap-frogged or hop-scotched into a more populous, and thus lucrative, situation. Last Spring the Commission sought to slam the door on such things. As a result, Auction 93 is likely to be a “what-you-see-is-what-you-get” affair, with little if any post-auction jockeying of channels and communities. It’s probably a good guess that that will drive the ultimate dollar values of these channels down, but you never know.

The FCC’s release doesn’t mention bidding credits for new entrants, but in any FCC auction you must figure that such preferences will be available. Generally, a 35% bidding credit is available to bidders who own no other broadcast stations and a 25% credit is given to bidders who own three or fewer stations (provided that none of those stations is in the same market as the target auction permit).

Check back with CommLawBlog for updates.

Here’s a helpful tip: If an FCC inspector stops by your station, notices something amiss, and tells you to turn your station off, you’re probably better off following that particular instruction. About $7,000 better off, it looks like. Don’t take our word for it – just ask the licensee of a low power FM station in Dunnellon, Florida.

The lo-po’s problems started when the local FCC Field Office got a call from the local airport complaining about interference to an Air Traffic Control frequency. That kind of call generally gets the FCC’s attention pronto (and, speaking on behalf of the flying public, CommLawBlog supports that kind of attention). Using direction-finding gear, they tracked the offending signal to the LPFM station. The Feds showed up at the station’s doorstep, explained the situation to the only station staffer in sight, and asked him to turn the transmitter off. The guy refused. They got the station’s owner on the phone, and the inspectors asked him to tell his employee to turn the station off. The owner refused – unless the station’s engineer was present. The owner was finally convinced (after about half an hour) to get his sweet self down to the station, at which point he agreed to let the FCC folks inspect the operation. The inspectors found that the station was operating with a transmitter not certified by the Commission. The owner turned the transmitter off, and the interference to the airport ended.

The standard fine for operating with unauthorized equipment is $5K – and that’s exactly where the Enforcement Bureau’s Notice of Apparent Liability started. But the Bureau then tacked on an “upward adjustment” of $7,000 – a bump amounting to nearly 150% over the starting point – because the interference caused by the unlawful operation affected the safety of life and property and because the owner and his employee refused to comply with the inspectors’ request that the station be turned off immediately. Total fine: $12,000. Make you check payable to the FCC. Thanks for your business.

This isn’t brain surgery. Congress has given the FCC the authority to inspect broadcast stations (really – it’s in Section 303(n) of the Communications Act), and the FCC can exercise that authority. If FCC inspectors show up at your station, the best policy to follow 99.99% of the time is to invite them in, make them comfortable, and do what they tell you to do. As tempting as it might be to try to tell The Man where to get off, that’s bound to be a losing proposition no matter how you slice it.

It took the FCC less than a week of bidding to unload 16 Advanced Wireless Service licenses in Auction No. 92. The auction, which wrapped up July 25, attracted $20,402.000 in high bids for spectrum previously occupied by TV Channels 52-69. The handful of licenses on the block cover a few small areas scattered around the county. 

If the 16 licenses looked a tad familiar, that’s not surprising.  It was the second time that these particular licenses had been up for grabs. They had been offered to bidders in the initial AWS auction in 2008.  Readers may recall that that auction lasted several weeks and raked in $19.6 billion for the U.S. Treasury. What readers may not recall is that, when the 2008 auction ended, these 16 licenses stayed put with the FCC: the high bidders either withdrew their bids or never got around to paying for the licenses. (Alltel was the high bidder for five of the licenses. Seven others, mostly in Puerto Rico, would have gone to VentureTel 700, if it had paid the FCC for them.)

Because this auction involved only 16 licenses – as opposed to the 1100 licenses sold in 2008 – the sample size is probably too small to provide any reliable insight on the current valuation of wireless spectrum.

Although the FCC is reporting that the total revenue from this auction is $20,402,000, the net amount likely to reach the FCC’s coffers will likely be lower due to small business bidding discounts. This auction was conducted with anonymous bidding, so bidders weren’t aware of the identity of their competition. When the FCC formally releases the list of winning bidders, it will identify the bidders and the bidding discounts to which they were entitled.

A list of the markets and winning bids (both 2008 and 2011) follows: 

Market                                   2008 Price      2011 Price

Lubbock, TX                              $721,000      $1,915,000

Texas 12 - Hudspeth                $238,000            $42,000

Wheeling, WV                           $152,000         $427,000

Fargo, ND                              $1,412,000      $1,435,000

Grand Forks, ND                    $1,042,000        $926,000

Bismark, ND                           $1,007,000      $1,265,000

Virginia 1 - Lee                      $1,400,000         $143,000

NC 2 - Yancey                        $1,880,000       $1,606,000

SC 1 – Oconee                            $26,000          $103,000

SC 6 - Clarendon                   $2,203,000      $1,345,000

Aguadilla, PR                            $204,000       $1,281,000

Arecibo, PR                                $401,000          $800,000

Mayaguez, PR                           $547,000       $2,599,000

Ponce, PR                                  $590,000       $3,065,000

PR 2 - Adjuntas                         $134,000       $2,913,000

PR 3 - Ciales                                $38,000          $537,000

Going once, going twice, SOLD! It's official.  After two weeks of bidding, the FCC has brought down the gavel on Auction 91. The 144 FM construction permits (well, most of the 144) on the block attracted $10.5 million in successful bids overall – although the Commission will net less than that because of “new entrant” bidding credits available to some of the winning bidders. The total proceeds likely to be realized from the auction should be in the range of $8.5 million. The auction wrapped up on May 11, eleven bidding days after the opening round. A total of 66 different bidders ended up winners.

The next step in the auction process will be the release of a public notice establishing deadlines by which the winning bidders must wire their payments to the Treasury. The public notice will also establish the deadline by which winning bidders must submit their long-form applications to the FCC and the date on which the FCC's anti-collusion provisions will be lifted.

By contrast, the FM auction four years ago saw the Treasury bank $21 million in auction proceeds from the sale of 111 permits. And a 2004 auction of 258 permits filled the government coffers with $148 million.

Of note, more than a dozen permits that went unsold from the auction two years ago finally sold this time around – presumably thanks to the fact that the FCC cut the opening bid by at least half for most of them. However, more than 20 permits have now been offered twice by the FCC and have attracted no bids at all. For example, Thomas, Oklahoma, went unsold in 2009, when it was listed for $50,000; the Commission slashed the price to $25,000 this year and there were still no takers. Overall, of the 144 permits that were put on the auction block, three dozen went unsold and may be recycled into the next auction.

We’ll keep readers posted as the next FCC auction of FM permits arrives – but that probably won’t be for another couple of years.

Broadcasters and telecommunications operators contemplating possible deals for the coming year should remember that, as far as the federal government is concerned, there may be such a thing as Too Big. The Feds will step in to review an anticipated deal for potential antitrust problems if the deal exceeds certain threshold dollar amounts.  The law mandates that those threshold amounts be revised every year for inflation. The 2011 thresholds have just been announced, and will take effect on February 24, 2011. If your deal exceeds one of the revised thresholds, you should plan for increased government scrutiny, with all the additional hassle, expense and delay that such scrutiny entails.

Under federal antitrust law, certain mergers or acquisitions which exceed the specified thresholds must be submitted to the Federal Trade Commission (FTC) and the Department of Justice for Uncle Sam’s review before the transaction can be consummated.  (The theoretical basis for federal concern here: any transaction big enough to pass the thresholds is presumably big enough to affect interstate commerce.) The government’s internal process for adjusting these thresholds – based on the traditional measure of the gross national product – has been on the books for decades.

The newly-adjusted thresholds require pre-transaction notification if either:

• the total value of the transaction exceeds $263,800,000; or
• the total value of the transaction exceeds $66 million and one party to the deal has total assets of at least $13.2 million (or, if a manufacturer, has $13.2 million in annual net sales) and the other party has net sales or total assets of at least $131.9 million.

When negotiating deals, all parties would be well-advised to bear these thresholds in mind. Once those lines are crossed, the prospect of additional time, expense and hassle to navigate the federal review process is a virtual certainty.

Although the auction (dubbed “Auction 91”) isn’t scheduled to open until March 29, 2011, connoisseurs of the Commission’s auction processes know that there’s plenty of paperwork to get out of the way before the bid paddles start going up and the gavel starts coming down. The first step? A request for comments on proposed procedures, upfront payments and minimum opening bids. Comments are due by October 13, 2010, replies by October 27, 2010.

The procedures the Commission has put out for comment do not contain anything different from past FCC broadcast spectrum auctions. Perhaps most notably, the FCC’s notice includes the standard four-paragraph disclaimer warning potential bidders that the government cannot guarantee that the spectrum at auction will actually work. While such disclaimers are regrettable – hey, if the government’s going to sell you spectrum to use for a broadcast station, shouldn’t you be able to assume that the spectrum will in fact serve that purpose? – caveat emptor is the way to go here: you don’t want to end up like the guy in Auction 37 who spent more than $4 million on a permit in scenic Pacific Junction, Iowa, only to discover that the spectrum couldn’t be used because it would interfere with nearby FAA communications. Oops.

In light of that consideration, potential bidders should roll up their sleeves now and investigate thoroughly any permits they may have their eye on. And there are a lot to look at this time around: a list of 147 FM frequencies, ranging from Class As to Class C3s, spread out over 39 states and one territory (Guam). (Veterans of last year’s Auction 79 may recognize 37 of the allotments, which went unsold back then and are now being trotted out again.)

Proposed starting bids go all the way from $1,000 to $100,000. The vast majority (80%) of proposed openers come in at $25,000 or less, and 33% start at less than $10K. The priciest allotments are proposed to open at $100K per. Don’t assume, though, that the final bids will necessarily be in the same ballpark as the opening bids: it only takes two determined bidders to goose the price of any permit skyward. 

The FCC’s release doesn’t mention bidding credits for new entrants, but the smart money figures that such preferences will be awarded in this auction as they have been in virtually all other auctions. Generally, a 35% bidding credit is available to bidders who own no other broadcast stations and a 25% credit is given to bidders who own three or fewer stations (provided that none of those stations is in the same market as the target auction permit).

Check back with CommLawBlog for updates.

Back in 2006, with big-ticket wireless auctions fast approaching, the FCC hustled through revisions of a number of rules affecting bidding credits in those auctions. The bad news for the FCC: the U.S. Court of Appeals for the Third Circuit has now sent two of the three rule changes back to the agency for a re-do because of procedural shortcomings in the 2006 rulemaking process. The good news for the FCC: the Court decided that the Commission will not have to re-do the auctions conducted pursuant to those flawed rules and, perhaps more importantly, will not have to give back the $14 billion or so it raked in in the August, 2006 auctions.

The bidding rules at issue involve eligibility for “Designated Entity”, or “DE”, status. Bidders entitled to that status are smaller companies that might otherwise find it hard, if not impossible, to compete with larger, well-established telecom companies in a dollar-for-dollar face-off. Committed to encouraging new entrants into the telecom universe, Congress instructed the Commission (in 47 U.S.C. §307(j)) to ensure opportunities for small businesses by, among other things, making bidding credits available to them. A bidding credit is defined by the FCC as a “percentage discount applied to the high bid amount for a license.” Practical illustration: if a bidder with a 25% bidding credit wins an auction with a bid of, say, $1 million, that bidder would have to pay only $750,000 after the credit is applied.

Credits of 15%, 25% or 35% were available (depending on various factors). With wireless prices hovering in the nine- and ten-figure range (T-Mobile alone bid a total of more than $4 billion-with-a-“b” – in the 2006 auction; four other bidders also tendered aggregate bids topping the $1 billion level), the credits were obviously worth serious money. With an eye toward ensuring that bidding credits were awarded only to companies deserving them, the Commission tried, in the run-up to the August, 2006 auctions, to tighten up the eligibility standards. 

That’s where it ran into problems.

The targeted provisions (which appear in Sections 1.2110 and 1.2111 of the FCC’s rules) included:

The 25% Attribution Rule, which provides that a bidder’s DE status depends not only on its own revenues, but also on those of any other single entity which happens to lease or resell 25% or more of the bidder’s spectrum capacity.

The 50% Impermissible Relationship Rule, which renders licensees ineligible for DE status if they lease or resell (including at wholesale) more than 50% of their spectrum capacity. So, for example, if a concededly “small” (by any measure) bidder elected to lease 5.1% of its capacity to each of 10 other concededly “small” entities, the bidder would be absolutely barred from DE status.

The 10-Year Repayment Schedule, which kicks in if a successful bidder, having used DE-based bidding credits, happens to lose its DE eligibility at some point after the auction. As the name implies, this provision calls for repayment of the bidding credit amount if DE eligibility is lost. The 2006 amendment of the rules extended the time, from five to 10 years, during which loss of eligibility would trigger repayment. (Full repayment of credits is required if eligibility is lost in the first five years after the auction; the percentage required to be re-paid then decreases over the next five years.) Importantly, the new time frame would apply to DE eligibility arising not only from the newly-adopted rules, but also from previously-established DE standards.

These new rules imposed significantly greater limits on DE wannabes. Accordingly, a number of DE-related entities – an investor in DEs, a small wireless carrier owned by Alaskan natives, a trade group representing minority-owned telecom companies – asked the Third Circuit to take a look at the FCC’s proceedings that resulted in the adoption of the rules.

The Court concluded that the 25% Attribution Rule was OK. According to the Court, the new rule was properly within the scope of the FCC’s rulemaking proceeding (that is, anyone interested in that proceeding could have reasonably guessed that the FCC might adopt the 25% Attribution Rule, or at least something like it). Even though the rule does have a damping effect on the ability of DEs to secure financing, and even though the Commission barely even alluded to the likely adverse effects of the rule on DEs, and even though the Court felt the lack of any supporting findings made this a “close question”, the Court ultimately deferred to the agency and let this one slide.

Not so with respect to the other two rules. 

As the Third Circuit read the record, the FCC hadn’t bothered even to suggest, much less formally propose, the gist of what became the 50% Impermissible Relationship Rule. For decades, however, the Administrative Procedure Act has provided that, before an agency can impose new rules, it must afford reasonable notice and an opportunity to comment on them. Since the Commission hadn’t done so here, the 50% Impermissible Relationship Rule was toast. 

Because the Court tossed that rule on procedural grounds, the Court didn’t have to address the rule’s substantive shortcomings in that rule which had been called to the Court’s attention by the petitioners. But the Court did take the opportunity, in a footnote, to “commend . . . to the Commission’s attention on remand” a number of questions about the rationale supposedly underlying the rule.

With respect to the 10-Year Repayment Schedule, the Court reached a similar conclusion. While the Commission had indicated in its initial proposals that a new repayment schedule might apply to any new eligibility criteria it might adopt, the Commission never let on that that new schedule could also apply to existing criteria. That lack of notice was fatal here. Accordingly, the Court sent the new schedule back to the Commission for further consideration. Again, though, the Court inserted a footnote in which it raised serious questions about the validity of the FCC’s analysis of this issue and, again, “commended” the issue to the FCC’s attention on remand.

The real drama in this case was not in the Court’s analysis of the arguments above. Rather, it was in the practical issue that confronted the Court once that analysis had been completed. Back in 2006, having rushed through the new DE eligibility rules, the Commission conducted the wireless auction pursuant to those rules. But now that, in 2010, two of those rules have been vacated by the Third Circuit, what should be done about the 2006 auction. That auction was, after all, conducted pursuant to rules which have now been declared invalid. Doesn’t that mean that the auction should be rescinded?

That’s what the petitioners urged. They stopped short of urging rescission of all other intervening auctions which have been conducted subject to the DE rules adopted in 2006. . . BUT the petitioners did note that, logically, those other auctions would be equally subject to rescission.

Not surprisingly, the FCC – joined by at least some of the winners in the 2006 auction – “vigorously” opposed touching the results of the auction. And in an apparent triumph for the tried-and-true 21st Century precept of “Too Big To Fail”, the Court sided with the Commission.

In the Court’s view, rescinding the auction

would involve unwinding transactions worth more than $30 billion, upsetting what are likely billions of dollars of additional investments made in reliance on the results, and seriously disrupting existing or planned wireless service for untold numbers of customers. Moreover, the possibility of such large-scale disruption in wireless communications would have broad negative implications for the public interest in general.

So the auction results will not be upset, but the FCC is still left with the chore of revisiting its DE provisions. The Commission hasn’t announced how it plans to proceed with that chore, but in the meantime, the 50% Impermissible Relationship Test and the 10-Year Repayment Schedule have been vacated, and the previous version of Section 1.2111(d)(2) of the rules – i.e., the section which contains the repayment schedule provision – is to be reinstated until further notice.

The Commission has just brought the gavel down on Auction 88, which featured 13 radio (AM, FM, FM translator) permits up for grabs. This was a closed auction – the participants were limited to folks who had filed applications for these particular facilities in the distant past. Some of those applications were filed as early as 1993; the most recent (for an AM permit) were filed in 2001.

While it took a decade or more to get things moving, it took the Commission a mere four days of auctioning to get things wrapped up. And if the FCC thought that keeping these permits on ice for so long might drive up the prices they would likely fetch, the FCC has at least one more think coming. By the time the bidding opened, four of the 13 permits had only one bidder, and so sold for their opening bid amounts which, in the aggregate, amounted to well under $200,000. (By contrast, one market was hotly contested, as two bidders slugged it out over an FM permit in North Madison, OH. The starting bid there was $75,000; after 16 rounds of bidding, one of the bidders cried uncle and the winner walked away with the permit for $425,000.)

When the dust settled, the FCC got less than $2,000,000 for all the permits (less than $1.5M, once you factor in bidding credits) – and that’s assuming that all the checks clear.

The communities and successful bids were as follows:

Durango, CO                   $20,000

Bloomfield, IN          $22,000

Santa Isabel, PR        $25,000

Two Rivers, WI         $49,000

Steamboat Springs, CO   $55,000

Idalou, TX              $75,000

Shawsville, VA          $153,000

Traverse City, MI       $224,000

Greenwood, AR           $255,000

North Madison, OH       $425,000

Rosendale, NY          $499,999

AM permit:

Terre Haute, IN         $53,000

FM Translator permit:

              Coyote, CA                $31,000

The FCC will likely make the auction results public next week. The release of the public notice will trigger deadlines for the winning bidders to submit their money and update their paperwork to apply for their new construction permits. The construction permits will have the standard three-year deadline by which the station must be constructed or the permit will be forfeited.

After 50 rounds of bidding which spanned three weeks, Auction 79, featuring 122 FM construction permits, came to an end late on the afternoon of September 15. Unlike previous auctions which raked in tens of millions of dollars for the federal coffers – like the 2007 auction that brought in $21 million or the 2006 affair that fetched $54 million – Auction 79 barely brought in a paltry $5 million.

When the FCC announced that it was going to conduct an auction in the current economic climate, several industry participants complained. Those who predicted a lack of enthusiasm were proven correct. Out of 122 construction permits on th auction block, more than half attracted only the minimum bid or no bid at all. Thirty-seven permits will have to be trotted back out in a few years for re-auction because nobody showed any interest in them this year.

A few markets did spark some spirited bidding that nudged the final bids above the initial minimums. However, there were no seven-digit pay-outs this time around, unlike auctions past. The top three priced permits were in California and Florida with Murietta, CA, and Palm Coast FL, each commanding bids of around a half-million dollars. Detailed auction results may be found here.

Readers are reminded that the FCC's very strict anti-collusion rules remain in effect for several more weeks. Folks who submitted a Form 175 in this auction – even if they ended up not bidding at all –  should refrain from communicating with one another about the auction.