TV Repacking Update: Widelity's Price List, and Itinerary, for the Road Ahead

What will channel repacking require in money and effort? FCC-commissioned report itemizes licensees’ anticipated costs of repacking, likely steps toward completion, probable sticking points.

The incentive auction and related spectrum repacking are coming. If you’re a TV licensee and you’ve avoided thinking about what might happen to you when the repacking happens, it’s time to get off the dime. The repacking is approaching. You will need to be ready when it arrives.

To remind us all of that fact, the Commission has released a report providing a reasonably clear, if unpleasant, glimpse of the practical tasks the TV industry has to look forward to.

The Commission hired Widelity, Inc., a communications consulting firm, last September to give the agency, and the TV industry, a better idea of the steps that licensees will need to take, and the expenses they’re likely to face, in carrying out the coming spectrum repacking. The report is the result of Widelity’s efforts. (If you’re fuzzy on the whole repacking idea, take a look at our series on the incentive auction, particularly this post and this post.)

The short version of the bad news: the per station repacking process is likely to cost anywhere from the mid-six figures (in uncomplicated TV markets) to eight figures in the largest urban areas. It’s likely to drag on for at least the better part of a year in even the simplest case and could stretch out for several years in others (and those estimates all assume – unrealistically – that no glitches crop up). And it’s likely to be subject to a wide variety of practical problems.

Sure, Congress has authorized the FCC to use $1.75 billion from incentive auction proceeds to reimburse broadcasters’ (and MVPDs’) reasonable repacking-related costs – but which costs will be deemed “reasonable” remains to be seen. The Widelity report is a first step toward identifying reasonable costs. Widelity interviewed relevant broadcast TV industry players who will have to deal with the literal nuts and bolts of the post-auction TV channel relocations. It also took a look at comments filed by interested parties.

The last 25 pages of the report consist of a “Catalog of Potential Expenses and Estimated Costs” with dollar ranges for most of the identified expenses and costs. Caution: the seemingly comprehensive “catalog” punts on some costs (e.g., obtaining approvals from local government authorities) for which Widelity couldn’t come up with general, industry-wide estimates. TV licensees expecting to find themselves repacked should take a close look at the Widelity’s catalog (including its cost estimates for the various listed items) and be prepared to let the FCC know of any problems they see there.

Before it gets to the nitty-gritty catalog, though, Widelity reviews the lay of the land that will confront broadcasters when the repacking process begins. And it’s not pretty.

That’s because, thanks to the DTV transition a mere five years ago, important resources may be lacking. The channel changes necessitated by the repacking will require many stations to buy new transmitters and antennas. But manufacturers of both have reduced their operations because of an understandable drop in demand following the DTV transition (not to mention the years-long recession). While Widelity reports that equipment manufacturers expect to be able to meet demand resulting from the repacking, it expresses concern about that ability if the demand is “bunched”. In other words, if everybody orders their new gear at the same time, we can all expect delivery delays.

Of course, it’s far from certain that a station’s existing tower will be able to accommodate a replacement antenna without some modification. That means that structural engineers experienced with broadcast towers will have to be figured into the process, and their numbers are “limited”, according to Widelity. Further, they won’t be able to start their analysis of any particular station until that station knows what antenna its repacked facilities will require.

Since many TV towers are already decades old and relevant standards have been tightened since they were constructed, Widelity expects that a lot of towers will require structural reinforcement, if not complete replacement. (Widelity reports that industry sources estimate that as many as 70% of the nation’s towers do not comply with the most recent structural standard.) That determination will require careful study of each existing tower’s specs, a process that will be slowed considerably if documentation about the tower’s original construction isn’t available.

And once the tower has been prepped and the new equipment arrives, the equipment will have to be installed. When antennas have to replaced, tower riggers will be necessary. But according to Widelity, there are no more than 14 tower crews nationwide – and possibly as few as five – “capable of working on complex and tall towers”, i.e., the types of towers used by many TV stations. The situation is slightly better for smaller, non-complex towers – e.g., single sticks less than 400 feet tall: Widelity estimates that there may be as few as 40 crews competent for work on such towers. Helicopters for antenna installation are also in short supply, and their availability in forest fire season is drastically reduced.

In all, Widelity identifies nine elements in the channel repacking process that post-auction stations will experience, beginning with pre-planning (which is complicated by the fact that the new channel assignment won’t be known until the auction is over), and ending with installation of new antennas and transmitters.  At the same time, Widelity describes 16 issues that “are a cause of concern for a smooth post-repacking transition process”.  When the potential problems outnumber the incremental steps to be taken, you can easily anticipate a rough road ahead.

The report does provide a useful overview of each of the nine steps in the repacking process, as well as examples of “decision modeling” (accompanied by some elaborate flow charts) and sample “case studies”.

The Widelity report is, without question, a must-read for every U.S. TV licensee (other, perhaps, than those who have already decided that, come incentive auction time, they’ll be exiting the industry). For those committed to keep operating, it provides a roadmap to guide you through the process. And its detailed description of what’s in store may be sufficiently discouraging to cause some folks who are on the fence to opt against remaining a broadcaster.

The report, however, is only a partial picture. While Widelity can list anticipated costs, it cannot guarantee that the FCC will agree that Widelity’s prices are “reasonable”, or that all of the listed items are compensable. And Widelity can’t reliably estimate a wide range of considerations, such as the cost and time necessary to secure local zoning approvals or environmental clearances, or the ability of some licensees (noncommercial educational institutions in particular) to insure funding, or the development of some form of intra-industry “equipment swap” arrangement that might reduce costs and ease the load on manufacturers, or the ability of the U.S. to reach agreement on spectrum matters with Mexico and Canada. Nor can Widelity say for sure how the FCC will deal with the fact that, while Congress has specified that reimbursements must be paid within three years of the end of the auction, Widelity’s optimistic best case time-line indicates that some, perhaps many, licensees will not have completed their relocation efforts by then.

Still, the report offers an unvarnished look at the road ahead as best as that road can be discerned just now.  TV licensees giving any thought at all to the inevitable post-auction repacking process should read it carefully and take it very seriously.

The FCC has solicited public reaction to the Widelity report. Comments and reply comments may be filed electronically by going to this FCC webpage and uploading them in Proceeding Number 12-268. Comments are due by April 21, 2014; replies are due on May 6.

[Blogger’s aside: We also recommend the impressive photographs of various towers that Widelity has included in Appendix A to its report. They aptly illustrate the complexity of various installations and the effect that Mother Nature can have on them. (Image 8, in particular, artfully shows the famous Mt. Sutro tower poking through a cloud cover). For attorneys who don’t often get to see TV hardware up close and personal, Widelity’s photos offer a helpful and welcome perspective.]

Incentive Auction Update: Bureau Looks For Input on What Auction-Induced Reassignment Expenses Should be Reimbursable

Public notice suggests FCC is looking to cut as many corners as possible.

If you’re a full-power or Class A TV licensee and you haven’t started to do the math relative to what the much-heralded incentive auction could mean for you dollars-and-cents-wise, here’s a CommLawBlog tip – it’s time to get started . . . because the Media Bureau clearly has. Don’t believe us? Check out the Bureau’s request for comments on the “catalog of eligible expenses” that it has compiled. You’ve got until October 31, 2013 to let the Bureau know what you think about its catalog (and some related issues); you’ll also be able to file reply comments until November 14.

The Bureau’s (and the Commission’s) interest here arises particularly from the Middle Class Tax Relief and Job Creation Act of 2012 (what many of us refer to as the Spectrum Act). There Congress established a $1.75 billion “TV Broadcaster Relocation Fund” for reimbursement of certain expenses incurred by broadcasters in connection with the various channel shuffles necessary to make the incentive auction work. Congress left to the FCC the nitty-gritty chore of figuring out just what expenses would be subject to reimbursement.

The Commission has now started on that process, and it’s looking for industry input.

The FCC first hired an outside consulting group – Widelity, Inc. – to ask around among “industry stakeholders” and formulate a “catalog” of setting out the types of expenses broadcasters and MVPDs are “likely to incur as a result of broadcaster channel reassignments”. The resulting catalog spreads over 12 pages of fine print; not surprisingly, it includes a wide range of “hard” (i.e., equipment) and “soft” (e.g., consulting fees) items. Anyone who figures to be lining up at the post-auction Reimbursement Window would be well-advised to take a careful look at the catalog to get a sense of what the FCC expects to be paying for. If you happen to notice that the FCC has overlooked any likely expenses, now would be a good time to clue the FCC in.

Perhaps not surprisingly, the public notice seems clearly geared to a fair amount of nickel-and-diming by the Commission. For example, it asks whether broadcasters normally pay list price, or whether instead they get discounts for bulk orders or for group owners. The Bureau is also curious about whether equipment might be usefully “repurposed” in the channel reassignment process – which suggests some kind of Craig’s List-type of used gear swap to cut costs. Another Bureau suggestion: encourage equipment suppliers to provide “built-in discounts” reflecting “the volume of business that channel reassignments will generate.” 

The Bureau also wonders whether, if the U.S. General Services Administration already includes certain expenses – such as HVAC systems – on its Schedule, broadcasters claiming such expenses should be limited to the GSA-sanctioned limits. And it suggests that mandatory competitive bidding might be warranted for some expenses over a certain limit – although even the Bureau acknowledges that such a requirement would be problematic for some licensees, including particularly non-commercial stations licensed to state governments subject to purchasing rules.

The public notice doesn’t say anything about requiring licensees to patronize equipment suppliers who offer Green Stamps, but we’re guessing the Bureau might be open to that if somebody were to suggest it.

In any event, the Media Bureau is clearly trying to figure out how to stretch the $1.75 billion limit on reimbursements as far as possible. That could result in additional burdens on the TV folks who will eventually be looking to get repaid by the guv’mint. Right now is when those additional burdens are starting to take shape. Because of that, it would be a very good idea for any and all TV licensees likely to be affected by the incentive auction to take a close look at this public notice and be prepared to let the Bureau know what you think. You’ve got until October 31, 2013 to file comments and November 14 to file reply comments.

Inside the Incentive Auction NPRM (Part 6): Reconfiguration for Wireless - The Final Step

[Blogmeister’s Note: This is the last in a series of posts describing the FCC’s Incentive Auction Notice of Proposed Rulemaking. You can find all installments in this series by clicking here. Contributors to this series include Dan Kirkpatrick, Rob Schill, Don Evans and Harry Cole.]

Once the “reverse” and “forward” auctions have both been completed and TV licenses have all been tucked away in their newly-compacted space, the fun will really begin for the Commission.

Once the “reverse” and “forward” auctions have been completed and the broadcast TV industry has been repacked, the FCC will finally be able to reconfigure the vacated UHF spectrum for mobile. But determining, now, precisely how that reconfiguration will ultimately look, then, poses a unique challenge in view of the number of unknowns currently in play.

Until the “reverse” auction is completed, questions will remain regarding the amount of spectrum that will be available for reconfiguration, the particular frequencies comprising that available spectrum, and the geographic locations covered by that spectrum. Therefore, the band plan described in the Incentive Auction Notice of Proposed Rulemaking (NPRM) is more of a “framework” based on the expectation of cleared frequencies. In admirable bureaucratese, the NPRM describes its goal as “a band plan that balances flexibility with certainty.” 

The certainty includes proposing a fixed amount of downlink spectrum nationwide with uplink spectrum possibly varying in different geographic areas. The idea is to best utilize what are expected to be varying amounts of cleared spectrum in different geographic areas. By providing uniform downlink spectrum throughout all geographical areas, the Commission hopes to assure a more interoperable universe at the device level, where each mobile device can use the same receive filters while the carriers’ base stations can be modified to allow for multiple uplink spectrum signals. A level of interoperability at the device level is expected to lead to lower device costs while allowing for greater economies of scale. 

Consistent with the uncertainties surrounding the final reconfiguration process, the Commission advises that its general “focus” is on five “key policy goals”, to wit: utility, certainty, interchangeability, quantity, and interoperability.

  • Utility: The Commission is proposing to auction the newly-available mobile spectrum in 5 MHz “building blocks”, which can support a variety of wireless mobile technologies (including Wideband-Code Division Multiple Access (W-CDMA), High Speed Packet Access (HSPA) and Long Term Evolution (LTE)). To the extent possible, the Commission will seek to pair the blocks, consistent with the prevailing practice in many existing mobile networks.
  • Certainty: The Commission proposes methods to minimize interference between broadcasters and wireless, as well as harmonizing the band plan with international treaty obligations to Canada and Mexico. Notwithstanding the FCC’s best intentions on this front, though, border-related issues will complicate the reconfiguration process, particularly in view of the disparate plans for DTV conversion in Mexico and Canada.
  • Interchangeability: The FCC intends to assure that the reconfigured band will permit “enhanced substitutability” of the spectrum blocks.  The idea there is that, the more interchangeable the blocks are, the less important it will be to bidders that the particular frequencies up for auction can’t be known at the time of the auction – since whatever blocks they may buy will in any event be “interchangeable”. Technical solutions such as effective guard bands should assist in this regard.
  • Quantity: By providing varying amounts of uplink spectrum in different geographic regions, the Commission will ideally be able to take maximum advantage of whatever spectrum becomes available through the “reverse” auction. Different uplink amounts will permit the Commission to vary the total amount of spectrum per geographical area, which should provide greater efficiency than would a nationwide standard. Also, the Commission plans to maximize new unlicensed spectrum both by allowing such use in the guard bands between TV and wireless and by supplementing the guard bands with “remainder” spectrum from the conversion of 6 MHz blocks (i.e., the standard for television stations) to 5 MHz.
  • Interoperability: The Commission’s “proposed band plan would allow for wide band radio operations using common radio components and improvements as technology evolves over time.”

With all the caveats about unknowns and the like, this is what the FCC has in mind for the reconfigured band.

The Primary Proposal. Under the Commission’s primary proposal (see Figure A), the uplink band would begin at channel 51 and extend downward toward channel 37. Exactly how far down the uplink band might extend will be determined by how much spectrum becomes available through the “reverse” auction and consequent repacking.

On the far side of channel 37, the downlink band would begin at channel 36 and, as with the uplink band, extend downward. How far down it goes would, again, depend on how much spectrum is freed up through the broadcast repacking.

The uplink and downlink bands would be placed with an eye towards limiting interference, thereby minimizing the need for guard bands. The new uplink band would be adjacent to the 700 MHz uplink band; these bands are harmonized so there is no anticipated need for a guard band. The downlink band beginning at channel 36 would effectively utilize channel 37 as a guard band – the current services in channel 37 (radio astronomy and wireless medical telemetry) have been operating adjacent to broadcast television bands without interference. But note the Commission indicates a willingness to consider relocation of the current channel 37 services, of which the FCC has historically been highly protective.

The Commission seeks comment on the proposed spectrum block size. The suggested size is 5 MHz, but the Commission would consider maintaining the 6 MHz block structure used for television operation; it might even look at larger units, e.g., 10 MHz blocks. The Commission is interested in a structure that will allow the aggregation of 5 MHz blocks, both at the initial licensing stage and through the secondary market and channel aggregation. The Commission proposes to auction and license paired blocks of spectrum. Where there is spectrum that cannot be paired, the Commission proposes to make such unpaired spectrum available for downlink purposes.

Alternative Band Plan ApproachesWhile the proposal described above is the FCC’s “lead proposal”, the NPRM includes a few alternative visions for the band plan. 

Down from Channel 51(see Figure B)The Commission could attempt to clear broadcast channels from channel 51 downward without regard to the natural separation of the channel 37 services. A downside would be the need to create a duplex gap between the uplink and downlink bands. The wider the duplex gap the better the mobile performance, but in a smaller licensed band.

One concern with this alternative is that if more than 84 MHz is cleared through the “reverse” auction/TV repacking process, channel 37 would be located in the downlink band – which would require the Commission to address, as part of the reconfiguration, what to do with the radio astronomy and medical telemetry services currently operating at channel 37. (See Figure C.) If radio astronomy and wireless medical telemetry were moved from channel 37, the Commission might seek to place the downlink band at channel 32 rather than channel 36 thereby creating symmetry between the total uplink and downlink spectrum.

In from Channels 51 and 21 (see Figure D)Another alternative would be to maintain the 51-down approach for the uplink band, but start the downlink band up from channel 21.  That would avoid any need to move channel 37 services. There would be no need for a duplex gap, since TV broadcasters would operate between the uplink and downlink bands. However, guard bands would have to be created – one on each side of the downlink band and the lower edge of the uplink band (as in the lead proposal). There is also the question of whether the pass band size would require multiple band plans. 

Prioritizing Paired Spectrum. The Commission may consider a plan based around the pairing of spectrum nationwide instead of on a market-by-market basis. Rather than a series of asymmetrical markets where the uplink varies, the spectrum would be equally divided between paired downlink and uplink spectrum. Where there is residual spectrum it would be used for one block of unpaired downlink spectrum. The obvious downside is that it would be limited to the “lowest common denominator” market availability of spectrum.

Another alternative would involve the creation of two families of paired spectrum, one nationwide and another in smaller markets. The goal here would be to try to balance the desire to offer as much paired spectrum as possible with the need to maximize the total amount of spectrum reallocated.

Different Amounts of Spectrum in Different MarketsBy allowing the conversion of different amounts of broadcast spectrum in different geographic areas, the Commission would hope to maximize the total amount of broadband spectrum available. However, the prospect of multiple band plans gives rise to technical complications, since such plans would create a need for different filters and/or duplexers in mobile devices. To address that problem, the Commission is considering a compromise solution involving “families” and “extended families” of related band plans. (See Figure E.) This way, mobile devices could be manufactured with common receive filter components to fit the common nationwide downlink spectrum, while the need for different receive filters could be addressed through operators’ base stations. 

A further complicating factor: if broadcasters relinquish an unexpectedly large amount of spectrum, technical requirements might necessitate two downlink band plans as an initial matter. The Commission seeks comment on these issues, as well as interoperability concerns.

Geographic Area LicensingThe Commission intends to utilize an intermediate geographic area licensing approach, offering mobile spectrum to serve particular Economic Areas (EAs) rather than broader service areas. Auctioning the spectrum based on nationwide, or broad regional, service areas would be less than desirable because, depending on the results of the TV repacking, spectrum would likely not be available in uniform amounts in all markets. The amount of spectrum that could be available for a nationwide license, then, would be limited to the amount available in the market with the least spectrum relinquished. On the other extreme, a more granular licensing approach – based on, for example, Metropolitan Statistical Areas/Rural Statistical Areas (MSAs/RSAs) that are smaller than EAs – would risk complications in auction design and implementation, as well as in the service roll-out. 

The Commission therefore is looking to the mid-sized, “Goldilocks zone” of licensing based on EAs. The Commission seeks comment on this approach, as well as what additional concerns to consider with respect to areas outside the lower 48 states (i.e., Alaska, Hawaii, U.S. territories, Gulf of Mexico).

The Commission also seeks comment on possible early and voluntary resolution of issues related to broadcast protections affecting lower 700 MHz A Block licensees.  The Commission would seek to facilitate channel relocation requests.

Unlicensed use. With all this band reconfiguration rearranging space for licensed operations, the Commission must still identify those areas of the spectrum which will be available for unlicensed use. The NPRM identifies three types of spectrum suitable for unlicensed use: guard bands, TV white spaces, and channel 37.

Guard bands: The Spectrum Act authorizes guard bands “no larger than [are] technically reasonable to prevent harmful interference between licensed services outside the guard bands.” The Commission is proposing 6 MHz guard bands between mobile broadband use and broadcast use. (See Figure F.) Those would be supplemented with the leftover bits from the relinquished broadcast spectrum – 1 to 4 MHz segments which are too small to be licensed as 5 MHz blocks. These guard bands would be available for unlicensed use. 

Of course, Congress’s insistence that guard bands be “no larger than technically reasonable” frames an obvious question: what is “technically reasonable?” Is a 6 MHz guard band enough to provide the necessary interference protections? Also, could the “remainders” from converting 6MHz television channels into 5MHz broadband channels be properly added to this band?

White Spaces:  In its repacking efforts, the Commission is also seeking to maintain a “substantial amount” of TV white space available for unlicensed operations. The Commission seems to think there will be plenty of white space left after the repacking, but that’s not intuitively obvious. After all, with TV broadcast channels being repacked even more tightly than has historically been the case (and with wireless service filling up most of the space freed up by the TV repacking), “white space” could ordinarily be expected to be in shortened, if not short, supply post-reconfiguration.

Channel 37:The Commission proposes unlicensed use in channel 37 “whether or not we relocate the WMTS and the Radio Astronomy Service.”  Every radio astronomy band is related to specific emissions from some cosmological event of interest to scientists. The channel 37 frequencies are particularly important in studies of the stuff between stars, distant pulsars, and our own Sun. The frequencies are protected by international treaty and used by radio-telescopes worldwide, so it will be interesting to see how commenters and the FCC address this issue.

If these services stay in channel 37, won’t they suffer interference from the on-rush of unlicensed operations? The Commission hopes to avoid this problem by establishing protection areas around the limited number of medical telemetry and radio astronomy sites, thus opening up this slice of spectrum for unlicensed use outside those limited areas.  The NPRM specifically solicits comment on the best protection criteria for medical telemetry and radio astronomy. 

Finally, it’s important to recognize that the voluminous NPRM poses many other questions addressing a wide range of critical issues, including pass band size, the possible authorization of TDD service in the band, and technical rules applicable to spectrum use. We strongly suggest that anyone with an interest in any of these areas review the full text of the NPRM carefully.

Again, comments are currently due no later than December 21, 2012 with replies due on February 19, 2013.

[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]

Inside the Incentive Auction NPRM (Part 5): The "Forward" Auction

[Blogmeister’s Note: This is another in a series of posts describing the FCC’s Incentive Auction Notice of Proposed Rulemaking. You can find all installments in this series by clicking here.Contributors to this series include Dan Kirkpatrick, Rob Schill, Don Evans and Harry Cole.]

The “forward” auction to be used to dole out reconfigured spectrum to wireless operators may seem traditional, but watch out. 

If the “reverse” auction designed to clear TV broadcasters out of large chunks of their current spectrum isn’t complicated enough, consider the “forward” auction. That’s the component of the Incentive Auctions in which hopeful wireless licensees will bid on the to-be-vacated spectrum sight unseen at the same time that the spectrum is being cleared. Because the availability of wireless licenses is dependent upon the results of the reverse auction in different geographic areas, wireless bidders won’t know exactly which spectrum band they’re bidding on or even whether any band will actually be available when the reverse auction is over. 

This double helix of descending bids on spectrum simultaneously coupled in sequential stages with parallel ascending bids on that same spectrum is audacious. But it is theoretically an efficient and quick way of re-assigning a precious resource.

Complexity in the computer age is not necessarily a deal breaker, but human (and computer) fallibility gives us some pause about this plan. Through the Incentive Auction Notice of Proposed Rulemaking (NPRM), the Commission is still looking for input on its plan, so we can expect experts from the world of Academia to chime in knowledgeably on the concept. 

In the meantime, we lay out here the Commission’s preliminary thoughts. The three basic auction design elements are: bid collection procedures, assignment procedures, and pricing.

Bid Collection ProceduresThe Commission proposes a “dynamic auction design format” with two alternative approaches: the typical “simultaneous multiple round ascending (SMR) auction” and, in this instance, the more favored “ascending clock auction.” 

The SMR design may be the more traditional auction approach. It involves a sequential series of rounds in which bidders specify what they would be willing to pay for each license to be acquired; the last provisional winning bid for any license becomes final when the next round does not produce any additional bids for that license. 

In the ascending clock format, by contrast, at the beginning of each round the Commission would announce prices for generic licenses in each category in each geographic area; bidders would then submit quantity bids for the number of licenses they would be willing to acquire at the FCC-established price for that round. Prices may differ depending on the category of license and the geographic areas to be served, but prices would remain the same within each category of a specific geographic area. Prices would be raised for each round until there is no longer demand. The hope is that bidding for generic blocks would actually speed up the process. (The NPRM includes a proposal for “intra-round bidding” in order to avoid a situation in which the FCC-set price for a given round does not attract enough bids.)

In addition to the above, the Commission seeks comment on the possibility of “package bidding”, which would afford bidders the opportunity to make an “all-or-nothing” bid for a group of licenses. The upside of “package bidding”: the bidder could avoid going home with a handful of licenses insufficient to meet its business needs, since its “package bid”, if successful, would give it the totality of necessary licenses. The downside, of course, is the same downside as any “all-or-nothing” proposition: the bidder could end up with nothing.

Assignment Procedures. Details of exactly how successful bidders will be matched with particular licenses are a bit fuzzy. As discussed in our separate post describing the reconfiguring of the UHF band for mobile operation, the Commission is tentatively figuring that it may sell spectrum in the “forward” auction in 5 MHz blocks, paired where possible. The Commission would assign contiguous blocks to bidders that bid for multiple blocks in the same geographic area; the assignment process could take into account the need to coordinate frequencies across adjacent areas

Bidders would thus be bidding on spectrum blocks without knowing precisely what frequencies they might ultimately acquire – since the frequencies to be available won’t be known for sure until the “reverse” auction process and consequent TV repacking have been completed. 

The NPRM contemplates that, at the conclusion of the initial “forward” auction, an additional “auction phase” might be used to assign specific frequencies. (Such an additional “phase” would likely involve additional bidding.) If “package bidding” is allowed, the Commission will need to take these bids into consideration in the final matching up of licenses to successful bidders. If the Commission goes forward with the generic blocks approach, “the assignment procedures would assign contiguous blocks to bidders that bid for multiple blocks in the same geographic area and could take into account the need to coordinate frequencies across adjacent areas.” 

Procedures to Determine License PricesNaturally enough, the final prices will be the highest amounts bid in the initial “phase” of the “forward” auction (regardless of which particular format the FCC ultimately settles on). But as noted, those final prices may be increased through a second “auction phase” to assign specific frequencies to specific successful bidders. The structure of any such additional phase is at this point up in the air; the NPRM solicits comments on any additional procedures that might be necessary.

Again, comments are currently due to be filed by December 21, 2012 and reply comments by February 19, 2013.

[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]

Inside the Incentive Auction NPRM (Part 4): TV Repacking - The Practical Side

[Blogmeister’s Note: This is another in a series of posts describing the FCC’s Incentive Auction Notice of Proposed Rulemaking. You can find all installments in this series by clicking here. Contributors to this series include Dan Kirkpatrick, Rob Schill, Don Evans and Harry Cole.]

Once the final participants in the repacking of the TV band have been identified through the "reverse" auction process, the shuffling of stations necessary to accomplish the repacking will raise a number of practical considerations and conundrums. 

Once the auctions have been completed, the Commission and the TV industry will have to grapple with the practical implementation of repacking: who gets what channels, how will stations moving from one channel to another effectuate that transition, what (if any) reimbursement of transition costs will be available, and to whom. This phase of the process will affect all TV broadcasters, whether or not they opted to participate in the “reverse” auction.

 Initially, the post-transition channels to which full power and Class A station will be assigned will be determined by the FCC, without input from licensees. The Commission will use a software program to figure out the optimal way to squeeze the TV industry into the portion of the current TV band that will remain, post-auction, available for TV operations.   Although stations are not to be involuntarily moved from UHF to VHF, almost any other move will be fair game as long as it’s consistent with the auction results.  Licensees unhappy with whatever “new” channel they are assigned to will have very limited recourse: the Spectrum Act denies stations the right to protest modifications of their licenses (i.e, channel changes)imposed by the Commission to accomplish the repacking.

Re-licensing ProceduresOnce the Commission announces its repacked TV band, a number of procedural steps will have to be taken: as we all learned from the transition to DTV several years ago, it’s one thing for the FCC to specify where stations are supposed to operate on the spectrum; it’s an entirely different thing to get those stations up and running on the appointed channels.

As envisioned in the Incentive Auction Notice of Proposed Rulemaking (NPRM), stations requiring modification of their existing authorizations in order to conform to their post-auction channel assignments would be required to file a Form 301 or 340 construction permit application.  This would not apply to licensees who will simply be sharing a channel with a station that is not otherwise modified. The NPRM requests comment on how much time should be allowed for the filing of such applications. (Hint: the NPRM recognizes that more than 30 days would likely be appropriate, since any changes may not be ones the licensee has previously had any reason to anticipate, much less prepare for.) Whatever deadline is established, the NPRM requests comment on whether any extension procedures should be adopted and whether an early deadline should be established that would entitle applicants to expedited processing. 

Stations that will be participating in a channel sharing arrangement without any technical changes would have to file a Form 302 license application; if the station whose facilities are to shared is itself going to have those facilities modified in the repacking, the NPRM proposes that both the sharer and sharee licensees would need to file license applications for the shared station’s original channel. That will cover their sharing arrangement until the new channel facility is constructed. 

How long would licensees have to effectuate the changes in their facilities? The Commission is looking for input on the range of issues underlying that important question. Should there be a uniform, one-size-fits-all, nationwide deadline, or a series of deadlines determined geographically or based on the subsequent use (i.e. continued broadcast use or wireless) of the channel being vacated. The Commission indicates that it does not believe that a full three years should be required to implement changes, suggesting instead a possible 18-month timeframe. The NPRM asks whether any deadlines should be tied to its procedures for reimbursement of relocation expenses (discussed below), and whether advance payments from the Relocation Fund should be allowed. 

With respect to stations that will be terminating operations entirely – as to whom the issue of additional construction is obviously irrelevant – the Commission asks whether earlier deadlines should be imposed. Finally, the NPRM requests comment on whether it would be appropriate to adopt tolling criteria, and/or allow flexibility for temporary operations, as was done during the DTV transition. 

As noted above, licensees will not be able to protest channel modifications. But the NPRM does propose some limited relief for stations unhappy with their reassigned channels. The FCC suggests that such stations could request alternative channel assignments, but only after all initial construction permit applications implementing the repacking have been processed. Such alternative assignments would have to be technically feasible. Additionally, stations that successfully bid to relinquish a UHF channel in favor of a VHF would not be allowed to request a return to UHF. 

Reimbursement of Costs. The Spectrum Act establishes a $1.75 billion “TV Broadcaster Relocation Fund” from which the Commission must reimburse television stations’ “reasonable” relocation costs. Consistent with the chicken-and-egg complexity of the Incentive Auction process (including, particularly, implementation of the repacking process), cash for that fund is to come from the proceeds of the “forward” auction. The Act provides that such costs cannot be paid until after the end of the forward auction, and must be paid within three years. Since some reimbursements may need to be made before those proceeds roll in, the Act authorizes the FCC to borrow up to $1 billion from the Treasury to get things started. 

As the Commission reads the Spectrum Act, reimbursement from the Relocation Fund would be available only to those stations that are involuntarily reassigned to a new channel. According to the FCC, that universe does not include licensees who opt to participate in the “reverse” auction. The FCC figures that successful “reverse” auction participants should pay for any relocation expenses out of the payout they get from the auction. With respect to “sharer” stations that participate in a channel sharing arrangement but do not submit winning bids in the reverse auction, the FCC would permit reimbursement of relocation costs in the event of a new channel assignment for the shared facility.

The NPRM proposes rules that would allow relocated broadcasters to elect reimbursement of their actual costs or estimated costs. Broadcasters electing estimated costs would be able to collect payment before implementing its channel change. The Commission requests comment on how to calculate estimated costs, and what station characteristics should be considered in any such determination. Stations electing to be paid their actual costs would, under the Commission’s proposal, be required to submit documentation showing the amounts claimed, and that such amounts were reasonable.

Since the Act limits reimbursement to “reasonable” costs only, the Commission must come up with some way to establish “reasonableness”. With that in mind, the NPRM requests comment on whether reimbursement should be provided for equipment that must be replaced, but where the newer equipment also represents an upgrade from the station’s existing equipment. In light of the Spectrum Act’s prohibition on reimbursing lost revenues, the Commission proposes no reimbursements for lost advertising while a station is off-air, but requests comment on whether reimbursements could be made for refunds to advertisers, the costs of make-goods, or other expenses. 

Other reimbursement questions on the table: What happens if total requested reimbursements exceed the statutory $1.75 billion cap? Is there anything the Commission can do to reduce the costs of relocation? As to that last question, could the FCC maybe obtain discounts by purchasing equipment in bulk, or somehow encourage stations to exchange and repurpose equipment, or possibly agree to waive certain rules in lieu or monetary reimbursement? If such waivers were offered, the NPRM asks what rules could be waived and what types of flexible use of spectrum could be allowed. 

The Act also provides for reimbursement of costs incurred by multichannel video programming distributors (MVPDs) as a result of the repacking. While such costs are not likely to be terribly extensive, the NPRM requests comment on what types of costs may arise, whether reimbursements should be based on estimated or actual costs, and how to determine what costs are reasonable. 

Finally, the Commission requests comment generally on how to prevent waste, fraud, and abuse in the reimbursement program. 

Consumer Education. Harkening back to the DTV transition and concern that arose then about the need to increase public awareness of the changes involved there, the Commission asks whether a similar consumer education effort is warranted now. Since the repacking is, from a consumer standpoint, likely to be much less complicated than the DTV transition, the Commission asks whether less complicated consumer notification requirements might be appropriate. Also, because viewers will primarily need simply to rescan their receivers, the NPRM requests comment on whether it would really be necessary to establish viewer call center(s), require stations to broadcast on-air notifications, and require reporting to the FCC on any such efforts. The NPRM also requests comment on what type of notification stations should be required to provide to cable operators, and whether a simple letter notification of the station’s new channel and transition date would be sufficient. 

Post-Auction Licensing/Operating Rules. The Commission recognizes that the repacking process will raise some ongoing post-auction regulatory issues. It’s looking for input on a number of specific issues along those lines, as well as on any issues that may not have been considered. 

Recognizing that the removal of one or more stations from a market could affect remaining stations’ compliance with the multiple ownership rules, the NPRM proposes grandfathering any existing station combinations. (Other ownership issues are to be addressed separately in the Commission’s quadrennial review of its ownership rules.) The Commission also recognizes that removing some stations from operation, particularly where those stations are likely to be ones that served niche markets, will have a negative impact on diversity. The NPRM requests comment on how to address this loss of diversity, including possible ways to encourage multicasting or alternative delivery of niche programming that may disappear as a result of stations relinquishing their licenses.

The concept of channel-sharing arrangements (CSAs) raises another set of rule-compliance issues. While recognizing the Commission’s traditional reluctance to involve itself in private contractual relationships, the NPRM requests comment on whether CSAs should be required to address certain matters, such as: access to station facilities; operation, maintenance, repair, and modification of those facilities; and transfer or assignment of either or both licensee’s rights in the station. Comment is also requested on how to address future terminations of a shared license, particularly where one of the two sharing licensees were to have its license terminated, either voluntarily or involuntarily. 

The Commission notes a number of particular difficulties that may arise with respect to CSAs involving a Class A station and a full power station. While such CSAs would be permitted, any such shared license would be subject to the technical rules applicable to the station that did not relinquish its channel. The Commission notes, however, that such a sharing would not grant the Class A station any enhanced MVPD carriage rights, nor would it diminish the full power station’s carriage rights, except to the extent that the full power might no longer delivery a good quality signal to an MVPD headend. 

For stations involved in channel sharing, the NPRM requests comment on how compliance with technical rules should be enforced. The Commission proposes generally to require each licensee individually to comply with all technical rules, but requests comment on whether certain responsibilities, such as preparation of station logs, compliance with the RF exposure rules, and EAS compliance, should be shared responsibilities. 

Finally, the Commission proposes rules to address treatment of noncommercial educational licensees. While such licensees may, following repacking, end up on an “unreserved”, or commercial, channel, the NPRM proposes that such licensees would still have to satisfy all of the existing noncommercial educational licensing requirements. Such licenses could be assigned only to another entity satifying those requirements, and if terminated, such a license could be reassigned only to a noncommercial licensee. The NPRM also proposes allowing noncommercial and commercial licensees to enter into CSAs, although each licensee would remain subject to the applicable noncommercial or commercial licensing rules.

Again, comments are currently due to be filed by December 21, 2012 and reply comments by February 19, 2013.

[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]

Inside the Incentive Auction NPRM (Part 3): Doing More with Less - Repacking the TV Band

[Blogmeister’s Note: This is another in a series of posts describing the FCC’s Incentive Auction Notice of Proposed Rulemaking. You can find all installments in this series by clicking here. Contributors to this series include Dan Kirkpatrick, Rob Schill, Don Evans and Harry Cole.]

Whether or not you plan to participate in the “reverse” auction, if you’re a TV licensee, you should be aware of what the FCC has in mind for the spectrum around you.

It’s important to understand that the Incentive Auction program is merely a device designed to facilitate the “repacking” of the spectrum. That is, the FCC is dead-set on freeing up space for mobile broadband use in spectrum currently occupied by TV broadcast stations. In other words, many TV licensees can be expected to be moved off their current channels, whether voluntarily (through the “reverse” auction process) or by forced relocation. So while TV licensees not planning on participating in the “reverse” auction” may not be terribly concerned with the mechanics of submitting bids, all TV broadcasters need to pay attention to the FCC’s proposed approach to repacking the spectrum. 

Under the Spectrum Act, when the Commission relocates TV stations in its repacking efforts, it must take “all reasonable efforts” to preserve the “coverage area” and “population served” of every surviving full power or Class A station. For these purposes, “coverage area” and “population served” are to be determined using the methods set out by the Office of Engineering and Technology’s Bulletin No. 69 (OET-69). LPTV and translators station will receive no protection during the repacking process and will be subject to displacement by any relocated full power or Class A station, although the NPRM does request comment on some measures designed to help LPTV and translator stations survive in a post-auction world. 

As for full power and Class A stations, the Commission in the Incentive Auction Notice of Proposed Rulemaking (NPRM) is looking to determine just what “coverage area” and “population” must be protected. Under OET-69, the term “coverage area” is not defined, but it is used synonymously with “service area” as that latter term is defined in Section 73.622(e) of the rules. While “coverage area” (or “service area”) does not account for interference from other stations, OET-69’s measurement of “population served” does, counting only population that is both within the “coverage area” and where the signal is not masked by interference.

In the NPRM, the Commission proposes protecting full power stations’ “service area” as currently defined in Section 622(e) of the Commission’s rules. For Class A stations, the coverage area for purposes oepacking would be the station’s “protected contour”, i.e., the area within which the station’s signal is protected under the rules from interference. That “protected area” is frequently smaller than the area in which the station can actually deliver a signal. 

Since propagation characteristics vary from channel-to-channel, changes in channels may necessitate modifications to facilities in order to replicate the original “service area”. The FCC has software that should be able to calculate any necessary changes. Along those lines, the Commission suggests that it may not require construction of new antennas to precisely match the pattern that the software might specify; in those cases, the station would be permitted to continue to use its existing antenna pattern, with appropriate adjustment to its power level. Under the NPRM’s proposals, licensees would also be permitted to propose “alternate transmission facilities” to those specified by the FCC’s software. But such alternate facilities would not be permitted to (a) extend the coverage area in any direction beyond those specified by our replication software or (b) cause new interference. And any reduction in coverage area and/or population served would have to be de minimis.

To protect a station’s population served, the NPRM requests comment on three alternative proposals. First, the Commission could refuse to allow any new overall interference to any station’s population served – although if interference were removed in one area, new interference could be created in another. As was the case in the DTV transition, the Commission proposes that interference up to 0.5% would not count as “new interference”. 

As a second, stricter, option, the NPRM suggests that no new interference could be created to any specific population. This would be more difficult to implement but, in the FCC’s view, might be preferable because it would protect individual viewers from losing service. 

The third option would allow creation of up to 2% new interference, but only if the new interference were created by another station that already caused interference to the subject station. 

The NPRM requests comment on these three proposals, as well as various other considerations. Among those other considerations: whether greater interference should be allowed; whether new interference should be allowed only in areas with high MVPD penetration; and whether the Commission should amend its rules to allow stations to accept additional interference voluntarily.    

As a final part of the repacking process, the NPRM also sets out the Commission’s proposals regarding what facilities are to be protected. While the Spectrum Act requires the Commission to protect only facilities that were licensed (or for which a license application was pending) as of February 22, the Commission reads the Act to allow it to protect certain facilities that were not licensed at that time. 

First, in a move of very limited application, the NPRM proposes protecting new full power stations whose original construction permits had been issued as of February 22, 2012. The Commission notes that there are only three such stations. Other unbuilt full power construction permits would generally be unprotected. 

Unbuilt Class A digital permits, by contrast, could find themselves protected in some situations. The Commission proposes protecting only a single facility for each Class A station. However, to encourage the continued digital transition of Class A stations, it proposes allowing stations to notify the Commission in advance of the auction which facility (licensed analog or digital or a granted digital construction permit) they wish to protect. The NPRM also requests comment on whether the repacking should protect stations that hold construction permits to implement channel changes previously approved through a rulemaking proceeding. However, channel changes which have merely been proposed in, say, a petition for rulemaking would not receive protection if a notice of proposed rulemaking regarding the change has not yet been issued.

A second major post-auction regulatory issue is the treatment of LPTV and translator stations. As noted above, such stations are not eligible to participate in the auction, and their existing service will not be protected during the repacking process. As a result, many LPTV stations may be forced to relocate to alternative channels – even though, with the smaller number of channels available, it is likely that at least some displaced LPTV and translator stations will not be able to find alternative over-the-air channels. The NPRM requests comment on potential approaches to minimize the impact on LPTV and translator stations. These include:

  • authorizing voluntary channel sharing among LPTV and translator stations;
  • taking steps to encourage the use by LPTV and translator stations of extra digital capacity on Class A and full-power stations; and
  • taking steps to encourage distribution on MVPD providers or the internet. 

The NPRM also requests comment on whether it should adopt any rule changes governing the displacement of LPTV and translator stations. For example, new rules might prioritize such applications over other LPTV and translator modifications. Alternatively, a “window” period might be established during which LPTV stations might be allowed to file displacement applications after the full-power and Class A repacking applications have been processed, but before any actual interference has occurred to the LPTV stations. Recognizing the likelihood of competing displacement applications from LPTV and translator stations, the NPRM also asks for comment on whether it should adopt any set of priorities to govern the processing of such applications. LPTV and translator licensees, particularly in congested areas, should consider these options. Again, comments are currently due to be filed by December 21, 2012 and reply comments by February 19, 2013.

[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]

Inside the Incentive Auction NPRM (Part 2): Who's Eligible for the "Reverse" Broadcast Auction?

[Blogmeister’s Note: This is another in a series of posts describing the FCC’s Incentive Auction Notice of Proposed Rulemaking. You can find all installments in this series by clicking here. Contributors to this series include Dan Kirkpatrick, Rob Schill, Don Evans and Harry Cole.]

Hint: Maybe fewer folks than you might have thought.

Who will be eligible to participate in the “reverse” spectrum auction? Not, it would appear, everybody who might want to.

As required by Congress in the Middle Class Tax Relief and Job Creation Act of 2012 (which the FCC prefers to refer to as the “Spectrum Act”), in its Incentive Auction Notice of Proposed Rulemaking (NPRM), the Commission proposes significant eligibility limitations as far as the “reverse” auction goes.

First and probably most important, the only folks who could participate in the “reverse” auction would be licensees of full power and Class A television stations, both commercial and noncommercial. That automatically eliminates LPTV licensees and TV translator licensees.

But Class A licensees should not necessarily be breathing easily, particularly in light of the Commission’s recent attempts to downgrade a number of Class A stations to LPTV status.   The NPRM proposes that any station whose Class A status has been revoked by the Commission would not be eligible to participate in the auction, even if the order downgrading the station has not become final by the time of the auction. (Licensees who get downgraded can seek reconsideration or review of the decision to downgrade, thus avoiding finality and keeping alive – or so they hope – the possibility that the decision might be reversed during the appeals process. Under the FCC’s proposed eligibility criteria for the reverse auction, however, any effort to reverse a downgrade might be pointless if the auction, and consequent repacking, occurs before the downgraded station could be restored to Class A status.) 

There are some potential limiting considerations for full power licensees, too.

For instance, full power licensees’ bids must be based on their stations’ licensed facilities as of February 22, 2012. In other words, you can’t apply to modify those facilities now in some way that might improve your posture in the auction.  

Class A licensees, by contrast, would be treated slightly differently, based on the status of the Class A station’s digital conversion. If the Class A station held a digital license on February 22, those facilities would determine the licensee’s options as far as spectrum relinquishment go. But if the Class A station was licensed as analog on February 22 and thereafter obtains a digital license prior to the beginning of the auction, the station’s licensed digital facilities as of the beginning of the auction would be considered. (In the latter case, if the digital license isn’t in hand by the time the auction starts, the Class A’s bidding options will be based on its licensed analog facilities as of February 22, 2012.)

The NPRM also proposes that any station whose license has been revoked or cancelled or has expired would be ineligible. Also ineligible would be any station that failed to file its license renewal application by the expiration date of that license (although apparently eligibility could be maintained if a licensee filed its renewal application after the filing deadline, but prior to expiration).

The mere fact that a station has a license renewal application pending would not ordinarily prevent it from participating in the auction. But the Commission is proposing an important gotcha on this score. How, the Commission asks, should it deal with licensees whose renewals are being held up because of enforcement actions (or who are otherwise subject to such actions). In other words, imagine that a TV licensee’s renewal has been held up because of indecency complaints or concerns about inadequate sponsorship IDs. (That shouldn’t tax anybody’s imagination too much – historically, hundreds of license renewals have been deferred for years because of such matters.) The FCC suggests in the NPRM that any licensee looking to turn in its license through the “reverse” auction process should have to pony up, in advance, an escrow payment to cover the fine that might result from any pending enforcement actions.

That proposed escrow scheme raises a number of questions, not the least of which involves the scheme’s fundamental legality. The Communications Act (that would be Section 504(c), to be precise) flatly prohibits the Commission from using a pending notice of apparent liability (NAL) “to the prejudice” of the subject of the action unless and until the forfeiture has been paid or a court of competent jurisdiction has ordered it to be paid. Here the Commission appears to be proposing that, even in the absence of an NAL establishing (a) an apparent violation and (b) a proposed forfeiture amount, the Commission might bar otherwise eligible licensees from participating in the “reverse” auction unless they fork over a wad of cash to cover some indeterminate fine covering some violation that may or may not have occurred. 

Such a proposal is plainly problematic. It is even more so in view of the Commission’s well-established history of placing “enforcement holds” on a significant percentage of TV license renewal applications, often for unannounced reasons. (Side note: we have recently learned that the FCC has quietly lifted, without notice or explanation, some enforcement holds on some stations. This could be a harbinger of more sweeping efforts to clear away the holds that have stalled action on hundreds of TV renewal applications for years. But, since a new round of TV renewal applications is currently underway, it would not be surprising to see new enforcement holds cropping up, even if the old ones disappear.)

In any event, it seems to us that prospective “reverse” auction participants may want to oppose this element of the NPRM aggressively – unless they prefer to face the prospect of a potentially steep admission price for the privilege of participating in the auction.

One final eligibility note of truly limited impact: any newly licensed full power station will be eligible only if its initial construction permit had been granted by February 22, 2012 (the date on which the Spectrum Act was adopted) and the station has received a license by the time it submits its initial “short-form” auction application. Since there were a total of only three outstanding CP’s as of February 22, this particular condition is not likely to have far-reaching effect. 

While we’ll be addressing the practical aspects of the “reverse” auction bidding process in greater detail in another installment in this series of posts, we’ll shed some light on that here, too. The NPRM proposes three options regarding what rights a licensee may offer up in exchange for a possible pay-out. A licensee’s bid could vary based on what it’s willing to do. In particular, it could offer to:

  • cease broadcasting entirely (i.e., the licensee would in effect be turning in its license and leaving the broadcasting business);
  • operate on a VHF channel (assuming that the station is a UHF licensee). In this case, the licensee would be signaling that, for a price, it would be willing to have its operation relocated to the VHF band; or
  • share a 6 MHz channel with another station. 

The NPRM also requests whether bidders agreeing to move from a UHF to a VHF channel should be allowed to limit that move to only a high-VHF channel, and whether licensees currently on high-VHF channels should be allowed to bid to move to low-VHF channels. 

With respect to channel-sharing arrangements, the Commission proposes that stations entering into such deals would not be permitted to change their DMAs or communities of license. Although sharing a channel with a station in an adjacent DMA could be acceptable, neither station’s DMA assignment would be changed, and each would be required to continue to serve its respective existing community of license.

In addition to these broad-brush elements, the Commission solicits comments on a number of finer points.  For example, should the FCC adopt a policy favoring waivers of existing power and height restrictions for stations agreeing to move to VHF channels? Should bidders be permitted, as part of their bids, to agree to accept additional interference, either from broadcast or wireless users, or to accept a reduced or modified service area?

To some degree, the auction eligibility requirements are set in stone, thanks to Congress – so LPTV and translator licensees need not apply, period. But the majority of auction niceties addressed in the NPRM are wide open for comment. Potential auction participants would do well to review the NPRM carefully and let the Commission know about points that are important to them. Again, comments are currently due to be filed by December 21, 2012 and reply comments by February 19, 2013.

[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]

Inside the Incentive Auction NPRM (Part 1): The Overall Auction Design

[Blogmeister’s Note: This is the first in a series of posts describing the FCC’s Incentive Auction Notice of Proposed Rulemaking. You can find all installments in this series as they are posted by clicking here. Contributors to this series include Dan Kirkpatrick, Rob Schill, Don Evans and Harry Cole.]

An overview of the FCC’s proposed approach to spectrum-clearing/spectrum-repopulating incentive auctions and some of the myriad factors at play in that process.

The Incentive Auctions are coming. No doubt about it. TV and Class A licensees will be given the opportunity to cash in in return for making some or all of their spectrum available for repurposing (the beneficiaries of the repurposing being wireless broadband operators). The innovative concept floated out two years ago in the National Broadband Plan is now targeted for implementation in 2014 . . . if about a million different moving parts all happen to align just right. 

Recently, Commission officials (including Commissioner Rosenworcel and Incentive Auction Task Force co-leader Gary Epstein) have emphasized the importance of making the auction process understandable and easy to participate in. As Rosenworcel put it, “[s]implicity is key . . . [A]t every structural juncture [of the auction design], a bias toward simplicity is crucial”. 

Perhaps. But that brings us to the Commission’s Notice of Proposed Rulemaking (NPRM) in which it lays out – over 140 pages of single-spaced text plus 26 pages of proposed rules plus 22 pages of additional appendices plus 15 pages of separate statements by the Commissioners plus a 20-page “Incentive Auction Rules Option and Discussion” – the agency’s thoughts on the Incentive Auctions’ design.

“Ease” and “simplicity” do not spring to mind as the reader slogs through the dense, highly technical NPRM.

Of course, the design phase of the Incentive Auctions is necessarily complex because of the extraordinary complexity of the ultimate goal. That goal includes encouraging as many TV and Class A licensees as possible to surrender their spectrum for repurposing in the most efficient manner possible while what’s left of the TV industry is repacked into less spectrum. And then there’s also the goal of reconfiguring the freed-up spectrum and selling it to wireless providers. The NPRM provides all interested parties an opportunity to attempt to shape the auctions’ final design.

With that in mind, we present the first of a series of posts summarizing various elements of the NPRM. Our series will not address all of the NPRM. Rather, we will attempt to highlight aspects that appear to us to be particularly prominent and worthy of consideration by folks likely to be affected by the process. Comments in response to the NPRM are currently set to be filed by December 21, 2012; reply comments are due by February 19, 2013. We encourage all parties interested in the Incentive Auction program to take a careful look at the NPRM and weigh in with their thoughts.

Auction Design Overview – A chicken-and-egg problem, on steroids, in three dimensions

The Incentive Auction process will include two separate-but-interrelated auctions: a “reverse” auction in which TV and Class A licensees will agree to relinquish some or all of their spectrum rights in return for cash, and a “forward” auction, in which prospective mobile licensees will bid for the right to use portions of the spectrum freed up by the “reverse” auction. 

Sounds simple, but wait. 

The precise spectrum to be bid on in the “forward” auction won’t be known until the “reverse” auction is completed. And Congress has mandated that the proceeds from the “forward” auction must cover all the payments to successful “reverse” auction bidders, plus a number of other administrative and reimbursement costs.  So there’s a threshold interdependence between the two that poses conceptual problems (sort of a regulatory equivalent to M.C. Escher’s Drawing Hands).

But that chicken-and-egg problem is further complicated by the fact that the value of any particular broadcaster’s to-be-relinquished spectrum is likely to be different from any other broadcaster’s. The differences arise from a host of factors, some of them easily calculable (e.g., population covered, perhaps whether any particular relinquishment would create “white” or “gray” areas), some not so much (e.g., extent to which that particular spectrum will facilitate (a) repacking of the TV band and/or (b) repurposing of the spectrum). And, of course, the value of the spectrum available in the “forward” auction will depend on how much spectrum is available and where it can be used.

With respect to determining the value of to-be-relinquished TV spectrum, the FCC is considering a couple of computer programs that might serve to update the likely value of each participant’s to-be-relinquished TV spectrum constantly through the course of the “reverse” auction. Remember, while participating broadcasters will want to keep that value up, it’s in the Commission’s interest to keep it down, so as to minimize the overall pay-out (and, thus, maximize the government’s ultimate take from the “forward” auction).

One of the two computerized approaches under consideration (the “Integer Programming Algorithm Approach”) “would, for a specified amount of spectrum to be cleared, minimize the sum of the reverse auction bids accepted and the relocation costs of stations that are reassigned to new channels.” But that particular approach would not necessarily lead to “optimal” results – although the Commission advises that results would be “within a certain tolerance of optimality” that the Commission, at least, could find acceptable. Oh yeah, and those results might not be easily reproducible and, thus, “less than fully transparent”.

The second computerized approach – the “Sequential Algorithm Approach” – would, as best we can understand it, assess for each auction participant prior to each auction round the feasibility of assigning that participant’s station to some channel in its pre-auction band. As long as the station can be assigned to the pre-auction band, the participant can opt to continue in the “reverse” auction. (Alternatively, of course, it could bail from the auction at any time as well – but heads up: a decision to exit the auction would be irreversible.) The program would determine for each participant the “least-cost” move (“least-cost”, that is, to the Commission). If no re-assignment within the participant’s pre-auction band is possible, then that participant’s compensation would be set at the last price offer it accepted for its last preferred relinquishment option. This approach may be more easily replicated than the Integer Programming Algorithm, but it’s apparently more complicated and less efficient.

As far as operation of the “reverse” auction goes, the Commission is looking at two alternatives: either (a) a single round, one-and-done, put-your-final-bid-forward approach, or (b) a somewhat more conventional multiple round clock format.  In the latter, in each round a progressively lower bid amount would be presented by the Commission and each bidder would indicate its willingness to accept that amount. It appears that each FCC-set bid would be unique to each auction participant (based on the particular attributes of that participant’s to-be-relinquished spectrum) and disclosed confidentially only to that participant. The idea is not to have broadcasters bidding against each other, but rather to enable the FCC and each broadcaster to arrive at a mutually agreeable cash value for the relinquishment of that broadcaster’s spectrum.

Another interesting point: the Commission is considering establishing “reserve” prices, i.e., a maximum that it would be willing to pay for the relinquishment of spectrum rights. The maximum would likely vary from broadcaster to broadcaster, depending on the relevant characteristics (e.g., audience served) of the broadcaster’s station.

The “forward” auction would be considerably simpler, but still not without its quirks. The Commission is tentatively planning on using a standard multiple round ascending auction typical of other spectrum auctions. Bidders would be bidding on “generic” categories of licenses (e.g., paired or unpaired) in particular geographic areas, probably in 5 MHz blocks. Specific frequencies would not be involved; those would be assigned once the “forward” and “reverse” auctions have been completed and the repacking process has permitted the identification of specific frequencies available in specific areas. We’ll be posting a separate installment addressing in more detail “forward” auction issues.

For those readers who find the NPRM’s description of the auction process a bit too daunting, you may be better off by starting with the “Incentive Auction Rules Option and Discussion” included as Appendix C to the NPRM.   Prepared at the FCC’s request by Auctionomics and Power Auctions, it provides a somewhat more accessible view of what the FCC has in mind. It’s still not quite “FCC Incentive Auctions for Dummies”, but we found it helpful.

Even those who are not interested in participating in the auction may want to take the opportunity to comment.  Whether or not they choose to participate, all TV broadcasters will be affected by the Incentive Auction.  That’s because, in order to package more desirable spectrum blocks for the “forward” auction, the FCC will likely be forcing most, if not all, remaining full power broadcasters to change channels or implement other modifications.  While the Commission is required to take “all reasonable efforts” to protect full-power stations’ existing service areas, and to reimburse relocations costs (to be paid from the forward auction proceeds), the mechanics and implementation of the repacking are, not surprisingly, rather complicated.  For low power television licensees, the situation is much worse, as their services will not be entitled to any protection during the repacking process.

Obviously, there remain plenty of questions relative to all auction mechanics. Comments on any and all such questions are invited in the NPRM. Again, comments are currently due to be filed by December 21, 2012 and reply comments by February 19, 2013.

[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]