Takeaways from Reverse Incentive Auction Webinar
The reverse incentive auction webinar took place at Pillsbury Winthrup’s Washington DC offices yesterday December 19th. A replay is available at http://www.tmcnet.com/webinar/crossfire/incentive-auctions.htm (note: paid registration required, CLE credits may be available). In addition to the opening remarks, there were three panels – Legal, Valuation and Policy. The key takeaways from each section are:
I. Opening Remarks –
(Harold Furchtgott-Roth, former FCC Commissioner, Introduced by Barlow Keener, Keener Law Group)
1) Noted that increasing spectrum available for its highest use, mobile broadband was an important component to increasing economic growth.
2) Noted that the wireless industry was one of the fastest growing segments of the economy.
3) Indicated that the current spectrum inflexibility was costing consumers hundreds of billions of dollars annually. This was particularly important given the current budgetary concerns and the lack of growth in the economy.
II. Legal Panel –
(moderated by Marty Stern of K & L Gates. Rebecca Hansen from the FCC provided an overview of the auction. John Hane, Pillsbury Winthrup and Brian Madden, Lerman Senter offered legal comments.)
1) The FCC is officially deciding between a sealed bid process whereby participants indicate the price at which they will sell their spectrum and a descending bid auction, whereby the FCC offers a price to broadcasters in a given market and then lowers it until only the number of acceptances they would like remain. However, most observes believe the FCC is headed towards the descending bid auction.
2) FCC will score bids based on a unit price per market and on how it impacts repacking and then decide which ones to accept.
3) Many details about the number of options broadcasters will have are not settled.
4) Brian Madden stated that broadcasters need to think differently about the value of their businesses, because in the reverse auction process, the value will not be based on traditional broadcaster valuation metrics, but rather the value to a different user.
5) John Hane raised concerns about many details including how the repacking, which may change the frequencies for many broadcasters will impact their coverage areas, how interference issues result and how they might be compensated for losses. He suggested that the FCC take time between rounds to evaluate the potential impact of repacking.
III. Valuation Panel –
(moderated by J. Armand Musey, Summit Ridge Group, LLC. Panelists included three distinguished economists: Prof. Thomas Hazlett, George Mason Law School; Coleman Bazelon, The Brattle Group; and Mark Fratrick, BIA/Kelsey.)
1) Prof. Hazlett discussed the history and process that lead to the auction.
2) Coleman Bazelon indicated that FCC will only need to conduct the auction in the top 30 markets plus some adjacent markets to reach their goes of freeing 120 MHz nationwide. FCC bidding likely to result in prices in well in excess of their enterprise value, perhaps as much as 3x-4x.
3) Mark Fratick said that in recent months investors have purchased smaller broadcasters at premiums of 40%-50% above historical prices.
4) Panel agreed that some broadcasters, by virtue of their strategic position, such as overlapping major markets may be particularly important for the FCC to acquire and may achieve particularly high prices. However, it is difficult for a broadcaster to understand if they are in this position or a much weaker one. This requires significant technical, economic and legal analysis.
5) Panelists agreed that recent increased allocations and proposed allocations of wireless broadband spectrum would not reduce spectrum prices in the forward auction relative to prior auctions. Increased demand for wireless broadband has more than offset those spectrums increases, even after accounting for new technology that is increasing spectrum utilization efficiency.
IV. Policy Panel –
(moderated by Barlow Keener of Keener Law. Panelists included Prof. Preston Marshall, Univ. of S. California; Fred Campbell, CLIP; Trey Hanbury, Hogan Lovells.)
1) Panelists indicated that there might be additional auctions in the future and that this may not be their only exist opportunity.
2) Panelists agreed that it is in the broadcasters’ interest to invest in understanding this auction process.
3) Broadcasters may be surprised with the value they could achieve and may want to take advantage of it. If not, such information could better prepare them in the event of a future auction.
4) Prof. Marshall noted that future developments in cognitive radio may allow broadcasters to co-use spectrum with television broadcasters and avoiding the need for future auctions. Other panelists noted that such technology is not currently commercially viable.
5) Panelists agreed that the auction rules should be kept simple to maximize the number of participants on both sides. If the rules are too complex, it creates uncertainly and people instinctively avoid uncertainty.