There are so many sides to broadband. Today something a little different – but something that may have an impact on our future wireless bills. It’s a wonky story about the reverse spectrum auction starting on March 29 – but before I lose too many people here’s the hook from Wharton University of Pennsylvania (based on a paper written by professors at the school) …
What’s interesting about this is that to a large extent, these higher prices are going to be paid for by wireless carriers. And you might think that’s fine. Of course, ultimately, that’s going to come from wireless customers. So, that might give you some reason to pause. But what’s worrying to us as economists is that some of the TV stations that should have been sold in the auction, because they’re not viable as ongoing businesses, will actually be continued as TV stations. And there’s a real loss for society coming from that.
So here’s the deal. (I’m going to try to pull out the bare bones from the article – although it’s a pretty easy read if you have the time over the weekend!)…
As the use of mobile devices escalates, the FCC wants to reclaim spectrum – or airwaves – currently used by TV stations and reallocate them for mobile broadband. That’s the spectrum you use when you log into Facebook on your phone. Specifically, the FCC wants to reclaim so-called low band spectrum in the 600 MHz range — this is valuable spectrum that can travel over long distances and penetrate buildings better.
On March 29, the FCC will start an incentive auction in which it will buy spectrum licenses from TV stations and resell them to mobile phone carriers such as Verizon and AT&T, as well as other buyers. It’s a first-of-its-kind auction in which TV stations put up spectrum licenses for sale in a reverse auction and buyers concurrently bid for them in a forward auction.
There are about 8,500 operating TV stations that own spectrum licenses, and there are 2,166 broadcast licenses eligible for the auction. Each license is for a 6 MHz block of spectrum covering a particular geographic area for over-the-air TV signals. TV stations that choose to sell their licenses can do three things: go off the air, relocate or share spectrum with another station.
However, Wharton research shows that there is a way for some TV stations to take advantage of the system — and increase their sales gains by potentially billions of dollars. While the FCC rolled out a very well-designed auction, there is a feature that could substantially benefit owners of multiple TV stations, such as private equity firms, according to the research paper, “Ownership Concentration and Strategic Supply Reduction.”
This is a big auction – like $45 billion spent by wireless carriers big! The wireless providers will be bidding to buy spectrum from TV stations. The TV stations have a cheat sheet that gives them an idea of what their spectrum/company is worth based on various criteria. The bidders do not have this info. It sounds like it was built with the idea that most owners have one station. It’s a heck of an opportunity for folks who own more…
The auction is very cleverly designed. It has a lot of very attractive properties. For example, TV license holders are shown a personalized price, basically based on the desirability of their license to this overall process. … And if you just own a single TV broadcast license, this mechanism is great. … You’re shown a price. And you should stay in this auction as long as the price shown to you is above your true value of this broadcast asset.
The complication arises when you have owners of multiple broadcast licenses. All of a sudden, you might have a weird incentive. You might say, “Actually, I’m going to pull one of my licenses out of the auction, because that might raise the closing price and increase my total proceeds from this whole process.” And so the point of this paper was to assess the extent to which firms might be able to do that as they acquire multiple licenses going into the auction.
In some markets it’s apparently a nonissue; in other areas license holders can increase bids by a third to a half. Billions of dollars.
To some degree, this is all speculation – but educated speculation. Just one moving piece to the whole broadband picture.