Applications May Be Due Later This Year

In our August 7th e-Lert, JSI informed clients that the 600 Mhz spectrum auction (the Incentive Auction or Auction 1000) will begin March 29, 2016. In this e-Lert, we provide a timeline and outline of the procedures for this complex auction as well as new bidding credit rules that will apply in this auction.

With many years of experience in the wireless sector, JSI and JSI Capital Advisors can assist your company with the incentive auction in a variety of ways including understanding the bidding process, preparing a competitive analysis for areas of interest, providing guidance on potential license values, the benefits, or lack thereof, of participation in the auction, as well as assisting with the application process. Guidance can also be provided with the auction procedures.  If your company is interested in participating in the incentive auction or would like more information, please contact John Kuykendall in JSI’s Maryland office at 301­-459-­7590.

Procedures

By all accounts, the Incentive Auction will be the most complex auction in FCC history largely because it is two auctions in one – a reverse auction and a forward auction.

First, during the reverse auction (“Auction 1001”), broadcasters will voluntarily relinquish all or some of their spectrum usage rights. The reverse auction will operate using a descending clock format in which the spectrum price offered to broadcasters will decrease each round until the lowest price to clear the required amount of spectrum is achieved.

The second auction will begin two business days after bidding closes in the reverse auction. During the forward auction (“Auction 1002”), fixed and mobile wireless broadband providers will have the opportunity to bid on the repurposed spectrum in “generic” license blocks, which means that they are interchangeable spectrum blocks rather than blocks with specific frequencies.  The blocks will be offered in geographic areas known as partial economic areas (PEAs). A map showing the PEA boundaries is available on the FCC’s website.

Licenses will be offered in one of two categories of generic licenses. These categories are distinguished based on the amount of “impairments.” Impairments are areas within a PEA where a wireless licensee may not be able to provide service because it would interfere with a broadcast station’s coverage area or areas where a wireless provider may receive harmful interference from remaining broadcast operations in or near the 600 MHz band. Category 1 licenses, the vast majority, are zero to 15 percent impaired while Category 2 licenses are 15 to 50 percent impaired. The percentages are based on the population within each PEA, not on geography. No licenses will be offered that have more than 50 percent impairment.

Each spectrum block within a PEA will have the same number of bidding units. Specific bidding amounts will be included in the Application Procedures Public Notice but it is important to note that to participate in the forward auction, prospective bidders must make an upfront payment equivalent to one-half of each spectrum block it wishes to bid on. The upfront payment amount, which will be due once the initial clearing target has been selected, is $2,500 per bidding unit.

The forward auction will use an ascending “clock” format in which the spectrum prices will increase each round as long as demand dictates. The bidding will be conducted simultaneously for all licenses available in the auction, and bidders will be subject to activity and eligibility rules. In the initial round, a bidder will indicate how many generic licenses in a category in a PEA it will seek at the minimum opening bid price. Bidding rounds will then be open for predetermined periods of time, during which bidders will indicate their demands for licenses at the clock prices associated with the current round. In each PEA, the clock price for a license category will increase from round to round if bidders indicate total demand that exceeds the number of licenses available in the category. The clock rounds will continue until, for all categories of licenses in the geographic areas, the number of licenses demanded does not exceed the supply of available licenses. At that point, those bidders indicating a demand for a license in a category at the final clock price will be deemed winning bidders contingent upon the incentive auction process closing after the current stage of the forward auction.

An assignment phase will follow the conclusion of the clock phase in which specific frequencies will be assigned. In addition to the generic blocks of Category 1 and 2 licenses, reserved spectrum will be made available to non-nationwide providers and entities holding an attributable interest in less than 45 megahertz, on a population-weighted basis, of below-1-GHz spectrum in a given PEA (based on demand). The auction will continue until the FCC recoups the costs necessary to move the broadcast stations and recover the value of the spectrum meaning the Final Stage Rule is met.

Bidding Credits

Under newly adopted “Designated Entity” (DE) rules, it is possible that JSI clients will fall under the DE category and will be eligible for bidding credits. To be considered a DE, a provider must be a rural provider, small business, woman, or minority owned business. Under the newly adopted rules, a rural carrier will qualify for a 15 percent bidding credit if it has 250,000 or fewer combined wireless, wireline, broadband and cable subscribers and serves primarily rural areas. Also under the new rules, eligible small businesses and rural providers may form consortia to bid as one entity and non-nationwide providers can enter into joint ventures to participate as a single bidder.

Previously, the only bidding credits available were for qualifying small businesses. Under these bidding credits, an entity qualifying as a small businesses could receive a 15 percent bidding credit if its average annual gross revenues for the preceding three years did not exceed $40 million or could receive a 25% bidding credit if its average annual gross revenues for the preceding three years did not exceed $15 million. While these small business bidding credits will still be available, they cannot be combined with the 15 percent rural carrier bidding credit.

Timeline

In the coming weeks, the FCC will release the Application Procedures Public Notice, which will include the details of the application process and post-auction procedures, the application filing window, deadlines, and the schedule for the mock auctions. It is anticipated applications will be due before the end of 2015. An overview of what’s to come is available on the Official FCC blog. More information on the incentive auction is also available on the FCC’s LEARN website.

Source: Source email