Broadcast lawyer John Hane warned Tuesday that the incentive auction could fail if the FCC doesn't get things right. "There are many, many, many paths to failure and only a fairly narrow set of paths to success," said Hane of Pillsbury Winthrop during a panel at an Institute for Policy Innovation conference.
"The biggest fear is that the FCC will overreach," Hane said. Broadcasters fear the "FCC will do a number of things to try squeeze more spectrum out of the auction that they don't have to pay for and indirectly squeeze broadcasters who will not discover this until after the auction is closed and it'll be difficult to convince a court to overturn the entire auction." The FCC also appears "for no reason that I can discern, to be seriously rushing the auction," Hane said. Congress gave the FCC 10 years to hold the auction, he noted. "What is the rush to do this in two years?"
"It's a little jarring to hear that the FCC is moving faster than they have to," joked IPI President Tom Giovanetti. "I'm not sure we have encountered that before." "And I'm not sure the FCC knows how to do that well," Hane responded. Charla Rath, vice president-wireless policy development at Verizon, agreed the incentive auction is complicated and the FCC shouldn't rush, but an auction can't take 10 years, she said. Verizon has spent the most time on the 600 MHz band plan and on a proposal to limit the amount of spectrum it and AT&T could buy in the auction. "We're worried about it," she said. "We continue to believe it doesn't make any sense to place restrictions on the two largest carriers." Verizon was "smart enough" to buy sub-1 GHz spectrum in previous auctions and shouldn't be punished for looking ahead, she said.
Aggregation limits will help only Sprint and T-Mobile, "two fairly large companies ... gain access to spectrum at perhaps below market rates," Rath said. She said the incentive auction is already complex: "Do you really want to layer on top of this some additional complexity?"
"If we've learned anything from the Internet revolution and the broadband revolution, we don't know what things are going to be like eight years from now and 10 years from now," Giovanetti said of aggregation limits: "Even what appear to be just innocent restrictions ... could cause huge problems down the road."
Broadcasters have more options than selling their spectrum in the incentive auction, said Ari Meltzer of Wiley Rein, representing the Expanding Opportunities for Broadcasters Coalition. "All you have to do is figure out what the station is worth today, pay them 'x' plus $1 and that's what they're going to take to get off the air," he said. "That's really a myth, and, I think, a dangerous myth to buy into." Other similar auctions are possible and there are other uses for broadcast spectrum, he said. As one analyst report said, "If you participate in the auction and don't get a high enough price you're crazy because your spectrum is actually worth a lot more to you over the next 20 years," Meltzer said.
There are about 2,200 "auction eligible" stations, including 1,700 in the UHF spectrum targeted by the FCC, Meltzer said. NAB has estimated that 391 would have to sell their spectrum to guarantee a successful auction, he said. The owners of about 800 stations, the top four in every market, are unlikely to sell, he said.
Hane said outside the major markets, carriers may not be willing to pay enough for the spectrum to get broadcasters to be willing to sell. "There may be some exceptions," he said. A few aggregators are buying stations and "they're pretty savvy about where they're acquiring licenses" and "most if not all" that spectrum will be bid into the auction.
The eventual confirmation of Tom Wheeler as FCC chairman should help the agency make key policy calls, speakers said. "Mostly I'd like to see him give assurances that the broadcasters who remain post-auction are not going to be squeezed in some of the ways, which I'm almost certain is part of the planning inside" the FCC, Hane said. Broadcasters need certainty, Rath agreed. "The whole thing is you've got to bring willing sellers and willing buyers to the market," she said. "If it doesn't work on the broadcast side, it's not going to work at all." Verizon also needs to know quickly whether it faces restrictions bidding in the auction, she said.
-- Howard Buskirk (buskirk@warren-news.com)