At the end of last week, the FCC took the expected steps of releasing its public notice setting out the specific procedures for broadcasters interested in participating in the incentive auction by selling their spectrum back to the FCC to be repurposed for wireless broadband, and a notice setting out the specific opening prices that each full-power and Class A TV station will be offered in the auction. These notices also set December 18 as the deadline for stations to submit a new Form 177, declaring if they are interested in participating in the auction. While the dollar numbers to buy out stations perhaps got the most attention, stations need to remember that they are only opening prices – prices which will fall in the reverse auction process until the FCC has only enough interest in stations selling their spectrum to meet its spectrum clearing target. But the release of the numbers and the deadline for participation highlights for many stations the need to focus on the realities of the auction and make their plans for participation (or non-participation) accordingly.
The incentive auction procedures public notice is one that broadcasters need to carefully review and, for those intending to offer their spectrum for sale, to have their economic advisors review as well. Not only does the notice provide information about forms to be completed and the specific steps to be taken by broadcasters to participate in the auction, but it also includes exhibits setting out the mathematical models used by the FCC to determine the descending prices to be offered to broadcasters as the auction continues and when the offers will be frozen (meaning that the FCC has accepted the station’s offer to vacate their current channel, subject to the success of the forward auction raising sufficient funds to pay out the amounts offered to the broadcasters). Exhibits setting out the formulas used to calculate interference between broadcasters remaining after the auction and wireless users are also included in exhibits to the notice. What are some of the other specific issues for broadcasters addressed in the notice?
Initially, one is struck by the number of cautions included in the notice, warning broadcasters to make sure that they know what they are doing, that they are familiar with the auction rules, and that they don’t fall for fraudulent schemes that may arise around the auction or inadvertently violate some of the auction rules (especially the rules against prohibited communications, generally referred to as the anti-collusion rules, about which we wrote here). But perhaps most fundamentally, the FCC wants to make sure that an inadvertent bid, or one by an unauthorized individual, does not result in a broadcaster agreeing to surrender their channel and cease operations.
Initially, the application will set out the bidding options that the broadcaster is willing to consider – being bought out entirely, moving from a UHF or high VHF to a low VHF channel, or moving from a UHF channel to a high VHF channel. Selling out entirely will obviously result in a bigger payout than the moving-to-VHF options, and the FCC makes clear that if a station does not elect to accept the buy-out option in its initial application, it will not be able to reconsider and adopt that option later. Listing the buy-out option in the December filing does not bind a station to accept that option – that is done in a subsequent filing just before the March start of the auction. But a buy-out option will not be on the table if it is not listed on the December filing.
The FCC also describes the process for filing the Form 177, evidencing a station’s intent to participate in the auction, during the window between December 1 and December 18. That from will require information including the licensee’s name, the owners of 10% or more of the licensee, the names of up to three people authorized to bid on behalf of the company, and certifications that the licensee is familiar with all of the auction rules. For noncommercial stations, the form requires that the station indicate if it is operating on a reserved band, and for Class A stations, the form will require a certification that the station will continue to meet the obligations for Class A status throughout the auction.
Any channel sharing agreements must also be identified in the form. Full copies of the agreement, with no redactions, must also be submitted. All parties to the agreement must be named in the form. For stations that have not yet entered into a channel sharing agreement, but who hope to be able to do so after the auction, that hope is also to be noted. Even for stations that have entered into channel sharing agreements before the filing of the application can indicate that they hope to enter into channel sharing agreements after the auction in the event that their primary agreement falls through for one reason or another (e.g. a price floor set out in the agreement was not met). Various other disclosures and certifications regarding channel sharing are also required – including certifications that the agreement meets the FCC rules and will not create any new multiple ownership rule issues. For more on channel sharing, see our article here.
The FCC also makes clear that stations that owe money to the FCC, or which could potentially owe money to the FCC, will not be let off the hook by selling their stations in the incentive auction. Instead, if the station has any “red light” issues for unpaid fees, or any pending actions that could lead to a fine by the FCC, and if that licensee is potentially going to sell all of its stations in the auction, the FCC will withhold a portion of the auction distribution to cover that liability to the FCC.
After the filing of the application, the FCC will contact each individual bidder by confidential letter to let them know if the application was complete. The letter will say if the station has any potential liabilities to the FCC that would need to be satisfied out of the auction proceeds. Finally, instructions for submitting the commitment to carry forward with the relinquishment option selected by the station will be included in the letter. That commitment will be due by March 29.
A subsequent letter will be issued once the FCC decides how much spectrum it will try to clear. That letter will tell the applicant if its station is in fact needed in the auction based on the spectrum clearing target and the commitments of other stations. Once the auction begins bids will be taken either online or by phone, with secure ID numbers generated by FCC-provided fobs to necessary to place any bid to ensure security.