The US Federal Communications Commission (“FCC”) released its long-awaited proposal to recapture broadband spectrum from broadcasters on TV Channels 20-51. The proposed auction promises to send waves throughout the entire communications industry: broadcasters will be able to cash in on their spectrum rights, mobile providers will have the opportunity to acquire more spectrum, and companies that rely on unlicensed spectrum could see available spectrum grow. The entire US commercial mobile industry today operates on less than 435 megahertz of spectrum. If the FCC’s proposed incentive auction works, the FCC could not only raise tens of billions of dollars for the United States Treasury, but also add up to 120 megahertz of prime spectrum to the nation’s broadband inventory – an increase of more than twenty-five percent. As FCC Chairman Julius Genachowski recognized, “this is a big deal.”

The incentive auction is made up of three components, each of which the FCC seems inclined to conduct concurrently: (1) a reverse auction for broadcasters to sell spectrum; (2) a repacking of broadcasters to free spectrum; and (3) a forward auction of freed spectrum.

The reverse auction will allow broadcasters to bid: (i) to surrender their spectrum; (ii) to share a single channel with another broadcast incumbent; or (iii) to transfer their channels from Ultra High Frequency to Very High Frequency spectrum. The FCC is also considering more complicated bids, such as bidding to accept interference or bidding to relocate to higher or lower quality VHF channels. In terms of reverse auction format, the FCC appears to be leaning towards a descending clock procedure, where broadcasters will indicate that they are willing to sell spectrum until the price decreases too far. Many complex questions remain, however, including how the FCC will set prices for each broadcast station and how it will determine when to accept a winning bid.

While the descending clock reverse auction is running, the FCC will conduct a real-time repacking analysis to help it determine pricing and when to accept bids. With the recovered spectrum, the FCC plans to create five-megahertz uplink channels starting at current Channel 51 (698 MHz) and moving toward Channel 37. It then plans to pair these uplink channels with five-megahertz downlink channels starting just below Channel 36 (608 MHz) and moving lower in frequency. As the Proposed Band Plan shows, the FCC seems inclined to retain Channel 37, home to medical telemetry and radioastronomy operations, as a duplexer gap between the uplink and downlink frequencies; however, the FCC seeks comment on whether to relocate these important services and, if they remain in Channel 37, asks whether the agency should allow unlicensed uses into this portion of the band.

Click here to view the proposed 600 MHz band plan.                

The forward auction will likely be an ascending clock format. Unlike most other FCC auctions, bidders will not know in advance precisely how much spectrum is available. Bidders will have to submit bids on how many licenses they would purchase in a given area at a given price. The auction will continue until demand is less than supply. How the FCC will simultaneously run the ascending clock forward auction and the descending clock reverse auction is a complex question but a critical one for the success of the auction.

The FCC’s attempt to conduct the world’s first-ever incentive auction that pays incumbent operators to relinquish spectrum raises many questions.  For instance, can the FCC develop the algorithms necessary to conduct essentially real-time relocation simulations of hundreds, if not thousands, of broadcast stations nationwide?  Are the nation’s 176 Economic Areas the right geographic unit for auctioning all of the broadcast-incentive auction spectrum?   How much will interference from the legacy broadcast operations in Mexico and Canada frustrate the FCC’s ability to repurpose spectrum?   Will bidders have sufficient information to place intra-round bids amidst the ascending and descending clock auctions?   How will the FCC’s anti-collusion rules affect bidders in both reverse and forward auctions?   And how much impairment of a broadcast television license population is too much? 

All of these questions are subordinate to the $10 billion (or more) question—how much spectrum will the auction produce, and how much money will it raise? 

And these important questions do not even touch upon the political wrangling that is sure to go on between the three Democratic and two Republican FCC Commissioners.  In remarks at the FCC meeting at which the item was adopted, the Commissioners appeared split as to how much spectrum to set aside for unlicensed uses, a disagreement that is of particular interest for companies that rely upon WiFi to provide services to their customers.  The Republican and Democratic Commissioners also disagreed on whether there should be limits on the largest mobile providers in acquiring spectrum.

Although FCC staff and the Commissioners have emphasized the complexity of the proposed incentive auction, Chairman Genachowski has announced a goal of completing the incentive auction by June 2014. This schedule is ambitious to say the least. To meet it, the FCC has no time to waste. Comments are due December 21, 2012, and Reply Comments are due February 19, 2013. The countdown begins.