As wireless carriers prepared this week to submit upfront payments for the forward phase of the incentive auction, the reverse phase of the incentive auction ended Wednesday with broadcasters setting a clearing cost of a staggering $86.4 billion to relinquish their spectrum assets in markets nationwide.  The large price tag surprised analysts and other experts who had previously believed that broadcasters would accept anywhere from $35 billion to $60 billion to surrender their spectrum to the wireless industry.  According to one analyst at Wells Fargo Securities, the $86 billion figure equates to $2.18 per MHz/pop for broadcasters and $2.75 per MHz/pop for wireless industry bidders that, collectively, would have to offer more than $88 billion during the forward auction to gain access to the entire 100 MHz spectrum allotment.  (While the current spectrum target remains at 126 MHz, wireless industry bidders would receive access to 100 MHz as a portion of that spectrum has been designated for unlicensed use.)  Under FCC rules, total bids in the forward auction must also cover the $1.75 billion allotted for post-auction repacking of broadcast channels as well as $200 million in projected FCC administrative costs. 

If total bids in the forward phase of the incentive auction fail to cover the $86.4 billion clearing cost and satisfy the FCC’s final stage rule of an average price of $1.25 per MHz/pop in the top 40 partial economic areas, the FCC will run additional auction stages that will result in progressively lower spectrum targets in the reverse auction and less available spectrum for wireless carriers in the forward auction.  The next lower clearing target is 114 MHz, which would leave 90 MHz available to the wireless industry.  In a public notice issued last year, the FCC indicated that the clearing target for any subsequent auction stage “will be the next lowest clearing target in the 600 MHz band plan.” 

While some analysts acknowledged that the $86.4 billion clearing cost raises prospects for a second stage of the reverse auction later this year, others pointed out that the 600 MHz channels in play constitute lucrative, “beachfront” spectrum for which wireless carriers are expected to compete fiercely and which are therefore likely to be valued highly.  Declaring, “we are pleased to see the 600 MHz incentive auction move closer to delivering spectrum for wireless providers so they can meet Americans’ mobile-first lifestyles,” Meredith Atwell Baker, the president of wireless association CTIA, proclaimed that “we will need to use all tools, including an effective auction process and high-band spectrum, to meet consumer demand and continue our wireless leadership.”  Dennis Wharton, the executive vice president of the National Association of Broadcasters, maintained that, since “broadcasters have done [their] part, now it’s up to the wireless industry to demonstrate the demand is there for low-band TV spectrum.”  The FCC, meanwhile, is expected to commence the forward phase of the incentive auction by the end of this month or early in August, following the receipt of upfront auction payments today and the issuance of a public notice announcing the final list of approved bidders.