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The Reverse Spectrum Auction Yields Low Proceeds while FCC Tries To Recover From Stage 1

Price target

Price target

Stage 2 of the Federal Communication Commission's reverse spectrum auction is substantially under performing, and the FCC is desperately trying to rescue its flagship auction by returning to broadcasters to set a price for a reduced amount of 600 MHz airwaves.

The clearing target for the second stage auction is 114 MHz, and the target amount needed for proceeds is $88.4 billion. The estimated proceeds for Stage 2 is $22.5 billion, according to the FCC. With this auction going on 15 rounds, broadcasters are hardly closer to the end of this arduous ordeal.

During the Cellular Telephone Industries Association show in Los Vegas, Nevada, at the beginning of September, Tom Wheeler, FCC chairman, explained that the FCC made a market with 126 MHz of "prime beachfront spectrum in the 600 MHz band" available.

"As you know, however," Wheeler said, "that market closed when the cost to clear that amount of broadcast spectrum exceeded the bid prices of the carriers."

The bidding resumed on Sept. 13 with the reverse auction determining the cost to clear the reduced 114 MHz of spectrum, covering the slack lost in previous rounds. Wheeler explained that the forward auction will resume after the conclusion of the reverse auction to determine if the spectrum is "worth that cost" to broadcasters.

Rounds 16 and 17 will commence at 10 a.m. and 3 p.m. ET on Friday, Sept. 23.

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Bidding Begins On FCC Spectrum Auction Stage Two

Bidding starts on the Federal Communications Commission's Spectrum Incentive Auction Stage 2 at 10 a.m. Tuesday, Sept. 13, and the FCC released a statement on Monday, Sept. 12 previewing "what happens next" and describing how Stage 2 would be different from the previous stage.

The clearing target for this round has been set at 114 megahertz, a little less than the previous 126 megahertz of Stage 1. This target allows an average of nine blocks of spectrum in an individual partial economic are instead of 10 blocks. It also adds two channels to the TV band.

Frozen stations also received information about their status during the second stage from the FCC in its statement. Some of the stations previously provisionally winning after Stage 1 will be unfrozen in Stage 2. These stations will be presented with decreased price offers as bidding rounds progress, and bidders with at least one frozen station at the time of the end of Stage 1 were allowed access to Reverse Auction Bidding for Stage 2 since Sept. 7. Now, those stations will see be labelled "Frozen - Pending Catch-Up."

The FCC warned stations with the new title to be aware because their status can change during each round. If a station's status changes to "Bidding" and the bidder does not submit a bid for the station, the system will drop the bid and could make the station exit the auction.

Bidding will be the same in Stage 1. The main difference will be the supply of blocks at the clearing target of 114 megahertz.

At the end of Stage 2, new clearing costs will be announced, and prices will pick up where they were dropped in Stage 1.

The FCC welcomed the public to monitor the auction via their Public Reporting System. Round by round graphic display will be available once Round 1 is complete.


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Local TV Political Spending To Total Lower Than Expected

presidential-election-1336480_1280Ad revenue from political advertisement on local TV stations is expected to total under $3 billion by the end of 2016.

“If we assume that spending might slow to end up 20% to 30% over 2014 levels -- or around 10% over 2012 levels -- total spending would end up under $3 billion on a full-year basis," said senior research analyst Brian Wieser for Pivotal Research Group.

Media spending on political campaigns by the end of August was less than half of August 2016. Earlier predictions had politicians spending upwards of 20 percent more than the 2012 election and 40 percent more than the 2014 election.

Wiser also said the presidential candidates could be a wild card. However, the media is covering the two front runners so often, they may not need much more advertisement. Republican candidate Donald Trump has spent much less on media during his campaign than the usual presidential candidate. This could have greatly contributed to the lower spending levels.

However, even at lower levels, “political advertising on local TV would still remain a significant factor for the industry," Wieser said.

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Nexstar Must Sell 7 Stations To Avoid Monopoly

play-1538336_640Nexstar has agreed to sell 7 stations to comply with the Department of Justice's settlement in order to buy the company Media General.

The DOJ filed suit against Nexstar when the network initiated the transaction with Media General. DOJ officials said the transaction would lead to higher spot advertising prices and re-transmission consent fees. The DOJ immediately filed a settlement when they filed suit. The DOJ also claimed that Nexstar would own between 41 and 100  percent of broadcast television's gross advertising revenue with the $4.1 billion purchase.

Nexstar will need to sell WBAY Green Bay to Gray Television, WSLS Roanoke-Lynchburg to Graham Holdings, KADN and KLAF-LD Lafayette to Bayou City Broadcasting, WTHI Terre Haute to USA Television MidAmerica Holdings, WFFT Fort Wayne to USA Television, and KWQC Quad Cities to Gray to be in compliance with the settlement.

This deal still needs to be approved by the court and the FCC, but it looks like Nexstar will have 90 days to comply after its agreement.

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Weekly Newsletter, 8/29

washington-dc-1117367_1280FAB v. FCC in District Circuit

The Free Access & Broadcast Telemedia, LLC and five additional co-filers have challenged the FCC's framework for the spectrum auction. This is the FAB's second appeal to the US Court of Appeals for the District of Columbia Circuit. During their first appeal, the court ruled that two of the FAB's co-filers lacked standing for the case.

In the first case, Word of God Fellowship, Inc., a co-filer, was denied standing because of its lack of participation in FCC proceedings before the final FCC orders setting the framework for the auction were issued. The FAB was ruled without standing because they did not own or have stake in an LPTV station.

The parties involved have challenged this ruling; the FAB believes the ruling does not abide by the congressional instruction that any aggrieved party can petition for review of an FCC decision. However, the standing should not come into question in this appeal because the FAB's four co-filers hold LPTV licenses and activley participated prior to the FCC's final orders.

The new appeal includes the same arguments presented in the first case, but the FAB has added two additional constitutional charges. Their original and present case claims the FCC's move to force an LPTV station out of business without compensation is an unconstitutional endeavor under the Fifth Amendment. In addition, the FAB takes issue with the final Commencing Operations Order.

This order allows a wireless company with a newly-issued license to boot an LPTV station off the air without any intervention, review, or appeals allowed. The argument is that the order gives a private entity an unconstitutional delegation of congressional authority.

In its second addition to the appeals, the FAB claims the FCC is inflicting punishment without recourse to target entities by unlawfully turning its Spectrum Act into a Bill of Attainder, or an act in the name of Congress by its creations.

Find the full FAB appeals case II brief here.

FCC Spectrum Auction May Fall Short Of Initial Targetadmin-ajax

The trend in bidder behavior thus far at the spectrum auction does not bode well for the goal originally set by the FCC before the auction began. The financial conditions are lower than planned for.

Original hopes for the auction were $86.4 billion. The FCC arrived at this figure through an auction process soliciting licenses from broadcasters and continually dropping prices until a sufficient number exited the spectrum. However, after round 22, the bids are only at $21.4 billion. This is a foreboding prediction of the lengthy bidding process it will take to close this auction.

The FCC's goal is to free up a large portion of the spectrum to be used for wireless internet, and the FCC won't end the auction until the bids match up to a predetermined amount of spectrum licenses. A portion of the proceeds will go to broadcasters.

“I don't think anyone expects this to go to $86 billion,” said Roger Entner, an analyst at Recon Analytics LLC, told Bloomburg BNA. “I am actually flabbergasted that people are still bidding, that they’re playing in this absurd theater trying to reach a number that they know they will not reach."

e-commerce-402822_1280FCC Spectrum Auction Round 22 Results

During round 22 of the FCC's spectrum auction, the FCC raised prices from 5 percent per round to 10 percent. The resulting bids were $21.4 billion. This is a little over 4 percent from round 21.

The demand for spectrum space did not meet the 10 percent increase desired by the FCC. With a predicted $86 billion of total auction sales possibly not coming too soon, the FCC will need to draw this auction out in order to repay broadcasters for their moving and auction expenses.

Some bids, such as those in Dothan, Ala., did not even reach the raise in price the FCC set during round 22.

Round 23 will need to be much better if demand is ever expected to exceed supply.


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