As we reported previously, the Federal Communications Commission (FCC) has released a Notice of Proposed Rulemaking in the Matter of Expanding the Economic and Innovation Opportunities of Spectrum Through Incentive Auctions (“NPRM”), along with an accompanying paper by auction specialists Auctionomics and Power Auctions.

In this post, we describe the proposed rules for the incentive auction and the “repacking” of broadcast spectrum. The incentive auction is made up of three parts: (1) a reverse auction, in which broadcasters may bid to sell spectrum rights; (2) a forward auction, in which mobile carriers may bid to purchase spectrum rights; and (3) a repacking process, in which the FCC will reconfigure broadcast television allotments to take up a smaller portion of the UHF band ― thereby maximizing the amount of spectrum that could be made available in the forward auction.

As the NPRM explains, all three of these pieces are interdependent.  “[T]he amount of spectrum available in the forward auction will depend on reverse auction bids and repacking, winning reverse auction bidders will be paid from the forward auction proceeds, and our repacking methodology will help to determine which reverse auction bids we accept and what channels we assign the broadcast stations that remain on the air.  For the incentive auction to succeed, all three pieces must work together.”

 Summary of Proposed Rules for the Incentive Auction:

  • Reverse Auction: Full power and Class A television broadcasters are eligible to submit bids to relinquish their spectrum rights (or agree to move to a VHF allotment).
    • The NPRM proposes three main ways for a station to participate: (1) by agreeing to turn in its entire 6 MHz license and go off-the-air; (2) by agreeing to share a channel with another station; or (3) by agreeing to move from a UHF to a VHF channel. (The FCC may not involuntarily move a station from a UHF channel to a VHF channel during the repacking, but a station might agree to such a move in return for compensation set by the station.)
    • The NPRM also seeks comment on whether the FCC should allow eligible licensees to agree to accept additional interference from other broadcast stations or reduce their service area or population covered by a set amount, again, in exchange for compensation that the station would specify in a reverse auction bid.
    • Another possible bid option would be for a high VHF station to agree to be moved to a low VHF channel.
    • The FCC discusses several possible approaches to auction timing and structure.
    • Since the value of the spectrum offered for relinquishment will not be the same from market to market or broadcaster to broadcaster, the FCC seeks comment on scoring the value of the spectrum being offered based on, e.g., population served. Scoring would affect which broadcaster bids are accepted in the reverse auction.
  • Forward Auction: Wireless carriers submit bids to buy broadcast spectrum reallocated for mobile broadband use.
    • The NPRM proposes a flexible band plan for purposes of the forward auction that could be customized to take into account the fact that different markets may clear different amounts of spectrum. Under the flexible band plan, the new mobile broadband licenses would be made up of 5 MHz blocks, separated from broadcast operations by 6 MHz guard bands (which would be made available for unlicensed use). The uplink band would begin at channel 51 and expand downward toward channel 37 based on the amount of reclaimed spectrum, and the downlink band would begin at channel 36 (608 MHz) and likewise expand downward.
    • The NPRM seeks comment on whether 6 MHz guard bands are “no larger than technically reasonable.”

Summary of Proposed Rules for Repacking:

Repacking may affect broadcasters’ over-the-air coverage areas, broadcast auxiliary stations, low-power television stations, translators, unlicensed wireless microphones, and otherwise entail expenses. The proposed rules consider and seek comment on these potential effects:

  • Service Protection: Congress has required that the FCC “make all reasonable efforts to preserve… the coverage area and population served of each [full power and Class A] broadcast television licensee” in a repacking of the TV band. The NPRM tees up possible interpretations of what this requirement entails.
    • The benchmark for protection is a station’s coverage area and population as of February 22, 2012. The FCC proposes to protect only facilities that were licensed (or the subject a license application) as of February 22, 2012, meaning that it does not propose to protect expanded or modified facilities that stations may have constructed after that date.
    • The NPRM seeks comment on whether the FCC should allow new interference in the repacking process; if so, how much; and how it should define “population served.” Three possibilities that the FCC lays out are:
      1. Allow no new interference that would, in the aggregate, reduce the population served as of February 22, 2012 by more than 0.5 percent by preserving service to approximately the same total number of viewers but not to all of the specific viewers that currently can receive a station’s signal;
      2. Preserve service to the same specific viewers for each eligible station, meaning that no individual channel reassignment, considered alone, could reduce another station’s specific population served on February 22, 2012 by more than 0.5 percent on a station-by-station basis; or
      3. Only allow continued interference from the specific station that previously caused the interference on a station-by-station basis, but treat as de minimis — and therefore permissible — any new interference that is no greater than 2% for stations that did not interfere with one another as of February 22, 2012.
  • Broadcaster Relocation Fund: Full power and Class A television broadcasters involuntarily assigned to new channels in the repacking process — and not those that submit winning bids in the auction under any of the bidding options — will be reimbursed from auction proceeds for the cost of relocating to a different channel. The reimbursement fund is capped at $1.75 billion.
    • The NPRM proposes to allow stations eligible for reimbursement of relocation costs to elect between actual cost-based payments or advance payments based on estimated costs. However, it is still not clear whether “estimated costs” are those the station itself anticipates or a set amount given to all who wish to accept reimbursement in advance.
      • Instead of reimbursement for repacking costs, a television licensee may accept a waiver of the Commission’s service rules to permit it to make flexible use of its spectrum to provide non-broadcast services, so long as it “provides at least 1 broadcast television program stream on such spectrum at no charge to the public” under the Spectrum Act.
      • The NPRM leaves open the question of what to do if the total eligible relocation costs exceed the statutory limit of $1.75 billion, and seeks comment on whether and how to prioritize requests for reimbursement in the event of such a shortfall.
    • If Station A agrees to relinquish its channel and share a channel with Station B, and Station B is assigned a new channel in the repacking, only one station — Station B — would be eligible for reimbursement for the expenses of the channel move. (As discussed below, however, Station A would receive a share of proceeds from the auction, and it presumably would enter into a contractual arrangement with Station B to share those proceeds.)
  • Low Power/Auxiliary Stations: The repacking process may displace numerous low power and TV translator television stations and broadcast auxiliary operations such as studio-to-transmitter links and TV relay stations. The NPRM seeks comment on how to address the diminished spectrum available for these operations.

The proposed rules provide a framework to guide the development of the rules, not a final proposal, and the Commission anticipates opportunities for public comment in a series of public notices on the detailed procedures and deadlines needed to conduct the auction and in a future proceeding regarding post-auction procedures for new channel allotments. Comments in response to the NPRM are due December 21, 2012 and reply comments are due February 19, 2013.