Auction Pledge to Broadcasters May Be Too High for Wireless

US officials announced a price tag of $86.4 billion for TV station airwaves being sold in a government auction, an amount that wireless providers may balk at -- sending the process into a second round. The figure from the Federal Communications Commission amounts to a pledge to pay TV station owners such as Comcast’s NBCUniversal, 21st Century Fox and CBS for giving up airwaves that are to be sold to wireless providers. Now the months-long auction turns to the next phase when wireless providers such as AT&T and Verizon will bid to buy the frequencies and convert them to carrying smartphone signals instead of television shows. The figure exceeds many pre-auction estimates of bidding by wireless companies. If their spending falls short of the pledged amount, the FCC will extend the auction and try again, this time paying broadcasters less.

In response to the clearing cost for broadcasters to exit spectrum—at least in the first round of the FCC's auction and at the highest spectrum clearing target of 126 MHz—Wells Fargo senior analyst Marci Ryvicker said, "This is way, way, way above what we had been expecting ($35B) and also way, way, way above what consultants had been saying ($50-60B). Our quick take is that the broadcasters showed discipline - investors were fearful that this would be a race to the bottom and it clearly was not; rather this was an orderly auction that came out with prices much higher than expected. That said, this creates a challenge for the forward auction as we have struggled to see more than $30B being spent by the wireless companies. This clearly means, to us, that the entire incentive auction will run through multiple stages and could go into 2017 unless the FCC will pursue a quick forward process; i.e. allowing multiple (and when I say multiple, I mean multiple) rounds per day."