The reverse auction portion of Stage 3 of the FCC’s broadcast incentive auction (600-MHz TV band) concluded this week with another big decline in prices potentially paid broadcasters, if the final stage rule is met after the forward auction portion of Stage 3 begins – and possibly ends – on Dec. 5th.
To refresh your memory, Stage 1 would have cleared 126 MHz of TV spectrum 0ffered to wireless companies as 100 MHz of buildable spectrum. In Stage 2, it was 114 MHz of TV spectrum offered as 90 MHz of wireless spectrum. In the current 3rd stage, it’s 108 MHz and 80 MHz. Each stage clears a variable number of fewer TV channels and offers wireless 10 MHz less of spectrum.
So now we have three data points on the reverse auction side to look at. The y-axis is the potential aggregate of broadcaster payoffs at the end of the first three stages (in $ billions). On the x-axis, we have room for clearance stages at 42, 48, 60, 72, 78, 84, 108, 114 and 126 MHz.
As you can see, the potential broadcaster payoff total is declining in a more-or-less linear fashion. If it continued on the current slope, it would intercept the $0 valuation point at around 90 MHz. If one plots this with dollars per MHz cleared on the y-axis, you’d see a similar linear decline.
We have only two forward auction data points so far around the $22B aggregate level. The aggregate declined a bit while the dollars per MHz purchased has increased a bit from Stage 1 to Stage 2.
Stage 4, which we could get to in the week ahead if the Stage 3 forward auction goes as quickly as Stage 2, will seek to clear 84 MHz (14 TV channels). The additional spectrum proposed for clearing in Stage 4 vs. Stage 3 (24 MHz) is greater than the 18 MHz difference between Stage 1 and Stage 3.
Assuming we get to Stage 4, expect to see most of all not all of the reverse auction “super-comps” disappear and many entrants are going to have reached or be testing their reserve prices. On the forward auction side, Stage 4 participants would be bidding on 30% less spectrum than in Stage 1, 70 MHz. So all this suggests that 84 MHz has a good possibility of reaching the final stage rule, but it also now seems at least conceivable that this equilibrium point might come at a number under $20B.