Reverse Auction Concludes, Clearing Price Tops $86 Billion

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The first reverse auction of the FCC’s Broadcast Incentive Auction ended yesterday, with “the Bogey,” i.e., the clearing price, topping a steep $86.4 billion. The forward auction is expected to begin next month, giving carriers the opportunity to bid for the auctioned spectrum. The auction will only conclude if bidders offer an amount higher than “the Bogey.”

This clearing price is much higher than anticipated, and analysts are skeptical that it will be topped in the forward auction. If it is not, the FCC will decrease the amount of spectrum offered—from 126 MHz to 114 MHz—and will begin the process over again until bidders top the clearing price.

In a written statement responding to the end of the reverse auction, Wells Fargo Senior Analyst Jennifer M. Fritzsche, noted that the actual spectrum amount awarded to carriers will be lower than the listed amount because the entirety of spectrum will not be “cleared.” She estimated the 126 MHz of spectrum offered in the first stage of the auction will actually result in 100 MHz of “truly cleared spectrum,” while the second stage’s 114MHz will result in about 86 MHz of cleared spectrum. 

Fritzsche expressed her skepticism that carriers will be able to top “the Bogey” to end the auction, and that it will likely proceed to another, if not subsequent, stages.

“With today’s disclosure, it seems the FCC is saying that it will cost $86B to clear 100 MHz,” she wrote. “We continue to remain very skeptical that the wireless companies have the balance sheets to spend this amount. We believe it is highly likely that the FCC will have to step to a lowering clearing target.”

Fritzsche, alongside other Wells Fargo analysts, estimate the forward auction will raise a price much lower than the $86B amount.  They also estimate the forward auction will raise $30-$35B from carriers, which would necessitate multiple auction stages.

UBS, a financial services company based in Zurich, released a report that echoed this analysis. The company wrote that the larger-than-expected clearing price makes “multiple stages…likely.” This could push the end of the auction into early 2017, or result in a failed auction altogether.

“Today’s news suggests multiple stages, less spectrum re-deployed, a protracted timeline and greater likelihood of a failed auction,” the company wrote in its report.

Dennis Wharton, Executive Vice President of Communications with the National Association of Broadcasters, issued a short statement in response to the backward auction’s conclusion: “Broadcasters have done our part; now it’s up to the wireless industry to demonstrate that the demand is there for low-band TV spectrum.”

The forward auction is expected to begin in late July. The upfront payment deadline for participants is tomorrow (July 1).

By Benjamin Horvath – Inside Towers Special Correspondent

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