How it Works

A Novel Design

A Novel Design for a Novel Process

The broadcast incentive auction itself will comprise two separate but interdependent auctions -- a reverse auction, which will determine the price at which broadcasters will voluntarily relinquish their spectrum usage rights; and a forward auction, which will determine the price companies are willing to pay for flexible use wireless licenses.

The lynchpin joining the reverse and the forward auctions is the “repacking” process. Repacking involves reorganizing and assigning channels to the remaining broadcast television stations in order to create contiguous blocks of cleared spectrum suitable for flexible use.  The vast majority of stations that remain on the air after the auction will be assigned channels in the TV band; in a few markets where the post-auction TV band is not large enough to accommodate every station, stations may be assigned a channel in the wireless band. 

In order to be successful, each of the components must work together. Ultimately, the reverse auction requires information about how much bidders are willing to pay for spectrum licenses in the forward auction; and the forward auction requires information regarding what spectrum rights were tendered in the reverse auction, and at what price; and each of these depend on efficiently repacking the remaining broadcasters.

Integration of the Reverse and Forward Auctions

Integration of the Reverse and Forward Auctions

The reverse and forward auctions will be integrated in a series of stages. Each stage will consist of a reverse auction and a forward auction. Prior to the first stage, the initial spectrum clearing target will be determined. Broadcasters will indicate through the pre-auction application process their willingness to relinquish spectrum usage rights at the opening prices.

Based on broadcasters’ collective willingness, the initial spectrum clearing target will be set at the highest level possible (up to 126 megahertz of spectrum) without exceeding a pre-determined national aggregate cap on the interference between wireless providers and TV stations (“impairments”) created when TV stations must be assigned to the wireless band. Under this approach, the auction system will establish a band of wireless spectrum that is generally uniform in size across all markets.  Then the reverse auction bidding process will be run to determine the total amount of incentive payments to broadcasters required to clear that amount of spectrum.

The forward auction bidding process will follow the reverse auction bidding process. If the final stage rule is satisfied, the forward auction bidding will continue until there is no excess demand, and then the incentive auction will close. If the final stage rule is not satisfied, additional stages will be run, with progressively lower spectrum targets in the reverse auction and less spectrum available in the forward auction.

Final Stage Rule

Final Stage Rule

The final stage rule is a set of conditions that must be met in order to close the auction at the current clearing target; failure to satisfy the rule would result in running a new phase at the next lowest clearing target.

The final stage rule is a reserve price with two components, both of which must be satisfied. The first component requires that the average price for low impairment licenses in the forward auction meets or exceeds $1.25 per MHz-pop at a 70 MHz cleared benchmark. Alternatively, if the spectrum clearing target at a particular stage is greater than 70 MHz, then the first component will be met if the total proceeds of the forward auction exceed the product of $1.25 per MHZ/pop x 70 MHz x the total number of pops for the high-demand Partial Economic Areas (PEAs) with at least one Category 1 block in this stage. This alternative formulation will allow the auction to close if the incentive auction repurposes a relatively large amount of spectrum for wireless uses, even if the price per-MHz-pop is less than the benchmark price.

The second component of the final stage rule requires that the proceeds of the forward auction be sufficient to meet mandatory expenses set forth in the Spectrum Act. If the requirements of both components of the reserve price are met, then the final stage rule is satisfied.

On January 18, 2017, the auction satisfied both of the conditions of the final stage rule, assuring that the auction will close in Stage 4. 

Friday, February 3, 2017