By Adam R Jacobson
RBR + TVBR
In the Tidewater region of Virginia lies a media company mainly known for its radio stations across six markets, including Norfolk.
Unbeknownst to some, this company — Max Media — also has among its holdings two TV stations, each with a satellite station, in Puerto Rico. The company also owns WNKY-40 in Bowling Green, Ky. Its main signal is the market’s NBC affiliate; its DT2 signal is the market’s CBS affiliate.
This explains why Max Media Chairman/CEO Gene Loving has a vested interest in the FCC’s incentive auction, which is set to conclude Stage 4 of the Reverse Auction today (1/13).
Loving is hardly loving how the auction is transpiring, and on Thursday (1/12) fired off a letter to the FCC’s two Republican Commissioners — Ajit Pai and Michael O’Rielly — to raise some serious issues that are now known about the incentive spectrum auction.
Recognizing that “the government consulted with the best minds in academia to craft this innovative auction process,” Loving says the results “are flashing a warning sign—a huge warning sign—that the design that may have worked in the classroom does not work in the real world. Continuing on the current track no longer makes sense.”
Loving suggests that, should the gap between wireless service providers’ bids and the dollar amount TV station owns want to give up their spectrum continue to be wide, the auction may not ever reach its conclusion.
As it seems likely to Loving that either Pai or O’Rielly will be named FCC Chairman come Inauguration Day, he asks the GOP pair to take “a cue from President-Elect Trump’s efforts to reevaluate all government programs” by considering whether the auction “will likely end up as ‘failed’ just as the new commission takes over, leaving the new administration holding the proverbial bag.”
Reasons cited for the auction’s possible failure, as some analysts have postulated, include timing — “coming as it does on the heels of the AWS-3 auction.”
Another possible reason, Loving argues, is the announcement by Chairman Wheeler that the government will make available, at no cost, 1,500 megahertz of upper-band spectrum, which, while not currently feasible for broadband, may be valuable in the future.
Those aren’t the primary reasons for what Loving views as the spectrum auction’s failure to bring what many broadcasters thought they’d get, dollar-wise.
He says, “The primary cause of the problem, I believe, is a serious flaw in the design of the auction, which the commission described as an ‘innovative’ approach. I’m certainly not an expert in auction theory, but the results of the forward auction are clear evidence of a flaw in the design, possibly due to the wireless bidders being told over and over that if they don’t like the price, the auction will be rerun again and again and again. Perhaps rather than announce the clearing values, the commission should have kept that information confidential. Wireless bidders should have been told only how much spectrum would be made available, to see what was offered, while not knowing for sure that there would be second, third, fourth or more stages. Calling the auction a success, claiming the market spoke, will not be a credible conclusion.”
What, then, should the FCC do?
Loving says, “I suggest you consider jointly announcing a pause in the auction to reevaluate the process and the reasons for the anemic level of participation. It makes no sense to complete the auction at this level. In addition to the amount of spectrum cleared being inadequate for the future, going forward will result in repacking a large number of television stations, while not achieving the intended result. It’s one thing to go through an additional three years of uncertainty for television broadcasters and $1.75 billion of expense for a good cause that produces a meaningful net result, but that is not what is occurring. Although this was intended to be a one-time event, the wireless community will be back to ask for more in the near future.”
Furthermore, Loving suggests that the entire process of allocating spectrum be rethought.
“Instead of licensing spectrum for a one-time fee, perhaps we should consider a model similar to leasing, whereby the government and the taxpayers continue to benefit from the shift of our economy and infrastructure towards broadband communications,” he opines.
But, he concedes, the wireless industry “will vehemently disagree, as this auction design unduly benefits them over the public interest.”
Spectrum in Bowling Green, Ky., had a clock price in Stage 3 of the Forward Auction of $1,523,000. It attract no bidders; the round opening price was $1,450,000.
Demand for spectrum in Puerto Rico is much higher, with the clock price of $8,483,000 met in Stage 3 of the Forward Auction.
RBR + TVBR
