Web & communication software

Groups: Spectrum Incentive Auctions Would Raise Big Bucks

Wireless auctions using spectrum voluntarily given up by television stations could raise US$33 billion or more for the cash-strapped U.S. treasury, according to a new paper from two tech-related trade groups.

So-called incentive auctions, in which TV stations would give up spectrum in exchange for a share of auction proceeds, could also raise up to $2.3 billion for the stations, based on the business value of the spectrum, said the paper, released Tuesday by CTIA, a trade group representing mobile carriers, and the Consumer Electronics Association (CEA).

The incentive auctions for 120MHz of spectrum now held by U.S. TV stations would raise $36 billion or more, with most of the money going to the U.S. treasury, said Steve Largent, CTIA's president and CEO.

CTIA has long pushed for additional spectrum to be auctioned for commercial uses, with the trade group arguing that the U.S. mobile carriers are facing a spectrum crunch as customers flock to mobile broadband service.

"Data use is literally exploding," Largent said.

The U.S. Federal Communications Commission, in a national broadband plan released last March, recommended that the U.S. make 500MHz of spectrum available for mobile broadband and other uses over the next decade, with 120MHz coming from TV stations.

Last week, President Barack Obama made similar recommendations in a plan to cover 98 percent of the U.S. with 4G mobile broadband service within five years. The White House estimated new auctions would raise $27.8 billion over the next decade, less than CTIA and CEA estimate, and presumably on a larger band of spectrum than the 120MHz they targeted for incentive auctions.

Several other countries, including Japan, Germany and South Korea, are making additional spectrum available, Largent said. "This has got to happen in the United States," added Chris Guttman-McCabe, CTIA's vice president of regulatory affairs. "It's not that we're going to fall behind; we're already behind."

CTIA and CEA's estimates are based on recent spectrum auctions, and the paper projects the TV spectrum auctions would raise less money per megahertz pop -- a unit of spectrum -- than the 700MHz spectrum auctions concluded in early 2008.

The auction estimates in the paper are conservative, and the actual bidding could go much higher, Guttman-McCabe, said. If the incentive auctions sold at the same value as the B block of the 700MHz auctions, they would raise about $99 billion, the paper said.

CTIA and CEA estimated that $565 million raised by the incentive auctions would go to help relocate TV channels that voluntarily give up their spectrum, and $1.2 billion to $2.3 billion would be the business enterprise value of the spectrum to the TV stations. The trade groups used two common valuation methods -- one based on the TV stations' gross revenue and one based on cash flow -- to determine the enterprise value of the spectrum.

In some cases, broadcasters may demand more of the auction proceeds, however. "Not all stations may be willing to surrender their licenses at their projected market value," the paper said. "Rather, broadcast licensees may hold out for a higher exit prices above their current projected market value."

In some cases, there may be competition among broadcasters to sell the spectrum, Guttman-McCabe said. "The numbers could go up, the numbers could go down," but even if broadcasters demanded three times more than the estimates, auctions would still raise about $28 billion for the U.S. treasury, he said.

The National Association of Broadcasters, a trade group representing TV stations, has been cool to the idea of incentive auctions. An NAB spokesman wouldn't directly comment on the CTIA/CEA paper.

The CTIA/CEA paper projects that no TV station outside the top 30 markets in the U.S. would have to relocate because of significant unused TV spectrum in those areas. In the top 30 markets, none of the top four stations or the public TV stations would have to move to meet the spectrum goal, Largent said. The paper estimates that about 630 TV stations would have move to new spectrum.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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