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March 2015: FCC’S innovative 600MHz auction scheme likely to go global

The release of digital dividend (700MHz/800MHz) spectrum around the world has slowed dramatically after the initial spike in allocation in the US, Europe and some Asia Pacific countries. The 700MHz band is still used for broadcasting in most of Asia, Africa, the Middle East, and Central and South America. This is primarily due to the painfully slow negotiation processes between regulators, and broadcasters who have little incentive to relinquish their spectrum holdings. It is a case of history repeating itself, where past spectrum clearance initiatives have also been notoriously difficult.

In Asia Pacific there are many examples of lack-lustre progress in 700MHz licensing. For example, in Thailand, the NTBC has reported that it will take 15 years before 700MHz spectrum is cleared. The 470–510 MHz band that broadcasters in Thailand are looking to relocate to, is currently occupied by Government agencies. The Indonesian Minister of Communications and Information Technology (MCIT) recently announced that he does not expect the 700MHz spectrum to be available before 2018, and India’s regulator has been waiting for momentum in other markets before it proceeds with licensing, even though the spectrum is essentially cleared. Some markets like Australia and New Zealand have already have issued 700MHz spectrum licenses, but even in these markets, we believe the process would have been accelerated if there were adequate incentives for incumbents to vacate the spectrum.

The Federal Communications Commission (FCC) is all too familiar with the challenges in vacating spectrum, having experienced protracted negotiations for clearing 700MHz broadcast licenses in the past. As a consequence, the FCC has spent several years researching auction methodologies to incentivize incumbents to vacate their spectrum holdings, without creating loop-holes for participants to game the auction process. This culminated in an innovative incentive auction process, which the FCC is using for the upcoming 600MHz spectrum license in the United States. The auction has two parts. The first part, the “reverse auction”, uses an incentive auction instead of a conventional clearance approach to determine the price at which the incumbent broadcasters are willing to relinquish their spectrum. This enables the FCC to establish fair market values for spectrum licenses, and presents a great opportunity for broadcasters to monetize their assets. The second part, the “forward auction”, allows new players to bid on the licenses and provide the funds needed to vacate willing incumbents and relocate those incumbents that opt retain their spectrum holdings. Given the high valuations that have been paid for mobile radio spectrum in the US, we believe that the 600MHz auction will create windfall revenues for the US Government, while at same time compensating the broadcasters at fair market values.

If successful, the reverse/forward incentive auction process that the FCC plans for the 600MHz band is likely to be adopted in other International markets, such as in Asia Pacific. This is particularly the case where incumbents lack adequate incentives to vacate their spectrum holdings, such as many broadcasters in the 700MHz bands. The impact of adopting reverse/forward incentive auction processes is far reaching and generally positive. For example, it:

  • Accelerates the availability of much-needed radio spectrum for mobile operations.
  • Provides a means for incumbents and their investors to monetize their spectrum assets.
  • Ensures that the industry recognizes the fair market value of radio spectrum licenses; and
  • Increases the pace of auction activity from which Governments can extract revenues.

While we believe that policy changes for future spectrum licensing would benefit the industry as a whole, we also recognize that it is not without its challenges and depends greatly on existing licensing regimes and local broadcasting landscapes. In-depth analyses are needed to determine how well the FCC’s incentive auction structure will parlay into other markets.

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