Bains didn’t say last week
WHEN IT COMES TO auctioning off our 600 MHz broadcast spectrum (expected to begin sometime in 2017), Canada may not, in fact, want to copy what the Americans have done.
That's because the Federal Communications Commission (FCC) has run into some frustrating delays in trying to sell off large chunks of surplus 600 MHz spectrum from TV broadcasters currently using the airwaves to wireless carriers in the U.S. this year. As a result, the complicated auction process, which started early last spring, is now expected to drag on until at least through early next year.
Unlike the previous federal auctions of 700 MHz spectrum and Advanced Wireless Spectrum (AWS), which involved selling off mostly empty airwaves owned by the government and generated record sums for the U.S. Treasury, the ongoing 600 MHz auction concerns UHF spectrum controlled and used by the nation's thousands of broadcast TV stations. Responding to fervent pleas from the wireless industry for more spectrum, the FCC is seeking to reclaim under-utilized UHF spectrum for more efficient use by mobile carriers, who can leverage the low-band spectrum to improve their overall coverage and boost the indoor penetration of their cellular signals.
Instead of simply conducting a straight bidding war for all of the spectrum, the FCC settled on a more complex "reverse bidding" process that's designed to allow the marketplace to set the prices for the broadcast frequencies. Under this multi-stage process, the FCC first sets an offering price high enough to incentivize the broadcasters to part with their precious spectrum and then solicits bids from the wireless providers.
If the bids from the carriers end up equaling the prices sought by the broadcasters, then a match is made and the spectrum can be sold off. But, if not, then the FCC starts the process all over again by setting a new, lower price for the spectrum.
To launch each stage, the FCC calculates the broadcasters' offering price by multiplying a figure by a "volume" factor that takes into account a TV station's interference-free population and the estimated impact of that station's absence after other stations are repacked in the spectrum once the auction has ended. The higher that "volume" is, the tougher it is to repack after the auction, and thus the more valuable the spectrum block is for the FCC to reclaim. Currently, the Commission is using a $900-times multiple to set the offering prices.
So far, to the growing frustration of all concerned however, the broadcasters and wireless carriers have not even come close to making a match. In the first stage that began in late March, broadcasters sought a total of $86.4 billion for 126 MHz of the UHF spectrum, or nearly twice the record sum of $45 billion that the government raised from its earlier auction of AWS airwaves. But wireless providers themselves bid a relatively paltry $22.4 billion for that reclaimed spectrum, putting the two parties an ocean apart at the end of the bidding.
Then, in the second go-around that began in mid-August, the FCC took a more modest tack, setting the broadcasters' clearing price for 114 MHz of spectrum at $56.5 billion, or about $30 billion lower than in the first stage. But the wireless carriers still came in much lower than the broadcasters' offering price, dropping their overall bids to just $21.5 billion, producing another yawning gap between the two sides.
So now, hoping that the third time really turns out to be the charm, the FCC has started the process all over once again. Earlier this month the Commission went back out on the market with 108 MHz of UHF spectrum from the broadcasters. So far, the FCC has conducted about half of the expected 52 rounds of the reverse bidding part of the process with the broadcasters, where the agency reduces the spectrum price until no broadcaster is willing to go any lower to give it up.
This process is expected to conclude sometime next week, enabling the wireless carriers to start another round of "forward" bidding. It's not yet known what price the broadcasters will end up seeking from the wireless carriers this time around, although it will presumably be lower than the offering prices of the first two efforts.
If the carriers' bids come up short again, the FCC's plan calls for it to continue making somewhat less 600 MHZ spectrum available for a lower overall price stage after stage until it can achieve a marketplace equilibrium. That will mean less revenue for fewer broadcasters as the spectrum-clearing target keeps falling with each stage.
“We’re currently in conversations with the TV stations, acknowledging that they’re looking at issues around compensation for this." – Navdeep Bains, ISED Minister
In all, the FCC plans to run up to nine different stages of the auction. If the current third stage fails to produce a match between broadcast desires and wireless needs, the Commission will launch a fourth stage early next year, offering up 84 MHz of UHF spectrum. Some industry experts believe that stage could finally come up with the winning formula, providing the equilibrium point between broadcasters' asks and carriers' offers.
But even once that magic moment finally happens, the heavy lifting has just begun. Industry experts estimate that it will take the federal government 39 months, or more than three years, to clear broadcasters off the sold UHF spectrum. Since it usually takes mobile operators another two or three years to light up new spectrum that they win at auction, that means it will be at least 2022 before this spectrum becomes available for commercial networks.
Outgoing FCC Chairman Tom Wheeler has claimed that the 600 MHz incentive auction could help mobile providers "accelerate U.S. deployment of 5G" services by using the spectrum for the "deployment of a wide-area 5G coverage layer." The catch, though, is that these radio waves will become increasingly less attractive for bandwidth-hungry 5G usage as the amount of spectrum available for sale continues to drop.
In Canada there has been no news on this file for more than a year, since Industry Canada (now ISED) in August 2015 said it decided to repurpose most spectrum in the 600 MHz range now used by TV broadcasters and others so it can be used to feed the insatiable demand for cellular data bandwidth. Many had ideas on what to to with the potential billions.
However, the department put off any decision on whether the federal government will compensate the existing users of these frequencies, Canadian television broadcasters and others, for having to move their signals.
It’s thought ISED is waiting to see the U.S. auction come to fruition before deciding what form the auction will take here.
Minister Navdeep Bains noted the two governments are trading information regularly when asked about the 600 MHz auction in a scrum with reporters in Ottawa, adding: “It’s something we think is really important, particularly when we’re dealing with the internet of things and the potential that exists there. In order to unleash that, we really need 5G technology… and we obviously need support from the industry on that front as well and we’ll try to work with the U.S. to make sure we get out there as quickly as we possible can to provide opportunities to get that spectrum to the market.
“We think spectrum is good for competition. We think it’s good for creating emerging technologies and that’s really the outcome we’re focused on,” he added.
“We’re currently in conversations with the TV stations, acknowledging that they’re looking at issues around compensation for this, but fundamentally for us it’s really about we have to be really deliberate and thoughtful about how we get this out there because other jurisdictions have really stepped up their game.”
“Countries around the world are really investing in this technology, and for us in Canada, to really drive our innovation agenda, to really be creating an opportunity to focus on emerging technologies, this is so critical and we’re working very closely with industry to make sure we partner with them to get the spectrum out there as soon as we can.”
– Staff
