The Federal Communications Commission (“FCC” or “Commission”) released the text of its plan to establish what has been billed as the world’s first incentive auction process to repurpose broadcast television spectrum for mobile broadband use. The Notice of Proposed Rulemaking (“NPRM”), available here, adopted on Sept. 28, 2012 and released last week, outlines the agency’s plans to reclaim broadcast spectrum to meet growing demand for spectrum used to support services driven by data-consuming mobile devices like smartphones and tablets.

Originally conceived of in the National Broadband Plan, and later mandated by Congress in the Spectrum Act of 2012, the incentive auction process will develop via a process with at least three discrete steps over the next several years.

• First, the FCC will hold a “reverse” auction to reclaim spectrum held by broadcasters.
• Second, the agency will then “repack” and reorganize reclaimed spectrum into new spectrum bands.
• Third, the FCC will then initiate a “forward” auction to license the reclaimed and reorganized spectrum. In addition, the NPRM contemplates that some of the reclaimed spectrum will be reserved for unlicensed uses. 

This proposal represents an ambitious step forward to place existing television spectrum in the UHF band into the hands of mobile service providers. This spectrum is often referred to as the “waterfront property” of spectrum because of its ability to carry signals over long distances, penetrate buildings and carry large amounts of data. But the proposal is not without controversy, in part due to the FCC’s decision to reserve certain spectrum for unlicensed uses. In addition, there are significant questions surrounding the mechanics of the reverse auction and spectrum repacking process. The agency hopes to answer those questions and issue an order detailing the auction rules by June 2013, and then hold the reverse auction in 2014.

Details of the process by which broadcasters will participate in the reverse auction will be developed during the next phase of this proceeding. The FCC is trying to make the incentive auction process as attractive to broadcasters as possible, and will be conducting a series of outreach and training programs for broadcasters in the months ahead.

Incentive auction process to unfold over three discrete steps

Step 1: Conduct “reverse” auction to reclaim spectrum held by broadcasters

The first step in this process will require the FCC to complete a “reverse” incentive auction which, if successful, will provide market-based incentives to encourage broadcast licensees to voluntarily relinquish spectrum in exchange for a share of the proceeds from an auction of the new licenses to use the repurposed spectrum. The reverse auction will enable the Commission to collect information about the price(s) at which broadcast television spectrum can be cleared, and thereby enable the agency to identify a set of bidders that would voluntarily relinquish spectrum. The agency proposes to compensate winning reverse auction bidders from the proceeds generated from the forward auction.

The precise auction methodology to be employed remains open to comment on a variety of issues. Nonetheless, the reverse auction will include three basic auction elements: the FCC will collect bids, determine which bids are accepted as winning bids, and determine the eventual payments made for those winning bids. The success of the reverse auction will likely dictate the success of the later stages of this process. For example, the amount of spectrum available in the subsequent “forward” auction will depend upon how much spectrum is reclaimed in the reverse auction.

Step 2: Repack and reorganize reclaimed spectrum into new band plans

Through a process known as “repacking,” the Commission proposes to move the winning bidders in the reverse auction to other locations of the television broadcast spectrum so that television stations that remain on the air will occupy a smaller portion of the UHF band. The reclaimed spectrum will then be “reorganized” to accommodate flexible use of the spectrum to include mobile broadband and unlicensed use.

Specifically, the Commission proposes to create a downlink spectrum band that will be consistent nationwide and start at channel 36 (608 MHz) and expand downward. Keeping the downlink spectrum consistent nationwide will permit mobile devices to operate nationwide. The uplink spectrum band will start at channel 51 (698 MHz) and expand downward toward channel 37 (608 -614 MHz) and will vary in the amount of uplink spectrum available in any geographic area. The Commission’s proposal would establish 6 MHz guard bands between the broadcast spectrum and the new uplink and downlink bands. These guard bands will be available for unlicensed use. Lastly, the Commission proposes to relocate users of channel 37 (radio astronomy and wireless medical telemetry) and to make that spectrum available for unlicensed use.

Repacking the relinquished spectrum poses a complex problem. Balancing a number of factors, the Commission must choose which bids to accept or reject in order to: minimize costs, comply with the Spectrum Act’s mandate to make “all reasonable efforts” to preserve the “coverage area and population served” of television stations, and maximize a contiguous block of cleared spectrum. The final repacking methodology, which is still under consideration by the Commission, will be an important element in determining which reverse auction bids will be accepted.

Step 3: Forward auction to license reclaimed spectrum, and allow for certain unlicensed uses

Many details of this last stage of the incentive auction process will not be known until the first two stages are complete.  For example, the FCC will not know in advance the amount of spectrum it can make available in the forward auction, the specific frequencies that will be available and, perhaps, the geographic location of such frequencies. Thus, unlike previous spectrum auctions, the agency has not provided a proposed band plan with identified frequencies and the geographic location of such frequencies. Because the amount and location of reclaimed spectrum will not be known in advance, the Commission believes that the proposed framework for the steps discussed above will be flexible enough to provide potential bidders varying amounts and locations of spectrum. The Commission proposes to license the reclaimed spectrum in paired 5 MHz “building blocks” and, if excess spectrum is available that cannot be paired, unpaired spectrum that can serve as supplemental downlink spectrum.

The rules governing competitive bidding auctions will apply to the forward auction; however, the Commission also proposes to amend sections 1.2103 and 1.2104 of the FCC’s rules to include, respectively, an additional competitive bidding design (governing bid collection, assignment of winning bids, and the determination of payout amounts) and a mechanism to stop an auction before or during a multiple round auction.

FCC seeks comment on significant open issues and unanswered questions

Although the FCC proposal outlines a broad policy framework, many specific questions regarding the implementation and completion of the incentive auction process remain unanswered. For that reason the FCC seeks comment on a variety of issues, including the following.

Auction design and participation in the reverse auction

The agency invites comments on auction design choices, and the tradeoffs presented by such choices. For example, comments are sought on appropriate procedures for bid collections, acceptance and payments. The Commission interprets the Spectrum Act to limit eligibility to participate in the reverse auction to commercial and noncommercial full power and Class A broadcast television stations. Within those constraints, the agency seeks comment on how to design the auction process to encourage participation by a wide array of broadcasters.

Repacking the broadcast television bands and transitioning of TV stations

The Commission seeks comment on how to implement the repacking of broadcast television spectrum (as described above) and expeditiously clear the reclaimed spectrum while minimizing disruption to broadcast TV stations and their viewers. The Commission is also requesting comment on its proposals to include unbuilt construction permits for new full power TV stations and analog Class A TV stations licensed as of Feb. 22, 2012, as well as certain digital Class A TV stations that were not licensed as of Feb. 22, 2012 (to accommodate the Class A digital transition).

The Commission requests comment on its proposals to streamlined broadcast license modification procedures, allow reasonable deadlines for stations to transition to any new channel assignments or cease broadcasting, and provide an option for stations eligible for reimbursement of relocation costs to elect between actual cost-based payments or advance payments based on estimated costs.

600 MHz band plan

The Commission seeks further comment on proposals made in ET Docket No. 10-235 with respect to adding new allocations for fixed and mobile services in the entire UHF/VHF TV bands to be co-primary with the allocations for broadcast services, and on broadcasters’ proposals in that docket to retain some of the UHF/VHF TV bands exclusively for broadcast use.

In addition to providing comment on the Commission’s proposals to organize the reclaimed broadcast spectrum as described above, the Commission seeks comments on using 6 MHz blocks, instead of 5 MHz blocks, to match the size of the digital TV channel relinquished; auction design options that would facilitate the aggregation of larger contiguous blocks composed of multiple 5 MHz blocks; proposals on where to place the uplink and downlink bands to accommodate non-uniform amounts of spectrum relinquished; licensing relinquished spectrum on an economic area basis or whether some other geographic area should be used, and a number of other technical issues.

Unlicensed use of spectrum

The Commission requests comment on proposals to relocate channel 37 users (radio astronomy and wireless medical telemetry) and continue the licensing on a secondary basis of broadcast auxiliary services in the spectrum that remains available for broadcast services. Additionally, the Commission asks for comment on how to accommodate licensed low power auxiliary services and other unlicensed operations in the repacked spectrum, and how to preserve and best use the unused spectrum (the white spaces) in the broadcast TV bands for unlicensed operations.

Please contact the authors or your Davis Wright Tremaine relationship attorney for further questions on this significant policy initiative.