Incentive Auction Rules Unlikely to Face Broad Challenge, Attorney Says

The incentive auction rules to be issued at the FCC May 15 open meeting (CD May 6 p3) are more likely to face challenges on narrow issues such as reserving spectrum for wireless mics, rather than broad petitions for reconsideration of the entire order, said Drinker Biddle broadcast attorney Howard Liberman during a Digital Policy Institute webinar Tuesday. If petitions for recon are filed against specific aspects of the auction rules, it’s unlikely that it would slow the process of getting the auction off the ground, Liberman said. Protracted court challenges to the auction order also aren’t likely because the May 15 order can be termed an interim process, and only final decisions are subject to court appeal, Liberman said. “It will be difficult to appeal.”

There’s likely a great deal of “horse trading” occurring among commissioners on the details of the auction order, Liberman said. Four votes in favor of the order would be better than three to two, he said. That sort of negotiating could have consequences for the success of the auction, said Duke University Fuqua Business School economist Leslie Marx. Because the incentive auction combines forward and reverse auctions, it needs clear decision making, she said. Designing an auction around political negotiations is “a recipe for real trouble” she said.

One issue that could be a focus of controversy is restrictions on bidding for wireless spectrum, Marx said. The order shouldn’t include limits on large companies like Verizon and AT&T acquiring spectrum, because the FCC already has existing policies that accomplish the same thing, she said. “Before you introduce restrictions, you have to make sure you have a real problem to solve.” Marx is a partner at Bates & White, and she has written a filing on the auction on behalf of Verizon (http://bit.ly/1kJCEah).

Restrictions on bidding would lower the value of spectrum in the auction, Marx said. Though it’s possible the incentive auction order will include restrictions that “kick in” only after certain goals are met, such restrictions could still have an effect on the value of spectrum even if they're never activated, she said. Restrictions on bidding are also an unnecessary complication that makes it hard for auction designers to do their job, Marx said. If restrictions on bidding lead to not enough spectrum being moved from broadcast to mobile broadband, it could be a difficult problem to fix for a long time, Marx said. The secondary market won’t easily be able to accomplish that kind of transfer, she said.

Broadcasters are hoping the auction order will give them some hint of the monetary value of their spectrum, Liberman said. There are rumors the FCC has hired experts to help provide broadcasters with dollar amounts, which could allow broadcasters to “make a meaningful decision” about auction participation, Liberman said. It’s possible that those numbers could be part of a “scoring” policy that would value broadcaster spectrum based on TV ratings. “There is some feeling that scoring will be included in the item on the 15th,” Liberman said. Scoring would be particularly bad news for noncommercial stations, he said.

Other factors may also affect the value of stations, Liberman said. He said bidders in the auction are likely to include players beyond traditional wireless companies, such as Google. Some bidders may be forming consortia to bid in the auction, organized around shared law firms, Liberman said. Such groups may have to consider anti-collusion or disclosure rules, he said. The competing interests aren’t bad for broadcasters, he said. “More interest is more money."

Broadcasters are most likely to decide either to avoid the auction altogether or to sell just part of their spectrum and channel share, Liberman said. Broadcasters that don’t participate face the risk of having their reach “chiseled” during the repacking process, he said, while those that do participate are risking not receiving enough compensation, he said. (mtayloe@warren-news.com)