Transcripts For CSPAN2 Key Capitol Hill Hearings 20150914 :

CSPAN2 Key Capitol Hill Hearings September 14, 2015

Auction task force. Mr. Epstein, what does that mean . Guest thank you, peter. Im happy to be here. I am the head of the task force at the fcc which is responsible for implementing the incentive auction which is a firsttimeever auction at the fcc for spectrum. Host and the incentive auction is the auction, the spectrum auctions involving the broadcasters, correct . Guest indeed, it is. It is whats called a twosided auction which for the very first time will acquire spectrum from broadcasters in a socalled reverse auction and then turn around, repackage it and make it available to the wirelessc carriers9jz a forward auction. So it is a backtoback auction, a reverse auction and a forwardq auction. Host well, two followups to that. The fcc has set march of 2016 as the date for the incentive auctions to happen. A, will that date hold and, b, how long have you been working on this . Guest the auction commences on march 29th, 2016, and we do intend to hold to that date. All the commissioners are supportive of that, and i think all of the stakeholders are too, are too. I can answer your question about how long ive been working on it in two ways. When ive been back at the commission since april of 2012, and in some sense i think ive been working on it for 44 years which is how long ive been working in the area. Host but this has been in the works since 2012. Guest correct. And Congress Passed a statute in february of 2012, and the commission turned right to implementing it. And weve been working ever, ever since 2012 to put it into effect. Host one final question before we bring in our guest reporter, and that is in august the fcc voted rules for the incentive auction. Broadly speaking, what are some of those rules . Guest they really have to do with the actual detailed rule ares for implementing the auction rules for implementing the auction. There really were two stages. In about a year ago, the Commission Adopted the broad principles and rules in something called the incentive auction report and order. This is called the procedures public notice, and it goes to really the next level about how to set opening bid prices, where, what spectrum levels we will, we will seek to acquire, whos eligible to bid for the rules and a whole series of detailed rules to make the auction actually happen. Host Gautham Nagesh with the wall street journal is joining us. Thanks for having me back, peter. Gary, so this incentive auction, as you mentioned, is about taking spectrum from broad tv broadcasters and reallocating it to the wireless companies. Why do you guys feel that the broadcasters are the right place to go for spectrum, and how much spectrum are you hoping to get from this auction . Guest nagesh, gautham, it is a congressional determination that was made in the spectrum act. And one thing i do want to emphasize, that were not taking spectrum from broadcasters. It is a voluntary auction on behalf of the spectrum on behalf of the broadcasters. Broadcasters consider, continue to be an extremely valuable service, but Congress Passed this act where broadcasters on a onetimeonly basis will be able to relinquish their spectrum rights in return for a share of the proceeds of the forward auction. And so what it is, is congress determination and the fccs implementation to use Market Forces to make available more lowband spectrum to meet wireless broadband needs. In other words, the need for broadband spectrum is burgeoning by multiples and exponentially. There isnt a lot of good lowband spectrum left, and this is a new, novel method congress has put in place and the fcc is to implement. You explain why lowband spectrum in particular is desirable or well suited for wireless . Guest lowband spectrum is defined as spectrum below one gigahertz, and it has actual propagation characteristics, the physics of it, which allow it to go long distances and through buildings better than midband or highband spectrum. Its called covered spectrum as opposed to capacity spectrum which is the higher bands. This is the last lowband spectrum which will be available from the fcc for the foreseeable future. So as you mentioned, these airwaves or spectrum will allow wireless carriers to cover much larger areas in terms of guest much larger areas and penetration through buildings. You know, all types of spectrum are valuable. We just recently had a spectrum auction for midband spectrum, the socalled aws3 spectrum. That was more capacity spectrum. This is the coverage spectrum which has different characteristics. Host mr. End steam, to go back to the aws3, the price of that spectrum was more than double what you expected, wasnt it . Guest well, expectations of the analysts, okay, were probably in the 20 billion range at the high end. Actually, 44 billion was received, bid and received by the fcc with respect to the spectrum. So, yes. Turns out it was really pretty valuable. And it looks like a good sign for the lowband auction coming up. Host what if a broadcaster does not want to sell his or her spectrum . Guest broadcaster is completely free to take a thurm of options. A number of options. Number one is not to participate at all. And if a broadcaster decides not to participate, we have a statutory obligation to protect the areas and populations of that broadcaster and the broadcaster will keep broadcasting in its home band. Second thing is the broadcaster can relinquish all of its spectrum and participate in the spectrum, but there are two other options. The broadcaster can decide to channel share with another auction another operator, another broadcaster and participate in the auction. And then finally, a broadcaster can go from uhf to vhf, put its uhf channel in the auction and receive a vhf channel in return. The key thing is the first thing, a broadcaster does not have to participate at all and will be protected as a broadcaster in its home band. Host is there fear from local communities that they will be losing some of their local broadcast coverage . Guest its a good question. Some issues have been raised, and i think that the commission has taken good steps in certain areas with respect to, for example, public broadcasting and other really important services. But, you know, overall i think probably with the channel sharing and the u to v options and the migration of some Video Services to the internet, that the public will not lose service overall. The fcc has released some preliminary projections or estimates of both the high and the low end for what they think stations could potentially get for their spectrum. We see especially in major markets that these and markets in the vicinity of major markets, these projections are very high, this the hundreds of millions of dollars in the hundreds of millions of dollars in some cases. Do you think thats going to hold true at the auction itself, and what are the implications then for the broadcast industry . Because many of these stations do seem to be more valuable for their airwaves than as going businesses. Guest let me explain what those numbers are, okay . Those numbers were in a report we called the green hill report where we commissioned an Investment Banking firm to treat what we were doing as a business opportunity. Because were not all that great at that, so we needed some outside help to do that. But the fcc generated the numbers. And, gautham, what they are are opening bid numbers. Theyre not predictions of what a broadcaster will actually receive in the auction. But they are the numbers that we will put on the table for opening bids for broadcasters. In the order that the fcc just adopted in august, we set the final formula for opening bid prices. Its very close to what the estimates were a couple of months ago. And so i think those are the prices that the broadcasters will see for opening bids. Let me make one other point which i think is really crucial for broadcasters. The opening bid prices will be made public. More than 60 days, 60 days or more before the close of the window for broadcasters and wireless carriers to file their applications. If a broadcaster wants to participate, all it has to do is file an application and say i commit to that opening bid. And that application, by law, is anonymous. We will then start the auction, which is called the reverse auction. It starts high and moves down through competition. If the number drops 1 or 10 or a million dollars, the broadcaster has the absolute right to say im out, and i want to go back to my home band, and i want to continue broadcasting in my home band and be protected as if i were never in the auction at all. And thats why the chairman has said this is a nolose proposition. A broadcaster, we will publish the opening bids. A broadcaster will then decide whether to participate in the auction. At the opening bid price. If it may it may get the opening bid price, but we suspect there will be Competition Among the broadcasters. Anytime during that process the broadcaster can say im out, and i want to go to my home band. And thats the end of it. And the participation will be kept nonhouse. Host mr. Anonymous. Host mr. Epstein, the fcc is setting the opening businesses, is that correct . Guest its a reserve price like any auction, yeah. The fcc adopted a formula in august. The commission itself, not the staff, adopted a formula which has two components to it. One component is the amount of interteerns that the station causes. Ultimately, were seeking to get spectrum back. And so its relevant to the value of the station in the auction how much interference it causes. The second component of the formula is whats called interferencefree population. How many people does that cover . None of this has to do with the fair market value or the growing concern value of the station. Were seeking spectrum. So the opening bid prices are based upon spectrum. Host and you also said that its anonymous bid . Guest correct. Host anonymous to whom . Guest anonymous to the outside world. You know, if you as a broadcaster choose to say im participating, thats fine. But when you feel your application file your application with the fcc, we will not disclose to anyone the fact that youre participating in the auction. Host Gautham Nagesh. Thank you. As you mentioned, the value of the spectrum has been perhaps underestimated by analysts and people in the markets, and the recent aws3 auction, the midband spectrum, drew 45 billion which was larger than many of us expected. One of the factors that drove bidding higher in many markets was the fact that two companies affiliated with dish network were bidding multiple times on some of the spectrum. Now, i know this isnt part of the incentive auction, but the fcc in august moved to, essentially, remove discounts those Smaller Companies got. Can you explain perhaps some of the thinking behind that, and will that affect the dynamic in the incentive auction at all . Guest there are a couple related questions i think you have there. The fcc adopted new rules on participation and bidding credits in august in the decision, and what it did was it was concerned about, you know, how the rules were being used, whether they truly benefited small business. So it basically put caps on and tightened up the rules in a number of respects. That will apply to the incentive auction. And so there are special rules for bidding credits, theres something called the marketbased reserve which are part of the incentive auction, and i think the commissions new rules will affect bidding to that extent. Now, the other thing that happened and i think as i know youre aware of this is just, you know, recently the commission determined that certain participants in the aws3 auction were not eligible for bidding credits. And so that will be, you know, part of the analysis for participation in the incentive auction. Now, of course, the broader question is the purpose of the auction, it seems, is to real locate spectrum to the reallocate spectrum to the Wireless Industry, but who exactly constitutes the Wireless Industry . For example, dish network holds quite a bit of spectrum, but they are as of now not in the wireless business. Theyre a Satellite Tv Company for the most part. And we also see that there are really four Major National wireless carriers and some smaller wireless players. There was a lot of debate over whether spectrum should be set aside in the incentive auction for some of the smaller players. Can you explain why the commission landed where it did on that decision and where it landed . Guest indeed. Remember what i said, note what i said before that this is lowband spectrum. Certain carriers, certain of the major carriers have the great majority of lowband spectrum thats been allocated over the years, the 800 megahertz spectrum thats out there and the like. So the Commission Set up something which was fairly unique here. It set up something called a marketbased reserve which will set aside in each Geographic Market up to 30 megahertz of spectrum for carriers who are eligible to bid in that market. And the standard for eligibility is in that Market Holding onethird or less of the one gigahertz spectrum in that market. Its about 45, 45 megahertz worth of spectrum. So there is a market base reserved done for the very first time. And a marketbased reserve springs into existence at the time that the bidders who are eligible to bid for it make a, you know, meet a reserve price which has been set by the commission and pay their share of the costs of the broadcasters. So its innovative, its new, its something which is designed for those wireless providers who do not have any of the lowband spectrum. Doesnt mean that the established carriers wont have a lot of spectrum to bid on. We would expect and welcome their participation in the auction too. Should spectrum be available to companies that arent in the Wireless Industry . Because theres a lot of concern that the high prices and the appreciation are causing speculators to get in the market especially given the fact that theyre not, were not creating any new airwaves and that the value is likely only to increase . Guest well, there are two sides to this. There where there may or may not be speculators involved. One side is the reverse side, okay . Are there people who have bought up broadcast stations with the intelligent of selling them this the intent of selling them in the auction . I think the answer is, yes, and i dont think theres anything wrong about that. Broadcasters have to make the choice about whether or not they want to participate in the auction, and some entrepreneurs have bought some stations from the broadcasters and may well participate. On the forward auction side, i think weve tried to make the opportunities for more competition, okay, by having this marketbased reserve, but there are buildout requirements on the forward auction side. So its less likely, and we dont see, you know, entrepreneurs or more speculators that are involved. Anybodys eligible to bid. Theres not a requirement on the forward auction side that you previously have been in the Wireless Industry. And we encourage new entry and new participants. The only limitation is this marketbased reserve i mentioned. Host gary epstein, you talked about bidding credits. What does that mean . Guest bidding credits means its an established process that the fcc has. Its been used for decades now. Entities that are eligible for bidding credits get to bid at the normal rate but then get a discount when they actually have to pay. So, for example, a bidding credit of 15 would be if i bid 100 and somebody else bid 90 and i won because i bid 100, i actually only pay 85. Host and how do you qualify for those bidding credits . Are you a Smaller Company . Are you a smaller user of spectrum . Guest thats right. In the decision gautham was just talking about just recently, and this was a broader decision which alies to the incentive applies to the incentive auction and other auctions, the commission established a rule for whos eligible for bidding credits, tightened up the rules, and its primarily Small Businesses who meet certain characteristics. But theres a new 15 bidding credit for Rural Telephone providers. So its those entities which as a Public Policy matter the commission determined should be eligible for bidding credits. Host now, when it came to setting the rules for the spectrum auction or the incentive auction, it was a partisan vote, 32, by the commission. What were some of the concerns expressed by the republican commissioners . Guest well, i dont weve had a whole series of decisions. Some of them have been 32, some of them have been 50. I much prefer 50 votes, but there are policy differences among our commissioners. And one of them really has to do with this marketbased reserve that we talked about. I think thats one of the key ones thats there. Two of the dissenting commissioners arent this agreement with the policy set by the heart for the reserve and how it the majority for the reserve and how it operates and how large it is. There are other policy issues about, you know, pricing for the broadcasters, but if i had to pick one where theres the biggest division, it has to do with the reserve. We hear at the wall street journal that some broadcasters are exploring the possibility of forming a coalition of their own and selling spectrum directly to the wireless carriers. Now, i know the fcc has the authority to approve license transfers, but how would the fcc in genre act to Something Like that, and would it be allowed under the rules . Guest yeah. I think there are practical and legal issues. Theres no fundamental objection to it. This has been tried over the years a number of times. I think the biggest problem is when i describe what the auction was, i said really it had three parts. One of them is the reverse auction where we buy spectrum from the broadcasters, but then what we do is reorganize and repack it into a smaller, more efficient tv band. And then we turn around and take the Broad Spectrum that weve been able to get as a result of this repacking and sell it to auction it to the wireless providers. Oneoff bases or groups of broadcasters dont have the fundamental power to reorganize the spectrum. We got that from the act, from the 2012 congressional act. And theres a 1. 75 billion fund which has been set aside for us to reimburse broadcasters. So i think its the difficulty of putting all of those pieces t

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