Incentive Auctions: Deficit Reduction's Big Easy

By Jeffrey Silva, senior policy director/Telecommunications, Media and Technology at ?Medley Global Advisors LLC?

Incentive auctions have entered the political vernacular of key lawmakers wrestling with deficit reduction. We do not believe wireless carriers and rural service providers can necessarily base near-term business decisions/strategies on the expectation that repurposed spectrum will be introduced into the market any time soon, even if Congress legislates incentive auctions this year.

T-Mobile faces less risk on the spectrum front if the Federal Communications Commission and Department of Justice agree to it being purchased for $39 billion by AT&T.
Republican and Democratic lawmakers are understandably attracted to the notion of collecting billions of dollars pain-free from future incentive auctions, considering that failure so far to agree on how to deal with the debt ceiling is fueled by differences between the two parties on whether lifting the borrowing limit should be accompanied by spending cuts only or a combination of government program cuts and new revenue creation.

A 1993 law that created spectrum auctions (also within the context of deficit reduction) required most proceeds from wireless license bidding to be deposited in the U.S. Treasury.
Additional legislation is required to reimburse TV broadcasters and other licensees whose returned airwaves are auctioned for a spectrum-squeezed mobile broadband sector experiencing exponential growth in wireless data usage/demand.

Revenue estimates by the Obama administration, the Congressional Budget Office and the industry from the auction of 84 megahertz to 120 megahertz of reclaimed broadcast spectrum vary from a low of $24.5 billion to $34 billion or more. We do not believe any of the forecasts on future spectrum availability and incentive auction revenue should be taken as gospel because of unpredictable political and legal factors as well as unknown variables such as what an incentive auction statute will look like; the design of an FCC incentive auction; and, perhaps most importantly, the extent to which broadcasters might participate in the voluntary incentive auction process.

Broadcasters, whose airwaves represent the financial foundation of the proposed incentive auction program, may need to be further assured that monies will be available to compensate them at an acceptable level for relinquished frequencies in order to secure their buy-in.

— Excerpted from a recent policy letter. Contact Silva at [email protected].