broadcast spectrum auction
TRANSCRIPT
Flashpoint: The Broadcast Spectrum AuctionPreparing for a Post-Auction World
Feds and factorsConsumer demand for mobile data has prompted the FCC to find ways to get more spectrum into the hands of mobile operators
The focus: a portion of the spectrum now in the hands of television broadcastersThe plan: a two-step auction
Step 1: a reverse auction seeks to acquire what is expected to be between 84 MHz and 126 MHz of spectrum on a national basis from broadcasters—at the lowest price
Step 2: a traditional forward auction would repack the acquired spectrum and auction it off for mobile broadband uses, at the highest price
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Final destinationThe planned auction stands to significantly reshape the national broadcast landscape and affect virtually all U.S.
broadcasters…even those that do not participate.
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Supply and demandThe success of the auction is predicated on the FCC performing a balancing act
• FCC must attempt to purchase as much spectrum as possible from broadcasters• FCC must not exceed the total price point it can achieve from bidders
in the forward auction
Possibility for a do-over:If the forward auction doesn’t generate adequate proceeds, FCC will reduce its goal and restart both auction steps
Timeline:• End result won’t be known until late summer 2016• Process could extend into 2017 if more than one auction cycle is required
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Decision time
Decision time
The auction is the first opportunity for broadcasters to sell their spectrum license rights in this manner
Many station operators realize that decision time has come for taking advantage of this unique opportunity
• Determine whether to stay in the business with 6 MHz spectrum license rights• Share a 6 MHz spectrum block with another operator in return for a split
of auction proceeds• Exit the business and reinvest auction proceeds elsewhere
A flurry of activity: Hundreds of licenses could be sold in the process
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Potential for big movesRegardless of the decision, all broadcasters that remain in operation will be subject to being “repacked” into new
channel assignments by the FCC.
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Considerations and preparationsAs station owners, operators, and investors look for answers, a few key post-auction considerations emerge:
• Why participate in the auction? • What are the implications of participating with a channel-sharing partner? • What are the challenges of repacking? • How can you best use proceeds for evolution or reinvention?
The future factor:• For any scenario, broadcasters should focus on preparing for the post-auction environment• No matter which path you take, the new landscape likely will be dramatically different• Decisions made now can have long-term implications for who emerges as winners or losers
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Wait and see:a risky proposition
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Wait and see: a risky proposition
Nonparticipation: A head-in-the-sand moment—a big bet that things will stay the same?The risky bet• That the broadcast and commercial landscape within a market won’t materially change • That the future will be bright for over-the-air (OTA) services relative to auction prices • That FCC won’t eventually claim eminent domain and bump a station off the spectrum, with
little or no compensation
The missed opportunityA potential windfall—while broadcasters that participate in a big way could reap significant monetary rewards
The imbalanceMajor participants could leverage auction proceeds to gain a competitive advantage over minor participants or “wait and see” broadcasters
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Wait and see: a risky proposition
The perils of a wait-and-see approachNew perceptionsInvestors might view some auction strategies or nonparticipation as failures—leading them to lose confidence in leadership and question corporate direction
New realities• Station will be operating in a dramatically different environment:• A new, repacked station footprint in the market• The footprints and economic strength of competitors also altered• A new supply-and-demand equation affecting local advertising rates• Potential new interference concerns—along with operational and quality
issues that might prompt viewers to reassess local channel preferences
No escape If FCC forces a move, the challenges of operating in a new landscape still remain
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Partner up: channel-sharing
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Partner up: channel-sharing
In addition to thoughtful participation in the auction or a “do nothing” approach, there’s an additional option for broadcasters: channel-sharingThe appeal• Two stations or broadcasters use a single channel to broadcast
both of their signal streams • Could provide best of both worlds for some broadcasters• Potentially allows broadcasters to:−Auction off existing spectrum−Split proceeds with a channel-sharing partner−Maintain license−Continue cable carriage−Operate with reduced overhead
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Partner up: channel-sharing
Channel-sharing: viable but complexThe caveatA viable channel-sharing strategy requires more than a willing partner and a sharing agreement
It requires:• Operational, financial, and technical skills• Careful planning • Effective collaboration • Ability to execute on the channel-sharing vision
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Technical difficulties: repacking challenges
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Technical difficulties: repacking challenges
Regardless of whether broadcasters choose to participate in the auction, they may be repacked—moved to a new channel assignmentBroadscale repacking will require:• Extensive planning • Funding
The challenge: Since the last broadscale channel upheaval—the analog-to-digital evolution—those skills and resources have been less in demand. Finding them now could prove challenging.
The prudent path: Think now about the resources needed for a repack. Consider the “daisy chain” of effects that will occur as station after station undergoes repacking and clamors for limited technical resources.
• Specialized operational and technical skills• Custom equipment
Technical difficulties: repacking challenges
Layers of complexity for a repack• Technical challenges of a repack extend beyond the requirements of a single station• Nationwide effort will require an understanding of how to retool towers as well as the
synchronization that must occur as scores of stations develop timelines for moving
Complex layers of risk: • Poor execution could lead to channel interference or other difficulties• Challenges of weather, worker safety, local regulations, and long lead times
for equipment, in addition to technician availability• Risk of FCC fines for not meeting the repack deadline• Longer-than-expected repacking timelines—while the window to repack
effectively might be small
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Investing in the futureMonetizing spectrum license assets
offers an opportunity to evolve
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Investing in the future
Potential uses of auction proceeds: • Strengthening the balance sheet• Funding operational improvements to fueling a reinvention
What’s at stake:• How you chose to reinvest auction proceeds could have long-term implications
for the business• Big changes with OTA, OTT, and mobile broadband will demand big, bold
ideas and new business models
Key questions:• What does it means to be a station in the digital era? • What new partnerships and strategies can deliver value?
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Exploring different modelsNew models will require new decisions on where best to allocate capital
One big question:• How should local content get delivered to the audience? • Traditional over-the-air? • Just via cable? • A new model for Web or over-the-top (OTT) delivery?
Possible answers: • New content alliances with other local media, such as newspapers• Accelerated decisions on whether to “unbundle” local news and
OTA broadcasting capabilities (traditional core strengths of a station) and concentrate on one
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Exploring different models
Q: What will drive the thinking on new models in each market and for each station?
A: The sustainability of over-the-air (For example, will five local OTA news stations for a million-person market be sustainable in the new era?)
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Beware: not all stations will be winnersThose that have carefully planned and prepared will be best-positioned to reap rewards
Varying situationsFor each market, the auction dynamics will be different, as will the economic realities from station to station
Auction wild cards• The FCC will have a predetermined amount of spectrum it is seeking in
each market. • Amount paid out during reverse auction will depend on:• How much spectrum agency has targeted in a particular market• How many “open slots” there are in the UHF and VHF bands for a market• Which stations volunteer to participate in the auction• The prices at which broadcasters are willing to give up their licenses
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Beware: not all stations will be winners
Value propositionsFor some broadcasters, auction values and complexities of channel-sharing might be worth the trouble.
For others, auction value might provide an attractive opportunity to monetize an underperforming asset, to make an exit.
But the economics of auction values might prove underwhelming for some stations, representing a poor offer to take—depending on their views of
the post-auction landscape in their local markets.
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Strategic considerations
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Strategic considerations
Other industry developments are in play as well, requiring broadcasters to think broadly and strategically. Factors include:• Emerging ATSC 3.0 broadcast transmission standard• Increasing threats from OTT and mobile broadband video• A changing advertising landscape
Missteps on auction strategy could have long-term repercussions on revenue, performance, and the bottom line
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One big reason why strategy mattersIf the market doesn’t perceive a broadcaster as successful in its auction strategy, that broadcaster could face challenges in investor relations and even become an acquisition target.
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Let’s talkBefore big shifts upend the status quo, you should have a solid post-auction strategy at the ready
• Whether selling or holding, big changes lie ahead for local content, delivery options, business models, and the nature of competition.
• Whether you spend new-found spectrum capital or deploy other resources, you’ll need fresh strategy for your evolving business model.
Deloitte can help you explore a few possibilities in depth and work toward some meaningful answers to tough questions.
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Phil WilsonDirectorDeloitte Consulting [email protected]
Kevin ThompsonDirectorDeloitte Consulting [email protected]
Scott LippstreuPrincipalDeloitte Consulting [email protected]