On Wednesday last week Robert Weller, former Chief of Technical Analysis at the FCC’s Office of Engineering and Technology, former Vice President of Spectrum Policy at NAB, and current President at the Association of Federal Communications Consulting Engineers, offered opening remarks in Washington DC at an event called “Destination, Repack,” presented by his Association and Wiley Rein LLP.
[Audio Gloss interviewed Weller. He’s a cool guy.]
Destination Repack were presentations and discussions on the technical, financial, and legal nitty gritty of what happens to broadcasters who choose to stay on the air.
The event was six hours long. I could only spare three.
But those were as many hours as I needed to hear Robert Weller speak the words “we have consensus” that the auctions will clear 84 MHz of broadcast spectrum from the UHF band.
Could it be?
If 84 MHz are cleared, that means the community of entertainment production professionals using wireless audio equipment on an unlicensed basis will have access to any available white spaces between 470-619 MHz. Emphasis on “access to available white spaces.”
Earlier reports on consensus written by economists and journalists that came in between the start of the Auctions and where we are now, I was skeptical of, because they pointed back to earlier predictions and simulations, which were wrong.
Peter Cramton et al. penned this expert report, submitted to the Commission. He and his team hypothesized the following:
The AWS-3 paired price of $2.72/MHzPop is a timely estimate of 600 MHz auction prices. This price implies forward auction revenues of $84.9 billion for the 126 MHz clearing target (10 blocks). There are good reasons to believe that revenues will be higher than $84.9 billion as a result of the better propagation characteristics of the 600 MHz band and the greater scarcity of low-band spectrum. The AWS-3 auction presents current market evidence that the 600 MHz auction will achieve revenues above $80 billion if 10 unimpaired blocks are auctioned.
That ship has sailed.
I’m skewering neither Dr. Cramton, nor the discipline of economics.
He is a superb auction economist, perhaps among the best in the world, and contributed meaningful insights intended to maximize the benefits of the auction to all stakeholders including the American People. These insights made their way into the final design.
But this spectrum auction is unusual. It is just about the first of its kind. Although I can say with the unfair advantage of hindsight that Dr. Cramton’s recommendations may have been unduly influenced by the (just as unusual and groundbreaking) AWS-3 outcome, so were the recommendations and opinions of most economists in support of this thing; Crampton is far from alone. I’m sure his math was correct, but he, alongside this list of 112 economists, including a Nobel Laureate, and the official report to Congress from the CBO—all of them were painfully wrong.
The Treasury for example predicted through what I assume were accepted methods a net income from the Auctions to the Treasury of ~$25 billion. In its own words:
The Congressional Budget Office estimates that the net proceeds will probably be between $10 billion and $40 billion, with an expected value of $25 billion, the middle of that range.
As we enter the third stage, achieving close to the expected value of $25 billion net seems to approach impossibility. Phase two (the forward auction) of stage two (the second do-over at a lower clearing target), closed at $21,519,907,210 after only a single round.
To the best of my knowledge, proceeds are not the same as “net proceeds.” Proceeds are the total revenues from all forward stage bidders if the final stage rule is met. (refresher here) While net proceeds are what remains, the net proceeds, or profit if you will, are what the United States makes, after broadcasters have been paid, remaining broadcasters repacked, and a few important federal programs paid for.
While it is possible that in stage three, four, or even five, at lower clearing targets forward auction bidders will see more value in fewer licenses, and compete more aggressively against one another, counterintuitively driving the total price up above what they’ve offered in prior stages and perhaps into a number that allows the treasury to net out $10 billion or more, they’ll still be bidding on a smaller number of licenses and a smaller quantity of spectrum, which generally doesn’t bode well for fat proceeds unless there is something exceptionally rare about those licenses.
Without knowing exactly what forward stage bidders want to do with 600 MHz band spectrum in the first place, i.e. why 600 MHz is uniquely valuable to carriers (knowledge which could contribute to a rough estimate for what bidders are ultimately willing to pay), we can’t say for sure.
Personally I think the single round fold in stage two was truly a fold. Forward bidders sent a message to irrational broadcast licensees in the reverse auction that they (forward bidders) are not paying anywhere close to what was asked: more than $54 billion.
Then again, the single round exit in phase two of stage two may have been a strategic fold, meant to shove the Auctions into additional stages (which may be a function of both and/or technical and financial reasoning), and to push the broadcaster’s ask down as low as possible so that when the clearing target is acceptable, they can get the biggest bang for their buck. I mean the most MHz/Pop for their unit of currency. And bid ferociously against one another, up and away from a low starting floor.
But back to Mr. Weller.
I’m paying attention to Weller’s comment not because he is Robert Weller with a distinguished track record of meaningful contributions to public and private sectors both, but because Robert Weller is an engineer.
And not just any engineer, but one of the core members of the team that built the U.S. Incentive Auctions. Weller is the man responsible for the mathematics and some of the code that formed TVStudy, which simulates in real time the coverage area interference boundaries for scenarios of repacked stations, while the auctions are live. It is no small feat.
It is with these credentials in mind that Robert Weller, and whatever cloaked figures he is in consensus with, in my opinion provides us with information that contains a higher than average degree of certainty that we should take note of.
But don’t go out and buy new gear quite yet!
For two reasons:
- The Auctions are incomplete, and ongoing. “Consensus” from a respected body of experts is a consensus of opinion on a future event, not fact. We will not know with absolute certainty what the new UHF band will be until the Auctions are successfully concluded, which hasn’t happened yet.
- If the Auctions conclude at the 84 MHz target (leaving 470-619), the mathematics of the repack of unsold TV licenses may work out to yield less spectrum available for wireless audio devices than the previous two stages. How this cruel and confusing destiny is possible will be the subject of an upcoming post if the 84 MHz target in the fourth stage is successful.
To conclude, this post is meant to bring a hot knife through the bubbling fat of “breaking news” headlines that provide no context or analysis on the news that has broken—certainly not for commercial/professional wireless audio operators.
Earlier I said:
achieving anything close to that figure approaches statistical impossibility
At this point in time, I stand by that statement with the caveat that if esteemed and Nobel Prize winning economists can be so wrong about the success of a spectrum auction, then please, PLEASE, know that I know I could be wrong, too.
I am asserting a prediction with greater certainty now, because the Auctions have been simultaneously tested and executed live, with real bidders, not once, but twice, and we’re rounding the corner on a third go.
Although members of the general public have little visibility into auction metrics as they unfold (which I have qualms about), and no visibility into the bidding strategies of individual stakeholders and business participating (which I have no qualms), the fact that there are a small number of individuals privy to all information of the former, and some information of the latter category—individuals like Robert Weller—and that we’re in the middle of the process rather than shooting from the hip about what might happen before it has begun, and that these individuals are speaking up in the form of tidbits of legally safe disclosures on opinions from the inside, means to me that those of us evaluating these statements from the outside can be more certain that the information the statements contained, superimposed against information from other sources we have access to, is closer to accuracy than statements from experts and insiders generated in the past.
That paragraph right there was a single sentence. Maybe.
Might as well end this article with a single sentence.
The entertainment production community has enough information to infer with reasonable but not complete certainty that the new UHF broadcast band will begin at 470 MHz and extend to 619 MHz.
*Leading image courtesy Killfile. "A magnifying lens from the 1700s lit by the fading Munich sun"