Incentive Auction Won’t Raise as Much as CEA, CTIA Think, NAB-Backed Paper Says

An auction of TV spectrum may not raise as much money for the U.S. government and the incumbent broadcast licensees as some incentive auction proponents estimate, said an economist’s paper released Thursday by the NAB. The title of the paper by Managing Director Jeffrey Eisenach of Navigant Economics is: “Revenues From a Possible Incentive Auction: Why the CTIA/CEA Estimate is Not Reliable.” Those two groups’ estimate of winning bids of at least $33 billion to $34 billion is “based on historic spectrum prices, which are subject to wide variation,” it said.

The paper, at http://xrl.us/bjk6qv, didn’t give its own forecast for what a voluntary auction by broadcasters, with them sharing proceeds with the U.S. Treasury, would net. Eisenach noted that no one has recommended an exact design for such an incentive auction. “Even if the precise design of the auction were known, and the ’split’ between the government and current licensees had been decided, the history of spectrum auctions teaches one primary lesson -- that history is a poor guide when it comes to spectrum auctions,” the economist wrote. The mathematical model in the CEA and CTIA paper at http://xrl.us/bjk6rd, based on data from prior auctions, “is imprecise and ultimately unreliable,” Eisenach wrote.

"Spectrum prices are dramatically affected by the level of competition, which in turn is affected in large part by auction design,” Eisenach wrote. “The use of prior auction data to predict future prices is made more problematic by the fact that the FCC has recently revamped its spectrum auction design. CTIA/CEA’s model fails to adequately account for these data issues, many which bias the results upwards.” A spokeswoman for had no comment right away, and a spokeswoman for the FCC’s Media Bureau declined to comment. The bureau’s chief, Bill Lake, held webinars with broadcasters last month in which he said he’s optimistic that Congress will give the commission authority this year to hold incentive auctions.

CTIA criticized the Eisenach paper. “For an organization that claims to support voluntary incentive auctions, NAB seems inclined to do everything in its power to attack them” to “hold on to spectrum that it either is not using, or that is under-using,” said President Steve Largent. “From a cursory review,” the paper seems to try “to misinterpret what CTIA and CEA jointly presented,” he added. “While no one can predict with absolute precision what auction of broadcast spectrum will bring to the U.S. Treasury, the CTIA/CEA paper provided reasonable estimates as to what it could bring at auction. No one -- not NAB and not Jeffrey Eisenach -- can deny that the value of that spectrum inserted into the innovative wireless ecosystem will be much greater for U.S. consumers and the U.S. economy than if it were to remain in its current state."

For Eisenach to come up with an auction estimate of his own, he'd need to know the outcome of the commission’s broadcast spectrum proceeding and to know the terms of the proposed auction as well as its incentives, Eisenach said in an interview. Yet “I think it is very difficult at the end of the day to predict what the outcome will be, and inherently so” for auctions, he said. “An incentive auction is a risky venture, by the very nature of it.” He wondered whether broadcasters could get more money for leasing out their spectrum, which would depend on how much the government got versus what stations could keep.

FCC auctions generally don’t get winning bids that “reflect the underlying value of the spectrum,” Eisenach wrote. Before 2008, “bidders were often able to game auctions” by engaging in “signaling” to other bidders and in “other practices that distort prices,” he wrote: The simultaneous multi-round format of previous auctions encourages “'parking,’ and therefore likely produces inflated prices for the most valuable spectrum in an auction.”