Broadcast Incentive Auction Scheduled To Begin on March 29, 2016; Procedures for Competitive Bidding in Auction 1000

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 20

[GN Docket No. 12-268, MB Docket No. 15-146, WT Docket Nos. 14-252, 12-269; FCC 15-78]

Broadcast Incentive Auction Scheduled To Begin on March 29, 2016; Procedures for Competitive Bidding in Auction 1000

AGENCY:

Federal Communications Commission.

ACTION:

Final rule.

SUMMARY:

In this document, the Commission establishes final bidding procedures and qualifications for participation in Auction 1000, the Incentive Auction, including the forward and reverse auctions, 1001 and 1002 respectively. This document is intended to familiarize prospective applicants with the procedures and other requirements for participation in the Incentive Auction.

DATES:

Effective October 14, 2015.

FOR FURTHER INFORMATION CONTACT:

Wireless Telecommunications Bureau, Auctions and Spectrum Access Division:

for general auction questions: Linda Sanderson at (717) 338-2868; for reverse auction legal questions: Erin Griffith at (202) 418-0660; for forward legal questions: Kathryn Hinton at (202) 418-0660. Lisa Stover at (717) 338-2868.

Media Bureau, Video Division:

for broadcaster questions: Dorann Bunkin at (202) 418-1636.

SUPPLEMENTARY INFORMATION:

This is a summary of the Commission's document,

Auction 1000 BIA Bidding Procedures Public Notice,

GN Docket No. 12-268, WT Docket Nos. 14-252 and 12-269, MB Docket No. 15-146, FCC 15-78, adopted on August 6, 2015 and released on August 11, 2015. The complete text of this document is available for public inspection and copying from 8:00 a.m. to 4:30 p.m. Eastern Time (ET) Monday through Thursday or from 8:00 a.m. to 11:30 a.m. ET on Fridays in the FCC Reference Information Center, 445 12th Street SW., Room CY-A257, Washington, DC 20554. The complete text is available on the Commission's Web site at

http://wireless.fcc.gov,

or by using the search function on the ECFS Web page at

http://www.fcc.gov/cgb/ecfs/.

Alternative formats are available to persons with disabilities by sending an email to

FCC504@fcc.gov

or by calling the Consumer & Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).

Regulatory Flexibility Analysis

As required by the Regulatory Flexibility Act of 1980, as amended (RFA), the Commission has prepared this Supplemental Final Regulatory Flexibility Analysis (SFRFA) of the possible significant economic impact on small entities by the procedures and policies contained in the

Auction 1000 Bidding Procedures Public Notice.

Report to Small Business Administration

The Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, will send a copy of the

Auction 1000 Bidding Procedures Public Notice,

including this SFRFA, to the Chief Counsel for Advocacy of the SBA (SBA).

Paperwork Reduction Act

This document does not contain new or modified information collection requirements subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13.

Congressional Review Act

The Commission will send a copy of the

Auction 1000 Bidding Procedures Public Notice,

including the SFRFA, in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act. A copy of the

Auction 1000 Bidding Procedures Public Notice

and SFRFA (or summaries thereof) will also be published in the

Federal Register

.

I. Introduction and Executive Summary

1. The

Auction 1000 Bidding Procedures Public Notice

the Commission determined the procedures necessary to carry out the incentive auction, and resolves issues it raised in the

Auction 1000 Comment Public Notice

(

Auction 1000 Comment PN

), 80 FR 4816, January 29, 2015. In particular, the Commission establishes final procedures for setting the initial spectrum clearing target, qualifying to bid, and bidding in the reverse and forward auctions. The

Auction 1000 Bidding Procedures Public Notice

is organized from the perspective of potential bidders, with separate sections for the reverse and forward auctions, each ordered consistent with the overall sequence of procedures in the incentive auction. Bidding in the auction will begin on March 29, 2016, which will be the deadline for reverse auction applicants to commit to an initial bid option.

2. The incentive auction is composed of a reverse auction (Auction 1001) in which broadcasters will offer to voluntarily relinquish some or all of their spectrum usage rights and a forward auction (Auction 1002) of new, flexible-use licenses suitable for providing mobile broadband services. Forward auction proceeds will be used to pay broadcasters that relinquish rights in the reverse auction. As part of the auction process, the broadcast television bands will be reorganized or “repacked” so that the television stations that remain on the air after the incentive auction occupy a smaller portion of the ultra-high frequency (UHF) band, thereby clearing contiguous spectrum that will be repurposed as the 600 MHz Band. The Commission's decisions implement its central objective for the incentive auction: to allow market forces to determine the highest and best use of spectrum. In response to the robust public record in this proceeding, its key decisions include the following: (a)

Initial Clearing Target Determination Procedure

. The procedure the Commission adopts for selecting the initial clearing target will allow market forces to determine the highest and best use of spectrum on a near-nationwide basis, while permitting a limited amount of impairments in the repurposed 600 MHz Band to avoid the “least common denominator problem”: limiting the amount of spectrum available in most markets to the quantity that is available in the most constrained markets. To limit impairments, the Commission modifies its proposal in the

Auction 1000 Comment PN

by adopting a scaled standard with a cap that will allow significantly less than the proposed 20 percent at higher clearing targets, consistent with the consensus that impairments must be minimized, particularly at higher clearing targets. The Commission's decisions to allow the optimization software to assign television stations within the 600 MHz Band so as to minimize impaired weighted-pops, and not to “discount” impairments located in the uplink portion of the Band, also will help the auction to repurpose as much near-nationwide spectrum as possible while minimizing impairments; (b)

Opening Prices

. The Commission adopts its proposal for calculating opening price offers for each eligible broadcaster based on a television station's interference and population characteristics. This methodology, which will yield opening price offers in the reverse auction of up to $900 million, should attract robust participation in all areas without undermining other goals of the auction. Opening prices in the reverse auction will be announced at least 60 days in

advance of the deadline to file an application to participate in the reverse auction; (c) For the forward auction, the Commission adopts its proposal to assign a specific number of bidding units to each spectrum block that will be available in a Partial Economic Area (PEA) based on the number of weighted-pops in the PEA, and to use the bidding units to calculate minimum opening bids, upfront payments, and bidder eligibility, as well as to measure bidding activity. To facilitate bidding across license categories, each block available in a PEA will have the same number of bidding units. The minimum opening bid for each spectrum block will be equal to the number of bidding units assigned to the block times $5,000, and upfront payments will be one-half that amount. Upfront payments will be due after the initial clearing target has been selected; (d)

Reverse Auction Bidding

. Having considered the comments the Commission received on its proposal for a Dynamic Reserve Price (DRP) mechanism, it has decided not to adopt DRP. This decision will encourage voluntary participation in the reverse auction by removing uncertainty among broadcasters, and maximize forward auction spectrum value by eliminating the possibility of additional impairments in the 600 MHz Band due to the operation of the DRP mechanism. In order to make bidding as simple as possible for reverse auction bidders, bidders will not be able to submit “intra-round” bids. The Commission adopts its proposal to establish a simple proxy bid mechanism to make it easier for bidders to participate in the auction; (e) The Commission also adopts several measures to improve transparency for reverse auction bidders. First, the auction system will inform them, for each station on which they are bidding, of their bidding status and the new price offers for available bid options. Second, bidders also will be provided with “vacancy” information regarding the availability of channels in bands relevant to each of their stations given its bid options. Vacancy information may help reverse auction bidders assess the likelihood that the price offers for a bid option will continue to decrease, as well as how likely any bid option to move to another band is to be available through the current round. Once reverse auction bidding stops in any stage, the total dollar amount of provisionally winning reverse auction bids will be announced publicly; (f)

Forward Auction Bidding

. The Commission adopts its proposal to offer two categories of generic spectrum blocks for bidding in the clock phase of the forward auction: “Category 1” blocks with potential impairments that affect zero to 15 percent of the weighted population of a PEA; and “Category 2” blocks with potential impairments that affect between greater than 15 percent and up to 50 percent. Prices for frequency-specific licenses will be adjusted downward at the end of the assignment phase of the forward auction by one percent of the final clock phase price for each one percent of impairment to the license; (g) The Commission adopts several measures to improve transparency for forward auction bidders. First, the auction system will provide them in advance of bidding with specific information regarding impairments, including the actual source and location of the impairment. Second, during the clock phase, aggregate price information that reflects the progress of the forward auction towards satisfying the final stage rule, as well as price and aggregate demand information for blocks in each PEA that reflects progress towards completion of bidding in the clock phase, will be publicly available; (h) To implement the Commission's decision in the

Mobile Spectrum Holdings Report and Order

(

Mobile Spectrum Holdings R&O

), 79 FR 39977, July 11, 2014, to incorporate a market-based spectrum reserve in the forward auction, the Commission adopts its proposals to base the maximum number of reserved spectrum blocks in a given PEA on the total number of Category 1 and 2 blocks offered in that PEA; to limit the actual number to demand for Category 1 blocks by reserve-eligible bidders when the auction reaches the spectrum reserve trigger; to reserve only Category 1 blocks; and to limit the number of reserved blocks in a PEA to two if, when the trigger is reached, only one reserve-eligible bidder demands such blocks. The Commission also affirms its decision that the spectrum reserve will be triggered by satisfaction of the final stage rule; (i) To implement the final stage rule established in the

Incentive Auction Report and Order

(

Incentive Auction R&O

), 79 FR 48441, August 15, 2014, the Commission adopts the proposed average price and spectrum benchmarks of $1.25 and 70 megahertz of licensed spectrum, respectively. The benchmarks will help to ensure that winning bids for the licenses in the forward auction reflect competitive prices and return a portion of the value of the spectrum to taxpayers without reducing the amount of spectrum repurposed for new, flexible-use licenses. The Commission also adopts its proposals for triggering an “extended round” to give bidders the opportunity to meet the final stage rule without moving to another stage, except that an extended round will not be triggered if the shortfall is greater than 20 percent; (j)

Assignment Round

. The Commission adopts the assignment round bidding procedures proposed in the

Auction 1000 Comment PN,

with a modification: in addition to limiting PEA grouping to PEAs with the same mix of clock-phase winners and winnings, as proposed, the Commission will limit PEA grouping to unimpaired PEAs. Winning clock-phase bidders will have the opportunity to bid for their preferred combinations of licenses, consistent with their clock-phase winnings, in a series of single sealed-bid rounds conducted by PEA or, in some cases, PEA group; (k) The auction system will incorporate certain intra-market contiguity objectives in determining the frequency-specific license assignments available in the assignment round. To assist forward auction bidders in determining whether, and how much, to bid in each PEA during the assignment phase, all clock-phase winning bidders across all PEAs will be informed of the extent to which contiguous blocks feasibly may be assigned to winning bidders from the clock phase within each PEA. In addition, the auction system will provide each bidder with bidding options that satisfy the feasible contiguity objectives for each PEA in which the bidder may bid; (l)

Final TV Channel Assignments

. The Commission will use optimization techniques to determine a final TV channel assignment plan that satisfies the constraints adopted in the

Incentive Auction R&O

and strives for the additional policy goals of maximizing the number of stations that stay on their pre-auction channels, minimizing aggregate new interference to individual stations, and avoiding channel reassignments for stations with high anticipated costs. These goals, in turn, will help to ensure that the total reimbursement costs associated with the repacking process remain below the $1.75 billion in the TV Broadcaster Relocation Fund that Congress made available, speed the post-auction transition process and minimize disruption for stations and viewers alike.

3. Consistent with its decision in the

Incentive Auction R&O

affirming the Wireless Telecommunications Bureau's (WTB's) delegated authority regarding auction procedure matters that it typically handles, at least 60 days before the deadline to file auction applications WTB will release a separate public

notice which will address the pre-auction application process, including detailed instructions and deadlines, as well as post-auction procedures (

Auction 1000 Application Procedures Public Notice

or

Application Procedures PN

). The

Application Procedures PN

will announce the filing window for applications to participate in the reverse and forward auctions, as well as upfront payments and minimum opening bids for the forward auction. In addition, the

Application Procedures PN

will include technical formulas implementing final decisions regarding the initial clearing target determination procedure, the final television channel assignment plan, and the assignment of frequency-specific licenses to forward auction clock-phase winning bidders, as well as algorithms for bid processing. The

Auction 1000 BIA Procedures Public Notice,

together with the

Application Procedures PN,

will provide prospective bidders with a complete guide to participating in the incentive auction.

II. Background of Proceeding

4. The Commission will conduct Auction 1000 (including Auctions 1001 and 1002) pursuant to Title VI of the Middle Class Tax Relief and Job Creation Act of 2012 (Spectrum Act), which authorized incentive auctions to help meet the Nation's accelerating spectrum needs and required the Commission to conduct a broadcast television spectrum incentive auction. Since enactment of the Spectrum Act, the Commission has released a number of decisions in which it has adopted rules and policies that provide the necessary framework for implementing the incentive auction. Prospective applicants must be familiar with additional specific details from these decisions as well as with the Commission's general competitive bidding rules in Part 1, Subpart Q of the Code of Federal Regulations and with the procedures, terms, and conditions contained in the

Auction 1000 BIA Bidding Procedures Public Notice,

and all other public notices related to Auction 1000, including Auctions 1001 and 1002.

5. In the

Incentive Auction R&O,

the Commission adopted a “600 MHz Band Plan” consisting of an uplink band that will begin at channel 51 (698 MHz), followed by a duplex gap, and then a downlink band. Consistent with the

Incentive Auction R&O,

the Commission refers throughout the

Auctions 1000 BIA Bidding Procedures Public Notice

to the UHF band spectrum that is repurposed through the incentive auction as “the 600 MHz Band,” and to the band plan scenarios adopted in the

Incentive Auction R&O

as “the 600 MHz Band Plan.” Because the Commission will not know the exact number of licenses or their frequencies when the incentive auction begins, the 600 MHz Band Plan includes different band plan scenarios associated with different spectrum clearing targets.

6. Additionally, in the

Incentive Auction R&O,

the Commission recognized the importance of finalizing

TVStudy,

the computer software that will be used in the repacking process, well in advance of the auction. On June 30, 2015, the Office of Engineering and Technology (OET) finalized

TVStudy

and released a detailed summary of baseline coverage area and population served by each station to be protected in the repacking process, based on then-current information in its databases regarding the stations' facilities. The Commission directs OET to release final baseline coverage area and population served data no later than 60 days before the deadline for auction applications.

III. Initial Clearing Target Determination Procedure

7. The Commission adopts the procedure for selecting an initial spectrum clearing target for the incentive auction. Examination of the record reflects consensus on several basic principles: that the goal should be to allow market forces to determine how much spectrum is repurposed; that flexibility to allow some degree of impairment is critical to achieving that goal; and that forward auction licenses should be as free from impairments as possible. Consistent with these principles, the procedure the Commission adopts is modified in important respects from that proposed in the

Auction 1000 Comment PN

. In particular, the Commission adopts a one-block-equivalent standard with a cap for limiting impairments that will allow significantly less than the proposed 20 percent nationwide impairment level at higher clearing targets.

8. The following provides a high-level overview of the procedure and then addresses in detail the elements of the procedure related to handling impairments. In Appendix A to the

Auction 1000 Bidding Procedures Public Notice,

the Commission provides a description of how its computer software will apply the procedure the Commission adopts on a step-by-step basis. An updated version of Appendix C to the

Auction 1000 Comment PN

setting forth the technical details and formulas associated with the procedure that the Commission adopts will be included with the appendices to the

Application Procedures PN

.

A. Overview

9. Based on the array of stations that apply to participate in the reverse auction and the bidding options to which they initially commit, the procedure the Commission adopts will use mathematical optimization techniques to determine a provisional television channel assignment plan for every possible spectrum clearing target. For each clearing target, the plan must include a feasible channel assignment in its pre-auction band for every eligible station that does not participate in the reverse auction and in the VHF band for every applicant designated to move to a VHF relinquishment option. Consistent with the constraints adopted in the

Incentive Auction R&O

to make all reasonable efforts to preserve each eligible station's coverage area and population served, “[a] feasible assignment is one in which: (1) All stations are given a channel assignment, either to a channel or to go off the air; (2) a station can only be assigned to one of its allowable channels as defined in the domain.csv file; (3) stations' channel assignments must not violate adjacent and co-channel pairwise interference restrictions as defined in the interference_paired.csv file; (4) all non-participating stations and stations that have dropped out of bidding in the reverse auction are assigned a channel in their pre-auction band; and (5) all participating stations in the reverse auction must be assigned to a valid relinquishment option, that is, an option consistent with the relinquishment options the bidder selected during the application process and with the bidding rules of the reverse auction.” Stations currently assigned to channels 50 or 51 will be provisionally assigned to different UHF channels. Each applicant station must be designated to a relinquishment option consistent with its initial bid commitment. If a station initially commits to move to a High- or Low-VHF channel as its preferred relinquishment option, and the auction system is unable to accommodate that option, the system must either designate that station to a fallback relinquishment option selected by the applicant or, if the system is unable do so, to a feasible channel in the station's pre-auction band. The optimization procedure can always accommodate an initial bid commitment to go off-air, including a commitment to go off-air in order to channel share. Due to the limited availability of channels in the VHF band and the technical constraints on repacking established in the

Incentive

Auction R&O,

the procedure may not be able to accommodate every station that commits to move to the Low- or High-VHF band. The procedure will try to accommodate initial bid commitments according to the priorities proposed in the

Auction 1000 Comment PN.

If a station's initial commitment(s) is not accommodated by the auction system, the applicant will be informed prior to the start of the clock phase of the reverse auction that the station will be assigned to a feasible channel in its pre-auction band. In the event that the procedure determines that relinquishment of a station's spectrum usage rights will be unnecessary to achieve a clearing target under any circumstances, the station will be assigned a feasible channel in its pre-auction band, and the applicant will be informed prior to the start of the clock rounds of the reverse auction.

10. Depending on broadcaster participation levels, there may not be a feasible channel available in the remaining UHF portion of the TV band for all non-participating UHF stations and all UHF applicant stations that are not assigned to their initial commitment or fallback option(s). In such circumstances, as a last resort, the procedure will assign stations to channels in the 600 MHz Band according to the primary objective of minimizing the sum of “weighted-pops”—population weighted by an index of area-specific prices based on prior Commission spectrum auctions—impaired for all licenses by the assignments, and according to the additional objectives. The location of impairing stations in the 600 MHz Band will not be limited for purposes of applying the clearing target objectives; impairing stations may be assigned to the uplink, downlink, and duplex gap portions of the Band in order to minimize impairments. In addition to the primary objective of minimizing impairments, the procedure will apply the secondary objective of maximizing the weighted number of “Category 1” licenses (those licenses with zero to 15 percent impairment) nationwide. In order to avoid any increase in impairment levels, the secondary objective will be constrained by the primary objective. Thus, the secondary objective seeks an assignment plan that satisfies the primary objective, and contains the highest weighted number of Category 1 licenses nationwide.

11. Having determined the provisional TV channel assignment plan for all clearing targets that best satisfies the objectives, the clearing target determination procedure, using the 2x2 cell calculations, will apply the near-nationwide standard for limiting impairments in order to select the highest possible clearing target that meets the standard. Under that standard, the amount of impaired weighted-pops on a percentage basis will be less than the equivalent of the weighted-pops of one paired 5+5 megahertz spectrum block. For example, if the provisional TV channel assignment plan is for a 126 megahertz spectrum clearing target, then the forward auction licenses in the associated 600 MHz Band Plan (120 megahertz, or 10 paired license blocks) could only be subject to overall impairments on a near-nationwide basis of up to but not including 10 percent, or less than one out of 10 blocks. The procedure then will select the highest possible clearing target that satisfies the standard and the provisional TV channel assignment plan for that clearing target will be selected for the initial stage of the auction, along with the associated 600 MHz Band Plan. Application of this procedure will be subject to the international agreements the Commission reaches with Canada and Mexico. Although the Commission acknowledges it could miss the opportunity to clear more spectrum by skipping a clearing target, it may be necessary to skip the 144, 138, and/or 108 MHz clearing targets to better harmonize its band plan with Canada or Mexico. The Commission expects that this issue will be addressed in its negotiations with those countries. The Commission expects to reach timely arrangements with Canada and Mexico that will enable it to carry out the repacking process in a manner fully consistent with the requirements of the statute and its goals for the auction.

B. Objectives in Determining a Provisional TV Channel Assignment Plan

1. Primary Objective: Minimizing Impaired Weighted-Pops

12. The primary objective of minimizing impaired weighted-pops nationwide is consistent with the consensus among both broadcasters and wireless providers for limiting the impact of impairments overall. In addition, by using weighted-pops, the optimization tool will disfavor assigning impairing TV stations in major markets where they would have the greatest impact on forward auction spectrum prices, consistent with commenters' concerns. Weighting will discourage assignment of impairing TV stations to 600 MHz Band frequencies in or near major markets by increasing the cost of such assignments in the optimization. Its decisions to allow the optimization software to assign television stations within the 600 MHz Band so as to minimize impaired weighted-pops in applying the primary objective, and not to “discount” impairments located in the uplink portion of the Band, also will promote its goal of allowing market forces to determine the highest and best use of spectrum.

a. Calculation of Weighted-Pops

13. “Weighted-pops” will be calculated using the same price index measure the Commission adopts to calculate forward auction bidding units. Specifically, to calculate weighted-pops, the index of area-specific prices from prior auctions is used to weight the population in each license area based on the relative price of each Economic Area (EA) and Cellular Market Area (CMA) license (for paired spectrum) in Auctions 66 (AWS-1), 73 (700 MHz), and 97 (AWS-3). The price per MHz-pop of each license is divided into the average price per MHz-pop of the corresponding spectrum block to produce an index value of the license relative to the spectrum block. For example, if the price per MHz-pop of the winning bid for an EA license equaled the average price per MHz-pop for that spectrum block, then the index value for that license would be 1; if the price per MHz-pop was half the average, then the index value would be 0.5; if the price per MHz-pop was twice the average, then the index value would be 2; etc. Because the past prices are for EA and CMA licenses, the index value for each EA and CMA license area is broken down to the county level and averaged; the resulting county-level index values are aggregated to PEAs. The index values are aggregated to the PEA level by multiplying the county's index value by the percentage of the PEA's population within the county, and then summing those results for all of the counties in a PEA. In the

Auction 1000 Comment PN,

the Commission stated its intention to update the price index the Commission provided in Appendix F to the

Auction 1000 Comment PN

following Auction 97 to account for current values. Those results are now being incorporated into the price index to calculate weighted-pops for the incentive auction. An appendix providing the final index consistent with these decisions will be released with the

Application Procedures PN

. The explanation the Commission provides here together with the

Application Procedures PN

appendix responds to interested parties' requests for additional information on how weighted-pops is calculated and how it

will be used during the incentive auction in relation to impairments and to bidding.

14. Some commenters express concerns with the use of weighted-pops. The Commission disagrees with AT&T that its approach using weighted-pops is imprecise and will tend to understate impairment levels because it ignores major highways, railways and airports where population levels may be low but spectrum values are high. Indeed, by incorporating spectrum values from past auctions into the determination of where to locate impairments, the optimization tool will be able to account for those areas where spectrum values are high for reasons not directly related to population, including transportation hubs, and will avoid locating impairments in those areas, consistent with its goal of maximizing spectrum value. AT&T's criticism appears to concern how the ISIX methodology calculates impairments more than the use of weighted-pops. The former issue should have been raised in the ISIX proceeding. Moreover, the detailed information the auction system will provide to forward auction bidders on the locations where it places impairments will enable bidders to evaluate precisely their potential impact. The Commission also disagrees with NAB, which argues that the weighted-pops concept is confusing and overly complex. Although this is the first time the Commission will apply this measure for purposes of impairments, it has used weighted-pops in prior auctions to calculate bidding units. The Commission disagrees that use of weighted-pops adds undue complexity; rather, it agrees with those commenters that suggest that using weighted-pops will simplify the auction and avoid locating impairments where they will unduly harm spectrum values. By evaluating impairments based on weighted-pops rather than population alone, the procedure the Commission adopts can better account for the costs associated with impairing specific areas in order to identify a provisional TV channel assignment plan that minimizes impairments.

b. Measuring Potential Impairments

15. The Commission adopts its proposed procedure for determining the extent of potential impairments, with several modifications. The technical formulas for implementing the modified procedure the Commission adopts will be set forth in the

Application Procedures PN

. Under the measurement procedure the Commission adopts, the impairment level—the population subject to impairment—of each license that will be available in the forward auction under each spectrum clearing target will be pre-calculated for each station on each channel for each clearing target. More specifically, the ISIX methodology first will be used to predict potential inter-service interference between TV and wireless services. The ISIX methodology, which the Commission adopted for purposes of the incentive auction, predicts potential inter-service interference based on deployment of a hypothetical wireless network. The raw data the ISIX methodology produces at a two-by-two kilometer cell level will be aggregated into county-level data sets for the uplink and downlink portions of the 600 MHz Band and mapped to specific forward auction licenses. The ISIX methodology defines each two-by-two kilometer cell as “impaired” or “unimpaired” depending on whether it is subject to any inter-service interference. The percentage of the population of each county subject to inter-service interference then will be calculated for each potential channel assignment of a TV station to a location in the 600 MHz Band. The procedure will avoid double-counting the population of a county that is subject to potential inter-service interference from more than one TV station through the use of overlap tables. For any such assignment in which this percentage is more than 10 percent in either the uplink or downlink portion, the entire population of the county will be considered impaired for the license if the station is assigned to the channel. For a given TV channel assignment plan, the impairment percentage of a license is determined by dividing the sum of the populations of impaired counties by the population of the PEA.

16. The Commission adopts a 10 percent limit on the amount of impairment allowed in a county before the entire population of the county is considered impaired for the purposes of the measurement procedure. The Commission sought comment on setting this threshold between 10 and 20 percent. In order to avoid under-predicting potential interference, the Commission chooses a more conservative threshold at the low end of the proposed range. The Commission emphasized that the optimization procedure will use the county measurement only to determine the provisional TV channel assignment plans; the selection of a specific clearing target will use the more granular 2x2 cell data to determine the near-nationwide impairments. The Commission notes that because the initial clearing target is ultimately chosen based on the 2x2 grid cell data, using a 10 percent county threshold to aggregate the ISIX data up to the county level has very little impact on the overall result.

17. Rather than “discounting” the population for impairments located in the uplink portion of the 600 MHz Band, as proposed, the procedure the Commission adopts will consider uplink and downlink impairments to have equal weight. The Commission proposed to consider a county that is impaired in the downlink portion of the 600 MHz Band to also be impaired in the uplink portion, but not the reverse. Thus, only 50 percent of the population of a county with uplink impairments above the threshold would be considered impaired (

i.e.,

the portion of the population representing the uplink block); 100 percent of the population of a county with downlink impairments above the threshold would be considered impaired (

i.e.,

the population representing both the downlink and uplink blocks). Commenters generally oppose the proposal, arguing that it would tend to understate impairment levels. The Commission agrees and concludes that adopting it would be inconsistent with the strong record support for minimizing impairments. Therefore, the percentage of population attributed to uplink impairments will not be discounted: if the percentage of population with predicted impairment in the uplink exceeds 10, the optimization will consider the county wholly impaired, just as it will for impairments in the downlink portion of the block. The effect of this approach is that the optimization will not favor impairing the uplink over impairing the downlink but will focus instead on minimizing impaired weighted-pops in the 600 MHz Band overall. Further, the result of this approach is that any population that is not considered impaired will be usable for two-way communication (

i.e.,

both its uplink and downlink blocks will be unimpaired).

18. The measurement procedure will be used in applying the additional objectives as well as the primary objective. In creating the provisional TV channel assignment plan for each clearing target, data must be aggregated to the county level, and a percentage threshold must be applied to determine whether a county is impaired, in order to reduce the volume of data inputs to a quantity that reasonably can be utilized. Given all of the possible TV station and channel combinations under every clearing target, the ISIX methodology produces a quantity of data that exceeds the current

capabilities of optimization techniques. When aggregated to a county level, the ISIX methodology produces approximately 3.7 billion separate records of data for the roughly 3,000 counties in the United States. Use of data at the next possible level of granularity—the Census tract—would result in a 20-fold increase in the number of data records, and use of data at the cell level would result in a 650-fold increase. As it stands at the county level, the measurement procedure the Commission adopts must consider more than 100,000 decision variables and over two million constraints. At a more granular level than the county, the number of decision variables and constraints that must be considered would increase to an unsolvable number. For purposes of applying the near-nationwide standard to determine whether a plan satisfies the impairment limit, however, more granular, cell-level data will be used.

19. Likewise, forward auction licenses will be categorized as Category 1 (zero to 15 percent impaired) or Category 2 (greater than 15 percent and up to 50 percent impaired) based on cell-level impairment data, and forward auction bidders will be provided with cell-level data to inform their bidding strategies. Specifically, ISIX data will be used to identify the impaired population in both the uplink and downlink portion in the license. This data will show in which cells a potential licensee either will be restricted from operating due to harmful interference to an impairing TV station or may have its operations infringed upon by harmful interference from a TV station. The population of impaired cells across the license—whether the impairment results in the uplink or downlink—will be added together and divided by the total population of the PEA to calculate the impairment percentage. If the total population of the impaired cells within a block is less than or equal to 15 percent of the total population of the block, the block will be offered as a Category 1 block. If the total population of the impaired cells is more that 15 percent but less than or equal to 50 percent, the block will be offered as a Category 2 block. The location of an impairment in the 600 MHz Band will not be determinative for the purposes of calculating the impairment percentage; the population of a cell will be considered impaired even if the impairment only affects the uplink or downlink portion of the paired 5+5 megahertz spectrum block. This conservative approach avoids both the weighting proposed in the

Auction 1000 Comment PN

and double counting. For example, assume a PEA with a population of 100,000 has impairments that affect 10,000 people in the downlink portion of the A block and 5,000 of the same people in the uplink portion of the A block. The A block would be considered 10 percent impaired (10,000 impaired pops divided by 100,000 total pops in the PEA). Though the impairment affects a population of 5,000 in both the uplink and the downlink portion of the A block, 5,000 is not added to the total impaired pops because that would result in double counting—the population of 5,000 was already included when tallying the downlink impairments. The effect of this approach is that any population that is not considered impaired will be fully usable for two-way communication (

i.e.,

both its uplink and downlink blocks will be unimpaired), consistent with its prioritization of paired spectrum.

c. Assigning TV Stations to the 600 MHz Band To Accommodate Market Variation

20. The Commission adopts its proposal to allow the optimization tool to assign television stations within the 600 MHz Band where necessary to accommodate market variation in a manner that best fulfills the clearing target objectives, and not to restrict it to assignments in specific portions of the 600 MHz Band—downlink, uplink, or duplex gap. Restricting the optimization tool to certain portions of the 600 MHz Band would undermine its efficacy in carrying out the primary objective, likely resulting in more impairment of forward auction licenses and the selection of a lower spectrum clearing target. Such an outcome is not justified by the competing policies that some commenters advocate in support of restrictions.

21. Commenters express conflicting views on where to assign impairing television stations, arguing for various reasons that impairments should be restricted to the uplink, downlink, and/or the duplex gap portion of the 600 MHz Band and identifying problems with every possible location within the 600 MHz Band. For example, CCA, C Spire, and T-Mobile assert that stations should be assigned to the uplink because consumer demand is driving the need for more unimpaired downlink spectrum than uplink spectrum. T-Mobile and Verizon also suggest that assigning stations to the uplink is preferable because carriers can employ mitigation methods, such as base station filters, to guard against inter-service interference. On the other hand, Sprint supports assigning TV stations on contiguous channels starting at the bottom end of the downlink band to facilitate filter design in devices, reduce the number of filters needed for base stations, and maximize two-way spectrum. Sennheiser supports assigning stations to channels in the downlink portion of the band in order to provide greater certainty for unlicensed users in the duplex gap. In contrast, AT&T and Verizon oppose assigning TV stations to the downlink band because of complications to mobile device filter design. Several commenters caution against assigning stations to channels in the duplex gap. Conversely, AT&T, CCA, Sprint and T-Mobile support assigning stations to the duplex gap. AT&T states that it would likely be less harmful as a technical matter, and therefore preferable to assignment elsewhere in the 600 MHz Band, and T-Mobile argues that it “will allow for more extensive, higher performance 600 MHz broadband transmissions in the affected geographic area license(s) than would be possible if the broadcast impairment were co-channel with broadband operations.” Sprint states “in the event of less robust broadcaster participation, in which fewer blocks of competitively critical low-band spectrum can be repurposed, repacking television stations in the duplex gap may be the only way to conduct an auction with a modestly successful amount of auctioned spectrum.” CCA cautions that protecting the duplex gap will “reduce the amount of spectrum available in the forward auction.” Henry A. Waxman advocates for an alternative approach in which the assignment of TV stations to the duplex gap is dependent upon whether the clearing target exceeds 84 megahertz. Some commenters oppose repacking TV stations anywhere in the 600 MHz Band.

22. As an initial matter, the Commission emphasized that the optimization tool will assign television stations anywhere in the 600 MHz Band “only where absolutely necessary.” As the Commission determined in the

Incentive Auction R&O,

however, and as many commenters acknowledge, flexibility to accommodate some level of market variation—thus requiring some level of impairment to 600 MHz Band licenses—is critical to avoiding the least common denominator problem. The procedure the Commission adopts always will favor assigning television stations to channels in the remaining TV bands if possible, and, will select a clearing target selection that reflects an appropriate trade-off between the amount of spectrum cleared and the overall impairment level. Further, the

Commission disagrees with AT&T that assigning TV stations to the 600 MHz Band will create problems similar to those in the 700 MHz Lower A Block caused by TV stations in channel 51. The Commission developed the ISIX methodology to address this issue specifically by creating a methodology to predict where inter-service interference is likely to occur and proposing to restrict licensees' service in these areas where “impairments” are created. Moreover, wireless licensees will be aware of these impairments in advance: The Commission will provide bidders with detailed information about impairments in the blocks offered prior to the start of the forward auction, including the facility causing the impairment, and the resulting areas where they will be restricted from operating or not be required to operate due to inter-service interference. As a result, bidders can use the facility information about the impairing station to determine how their wireless networks could be deployed around the impairment, or whether they should not bid on impaired licenses (that is, a license to operate in a geographic area that is subject to inter-service interference) in that area.

23. The Commission declines to restrict the optimization procedure from assigning TV stations to the uplink, downlink and/or duplex gap portions of the 600 MHz Band in order to carry out the clearing target objectives. The Commission is not persuaded that any of the technical issues identified by commenters justify restricting the optimization procedure to create more license impairments and/or a lower initial clearing target. Despite the lack of consensus on where to locate impairments, most commenters agree with the principles that impairments should be minimized to the greatest extent possible, and that the goal of the auction should be to repurpose as much spectrum as market forces allow. The procedure the Commission adopts is consistent with this view because it provides the fullest possible scope for implementing the primary objective of minimizing the impact of impairments on 600 MHz licenses.

24. In particular, the Commission disagrees with AT&T and Verizon that technical issues justify restricting the optimization procedure from assigning stations to the downlink portion of the 600 MHz Band. AT&T argues that the Commission underestimates the “real world” impact of placing a TV station in the downlink portion of the 600 MHz Band because the ISIX methodology only measures potential interference within 5 MHz of a channel's edge and thus does not adequately predict the effect of placing a TV station in the downlink; and because wireless user equipment (

i.e.,

mobile and portable devices) cannot prevent interference into any frequency within the same filter or “duplexer.” Duplexers are pairs of filters, one transmit and one receive, that function together to reduce the potential for interference between a transmitter and a receiver in the same piece of equipment. AT&T's criticism of the ISIX methodology is unfounded. The ISIX methodology is consistent with its rules, which do not offer interference protection beyond the first adjacent channel. Moreover, AT&T ignores the fact that wireless user equipment is capable of attenuating interfering signals at frequencies separated beyond the first adjacent channel, as required by 3GPP standards. AT&T's criticism of the ISIX methodology also is untimely. AT&T failed to seek reconsideration of the final order adopting the ISIX methodology, or to raise its criticisms of the ISIX methodology before the Commission adopted that order.

25. AT&T's filter concerns also lack merit. With regard to blocks co-channel with or first adjacent channel to an impairing TV station, its approach recognizes that filters may be ineffective in impaired areas by not requiring wireless user equipment to operate in such areas. In addition, wireless user equipment is prohibited from operating where such equipment could interfere with digital television receivers. Beyond the first adjacent channel, the signal attenuation required by 3GPP standards will limit interference regardless of duplexer performance. The likely use of two or more duplexers also makes it less likely that a TV station assigned to a portion of the downlink will render the entire downlink unusable by wireless user equipment. To the extent that an impairing TV station is located in the non-overlapping part of one duplexer, the non-affected duplexer will be able to filter out the interfering signals, a fact that even AT&T appears to concede. For example, for an 84 megahertz clearing target (encompassing blocks A-G), if a TV station is co-channel with the A block, using two duplexers (one covering blocks A-D; the other covering blocks D-G), the duplexer covering blocks D-G at the opposite end of the downlink band will be able to filter out the interfering TV signal. Consequently, wireless user equipment operating in those blocks should not experience harmful interference from the impairing TV station. Because the optimization tool will prefer TV station assignments that overlap with the guard bands where possible in order to minimize the impaired weighted-pops pursuant to the primary objective the Commission adopts herein, TV stations are more likely to be assigned to the non-overlapping part of one duplexer than to the central part of the downlink where the duplexers overlap. Furthermore, technical solutions and enhanced filter technologies can mitigate the potential for interference once the 600 MHz Band Plan is finalized following the auction. As Sprint suggests, enhanced filter technologies will make it possible to use separate filters for separate frequencies in the future, further limiting the impact of a TV station in the downlink portion of the band by the time this band is deployed. The technical details on the 600 MHz duplexers will not be contemplated by 3GPP until the band plan and potential market variations are finalized after the auction. Once they are finalized, technical solutions, such as Sprint's, can mitigate the potential for interference given the actual frequencies affected.

26. Further, the Commission cannot conclude that protecting the duplex gap from any impairment is warranted at the risk of repurposing less spectrum. Its analysis indicates the duplex gap will not be subject to any impairment in most markets even if the optimization procedure tool is not restricted in assigning impairing stations. In scenarios 1, 2, and 3, the maximum number of TV stations assigned to channels that impair the duplex gap are 6, 7, and 2, respectively. Thus the duplex gap will remain free from impairment across most of the country except for in a relatively small number of markets. Conversely, protecting the duplex gap in every market is likely to lead to the selection of a lower clearing target as a result of increased nationwide impairment levels. In simulation scenarios 1 and 2 (40-50 percent and 50-60 percent broadcaster participation in the reverse auction, respectively), protecting the duplex gap from the assignment of TV stations raises the nationwide impairment percentage beyond the standard for limiting impairment, thereby requiring the optimization procedure to drop down to a lower clearing target. Protecting the duplex gap also reduced the number of relatively unimpaired Category 1 licenses in each scenario. By reducing the amount of spectrum available to generate forward auction proceeds, protecting the duplex gap could threaten the overall success of the auction, as well as its competition goals for licensed providers in the 600 MHz

Band. The Commission notes that the Spectrum Act prioritizes license 600 MHz Band services over services operating in the guard bands. By contrast, the Commission's decision to authorize guard band use by wireless microphones and unlicensed devices was wholly within its discretion. Its policy regarding impairments will also affect broadcasters and 600 MHz licenses, wireless microphones, and unlicensed devices in this limited number of markets. In addition, in the limited number of areas where the duplex gap is subject to impairment, it may also not be available to protect against interference between licensed services. In such areas, the methodology proposed in the

ISIX Further Notice,

79 FR 76282, December 22, 2014, will be used to prevent inter-service interference, rather than the guard band. While commenters have identified a range of issues associated with assigning stations to the duplex gap, the goals of repurposing spectrum for mobile broadband use, minimizing impairments, and ensuring a successful auction militate in favor of flexibility and outweigh the potential benefits of protecting the duplex gap from any impairment.

27. The Commission also rejects arguments that impairing stations should be restricted to the same portion of the 600 MHz Band. For example, Sprint proposes that impairing TV stations should, to the extent possible, be assigned to channels side-by-side in any market in which multiple stations remain and on common frequencies. CCA proposes an alternative “channel stacking plan,” which would create a pattern for impairing station assignments specific to the 600 MHz Band Plan associated with the selected clearing target. CTIA also urges consistency in assignment of TV stations to the 600 MHz Band. The potential costs of such restrictions—reducing the optimization procedure's efficacy in minimizing impairments and risking the selection of a lower clearing target—outweigh the potential benefits that these commenters identify. The unrestricted approach the Commission adopts is consistent with the consensus for minimizing impairments and maximizing potential spectrum recovery.

28. Further, the Commission rejects Sinclair's request to impose constraints to ensure that no licensee of multiple television stations is disproportionately affected by channel assignments in the 600 MHz Band. The Commission disagrees with Sinclair's premise that stations assigned to the 600 MHz Band will be disadvantaged in comparison to stations located in the remaining TV bands. Such stations will be entitled to the same robust protections in the repacking process as all other eligible TV stations, including preservation of coverage area and population served pursuant to the constraints established in the

Incentive Auction R&O,

reimbursement for reasonable relocation costs, and protection from inter-service interference. In addition, by requiring the optimization tool to potentially forego channel assignments that minimize impaired weighted-pops in light of station ownership concerns, Sinclair's proposal would risk greater impairments to 600 MHz Band licenses and recovery of less spectrum through the incentive auction. Accordingly, the Commission concludes that the potential benefits of Sinclair's proposal are outweighed by the costs.

29. In determining a provisional TV channel assignment plan, the optimization tool will not assign impairing stations to channels 50 or 51. Many commenters caution against the assignment of stations to channel 51 due to potential interference with Lower 700 MHz A Block operations. Recognizing the existing interference concerns between television stations on channel 51 and the Lower 700 MHz A Block, the Commission took action in the

Incentive Auction R&O

to encourage early, voluntary relocation of channel 51 stations to further mitigate any potential interference. Further, its decision to create a 600 MHz Band Plan in which channels 50 and 51 would be repurposed for the 600 MHz wireless uplink band under every spectrum recovery scenario was intended to improve the interference environment for 700 MHz licensees. Unlike the 700 MHz service, which is already in operation, 600 MHz Band licensees will be able to account for potential loss in the value of their licenses as a result of impairments through the mechanism of the forward auction, and will have full prior knowledge of the areas of operation that may be affected by inter-service interference. Moreover, the proposed ISIX methodology would apply only to licenses in the 600 MHz Band and, therefore, no mechanism is available to prevent interference between impairing TV stations and the 700 MHz service. The decision to exclude both channels 50 and 51 (each totaling six megahertz) will ensure interference protection consistent with its use of technically reasonable guard bands of at least seven megahertz.

2. Additional Objectives

30. The Commission also adopts its proposal to include a secondary objective: Maximizing the weighted number of Category 1 blocks available in the forward auction. To calculate the weighted number of Category 1 blocks, the auction system sums the Category 1 blocks in each PEA, multiplies the result by the value weighted price index for the PEA, and adds those results for all PEAs. Commenters raise concerns that the impact of impairment on the value of spectrum licenses to forward auction bidders cannot be measured strictly in terms of nationwide percentages. The Commission agrees that it should strive to offer as many unimpaired licenses as possible.

31. In order to avoid any increase in impairment levels, the secondary objective will be constrained by the primary objective. Specifically, the secondary objective will be constrained by the nationwide impairment percentage determined by the primary objective, rounded up to the nearest integer. For example, if after applying the primary objective, the nationwide impairment percentage is 4.4, the procedure will maximize the weighted number of Category 1 licenses up to an impairment percentage of five. Thus, the secondary objective will function primarily as a tie-breaker in choosing a provisional TV channel assignment plan: When more than one potential plan exists with the same minimum level of impairment identified through application of the primary objective, the secondary objective will cause the optimization tool to choose the one that maximizes the weighted number of Category 1 licenses. Constraining the secondary objective in this manner is consistent with the consensus in favor of minimizing impairments and maximizing potential spectrum recovery.

32. The provisional TV channel assignment plan determined based on application of the first two objectives may include licenses that cannot be offered in the forward auction because greater than 50 percent of the population is subject to impairment. The optimization procedure will apply a tertiary objective in order to maximize their potential value in a subsequent spectrum auction. More specifically, the tertiary objective will seek to minimize impaired weighted-pops over all licenses, including licenses with greater than 50 percent of the population subject to impairment. The primary and secondary objectives will not take account of any license with greater than 50 percent impaired weighted-pops. The tertiary objective will be constrained by the first two objectives: It will be applied only to the extent that it neither increases the nationwide impairment

percentage resulting from application of the primary objective nor reduces the weighted number of Category 1 licenses resulting from application of the secondary objective. Further, it will not decrease the weighted number of Category 2 licenses existing after the application of the primary and secondary objectives. Solely for clearing targets where the lower guard band is 11 MHz, the Commission adopts a quaternary objective of minimizing the number of stations placed on the lower channel in the lower guard band to the extent it does not increase the total number of stations assigned to the 600 MHz Band or to any channel in that Band. This objective will not affect the results of the other objectives.

C. Standard To Limit Market Variation

33. The Commission adopts a scaled standard that will limit impairments to a level significantly less than the proposed 20 percent nationwide level at clearing targets above 72 megahertz, while ensuring an appropriate tradeoff between spectrum recovery and impairment level. Instead of a percentage-based standard, the standard the Commission adopts is equivalent to the weighted-pops of one paired 5+5 megahertz spectrum block nationwide, which translates into the percentages at each potential clearing target in the 600 MHz Band Plan. At clearing targets below 72 megahertz, the standard is capped at 20 percent.

34. This “one-block-equivalent” standard responds to concerns expressed by commenters that the proposed 20 percent standard would allow excessive impairment, particularly at higher clearing targets. It also responds to concerns that repurposing more spectrum may not be justified at the cost of allowing more impairment. Instead, T-Mobile argues, proportionally

less

impairment should be allowed at higher clearing targets, and more at lower clearing targets. Under the standard the Commission adopts, the percentage of impairment that is allowed is scaled to the amount of licensed spectrum that would be repurposed at each clearing target, increasing target by target from approximately eight percent at the highest clearing target to 20 percent at targets of 72 megahertz and lower. Because the impairment percentage is scaled to the amount of licensed spectrum that would be repurposed at each clearing target, the standard the Commission adopts also responds to criticisms that the proposed 20 percent standard was arbitrary and overly complex. The Commission notes that the one-block-equivalent standard is the same number of weighted-pops across all clearing targets and is based on the total nationwide 2010 census population multiplied by the index of area-specific prices from prior auctions based on the relative price of each EA and CMA license (for paired spectrum) in Auctions 66 (AWS-1), 73 (700 MHz), and 97 (AWS-3). The standard is capped at 20 percent at clearing targets below 72 megahertz because otherwise the one-block-equivalent approach would allow more impairment than the proposed 20 percent. Commenters raise concerns that these impairment levels are still too high overall. Even if that proves true in a given stage, however, the auction design includes a self-correcting mechanism: If the blocks offered in a stage are insufficiently valuable to produce the forward auction revenues necessary to meet the final stage rule, the auction would transition to a new stage with a lower clearing target and a lower level of aggregate impairment. Thus, the auction system relies on market forces to determine whether blocks offered in the forward auction are too impaired, even within the limits the Commission adopts. This market-based approach avoids unduly constraining the flexibility to set reasonable clearing targets that reflect the level of broadcaster participation.

35. The standard the Commission adopts also accounts for the tradeoff between the benefits of repurposing spectrum and the costs of allowing impairments at different clearing targets. For example, a 126 megahertz clearing target would repurpose 100 megahertz of licensed spectrum, or 10 paired blocks, so the impairment limit at that clearing target is the nationwide equivalent of one of the ten blocks. If aggregate impairments equal or exceed the equivalent of the population of one spectrum block nationwide at that target, the optimization procedure will move to the next lower clearing target. An 84 megahertz clearing target would repurpose 70 megahertz of licensed spectrum, or seven paired blocks, so the standard will tolerate a higher proportion of impairment—up to the equivalent of one out of seven blocks nationwide, or approximately 14 percent—but the optimization procedure likewise will move to the next lower clearing target if aggregate impairments equal or exceed that amount. Thus, the standard has the effect of moving to a lower clearing target with one less spectrum block to offer if impairments equal or exceed the equivalent of one block nationwide. The standard tolerates a higher proportion of impairment at lower clearing targets because the tradeoff is different: The record reflects that more flexibility to accommodate market variation is appropriate at lower clearing targets in order to ensure the auction's overall success. While commenters agree that minimizing impairments should be a high priority, many commenters also urge the Commission to balance this goal against the goal of ensuring that sufficient spectrum is made available in the forward auction. The Commission agrees with T-Mobile that at higher clearing targets the balance favors achieving greater uniformity across the band plan (by tolerating a lower percentage of impairment) and at lower clearing targets the balance favors repurposing spectrum by tolerating a greater percentage of impairment.

36. The Commission emphasized that the population in most PEAs will not be subject to any impairment under the standard it adopts, which will be applied on a nationwide, aggregate basis. In fact, the Commission expects that the vast majority of PEAs will have no impaired blocks, although there may be some PEAs with more than one impaired block. For example, in the

Clearing Target Simulations Public Notice

(

CTS PN

)

, 80 FR 30021, May 26, 2015,

the simulation resulting in the 84 megahertz initial clearing target shows that in 406 PEAs, all but 62 have only Category 1 licenses. The same is true for all but 53 in the 114 megahertz scenario and all but 47 in the 126 megahertz scenario. In its analysis, AT&T similarly found that in an 84 megahertz initial clearing target all but 64 PEAs will have only Category 1 licenses. AT&T acknowledges that its results “align closely with the published FCC results for the top 20 markets” and that differences may be attributed to the power and geography differences of stations assigned to the 600 MHz Band. Staff simulations project that at a range of clearing targets, the overwhelming majority of spectrum blocks would be unimpaired or nearly unimpaired. In each of the simulations in the

CTS PN,

at least 93.4 percent of licenses are Category 1 licenses, and Category 2 licenses comprise at most 1.3 percent of total possible licenses.

37. To promote transparency and provide information about the potential results of the clearing target determination procedure, Commission staff released a public notice in May 2015 showing the results of simulations of the procedure based on certain assumptions regarding broadcaster participation levels and impairments along the borders. These simulations project that the procedure, including the “one-block-equivalent” standard, would

result in the selection of a high initial clearing target with the vast majority of licenses available in Category 1. The Commission notes that for purposes of the

CTS PN

impairment analysis, the total number of licenses analyzed at each clearing target level included only those licenses that could be offered in the continental United States (

i.e.,

in 406 out of the 416 PEAs). When calculating impairments for the incentive auction, the procedure will include all 416 PEAs. In particular, these simulations result in an initial clearing target of 84 megahertz assuming 40 to 50 percent of broadcasters participate in the reverse auction (Scenario 1); an initial clearing target of 114 megahertz assuming 50 to 60 percent participate (Scenario 2); and an initial clearing target of 126 megahertz assuming 60 to 70 percent participate (Scenario 3). In Scenario 1, of the 2842 possible licenses, only 46 are Category 2 licenses. In Scenario 2, of the 3654 possible licenses, only 50 are Category 2 licenses. And in Scenario 3, of the 4060 possible licenses, only 48 are Category 2 licenses. In all three scenarios, 88 to 93 percent of the licenses in the high-demand markets (

i.e.,

PEAs 1-40) are Category 1 licenses and 84 to 88 percent of PEAs contain

only

Category 1 licenses. Under Scenario 1, of the 2654 Category 1 licenses, 2535 are entirely free of impairments (

i.e.,

zero percent of the weighted-pops in the PEA are impaired). In Scenario 2, of the 3469 Category 1 licenses, 3334 are entirely free of impairments; and in Scenario 3, of the 3886 Category 1 licenses, 3753 are entirely free of impairments.

38. While commenters generally support the release of the simulations to provide greater transparency, some question the staff's assumptions, request release of all of the underlying data or request additional simulations based on different assumptions. The Commission concluded that additional simulations are not necessary. On July 10, 2015 the Incentive Auction Task Force provided additional data for each of the six scenarios released in the CTS PN, including the assumptions regarding broadcaster participation, the specific DMAs with impairing TV stations and with stations in the duplex gap, and the channel to which each impairing station was assigned. The

CTS PN

provided information regarding a range of illustrative participation scenarios and clearing targets that afforded the public ample opportunity to understand and comment on the clearing target determination procedure that the Commission adopts, which procedure is identical to the one used in the

CTS PN.

The Commission also declines to release all of the data underlying the simulations: The

CTS PN

identified the critical information necessary to evaluate its clearing target determination procedure, and it is persuaded that the release of more data is warranted. With regard to broadcaster participation, rather than attempt to predict whether thousands of individual stations will choose to participate based on subjective factors, for purposes of the simulations certain categories of stations were assumed not to participate based on objective factors (

e.g.,

major network affiliates, the major PBS station in an area, etc.). Because the simulations require some assumptions regarding participation, it was reasonable to base those assumptions on such objective factors rather than merely a randomized array of stations. In any event, the purpose of the scenarios described in the

CTS PN

was to test the results of the clearing target determination procedure against a range of potential broadcast stations in the reverse auction.

39. With regard to impairments along the borders, some commenters question why the simulations did not include assumptions based on information about interference from Mexican television stations that AT&T has placed in the record of this proceeding. Reliable information about potential interference from Mexican TV stations is not publicly available at present, and AT&T's filing does not reflect Mexico's plans to change its television service in the near future. Instead, Commission staff chose to use the information reflecting current treaty agreements with Mexico—that is, to protect all Mexican allotments—but not to consider interference from Mexican stations into the U.S. Thus, the only potential impairments excluded from the simulations are areas in which 600 MHz licensees could operate but might experience interference from Mexican TV stations that may or may not exist. While that approach may under-predict such interference to a limited extent, the Commission cannot conclude that it was unreasonable. The Commission assures forward auction bidders that this information will be made available before the forward auction to allow bidders to evaluate all types of potential impairments caused by international TV stations, in addition to domestic ones. The Commission also does not want to over-predict Mexican interference into the U.S. given Mexico's suggestions that it will try to keep all radio and television broadcast below channel 37. The Commission notes that the Instituto Federal de Telecomunicaciones (IFT) and the FCC are working on a joint repurposing of the 600 MHz Band that places Mexican TV stations below channel 37 while providing additional channels for U.S. stations to use in the reorganized TV band.

40. The Commission rejects arguments by AT&T, Verizon, and others for a standard that allows no impairment except in border areas. In its May 1, 2015

Ex Parte Letter,

AT&T acknowledges that “an approach that permits the Commission absolutely no flexibility” except in border areas “is probably too stringent” and instead suggests allowing up to three percent impairment outside border areas plus eight to nine percent in border areas. The resulting 11-12 percent standard is similar to the standard the Commission adopts at a number of clearing targets and indeed, more stringent than what it adopts for higher clearing targets. Subsequently, in its July 1, 2015

Ex Parte Letter,

AT&T proposed that the Commission allow impairments at the border, without a set maximum percentage, and a three percent on non-border-related impairments. Such an approach would not provide the flexibility that is necessary to account for the unique challenges the incentive auction presents. Market variation may be caused by a variety of factors, including varying levels of spectrum congestion and broadcaster participation in different areas, as well as border-related constraints. Although AT&T argues that 84 megahertz or more of spectrum could be repurposed under an approach allowing for impairments only in border markets, its analysis relies on optimistic assumptions about reverse auction participation by broadcasters. The Commission fully expects high levels of participation by broadcasters; indeed, achieving such participation is a chief goal of its decision. At the same time, the purpose of the nationwide aggregate approach the Commission adopts is to provide flexibility in the event of non-participation by broadcasters in certain areas or other factors that it cannot fully predict in advance.

41. The Commission also rejects EOBC's proposal to base the selection of an initial clearing target on the degree of impairment in Los Angeles or New York in the interest of simplicity. Like AT&T's proposal, EOBC's simply does not provide sufficient flexibility to accommodate market variation. Indeed, depending on levels of broadcaster participation, EOBC's approach could defeat the purpose of its decision to accommodate market variation in the first place by constraining the choice of

an initial clearing target to the two markets with the most highly congested broadcast spectrum in the nation. Further, EOBC's simulations showing that the Commission can reallocate at least 126 MHz in New York and Los Angeles are simply not possible. Even under the most optimistic assumptions regarding broadcaster participation, the simulations analyzed in the Clearing Target Simulations PN, did not result in 10 unimpaired pairs in both New York and Los Angeles. EOBC's approach also would sacrifice the precision of the optimization-based approach the Commission adopts, focusing exclusively on two important markets, but which are not necessarily proxies for the rest of the nation. Accordingly, the Commission concludes that EOBC's approach would risk its goal of allowing market forces to determine the highest and best use of spectrum. For example, in Scenario 1 of the simulations run for the

CTS PN,

the initial clearing target would have to be lowered from 84 megahertz to 78 megahertz because there are only six unimpaired blocks available in the New York PEA. For the same reason, the Commission also rejects AT&T's proposal to allow for only three percent of the population nationwide to be affected by non-border related impairments. Given that the top two PEAs each comprise well over three percent of the U.S. population and the next two PEAs each comprise approximately three percent, to adopts EOBC's or AT&T's approach would also undermine the purpose of adopting market variation in the first place: To prevent the lack of spectrum in one or two markets from lowering the clearing target. EOBC's and AT&T's approaches also fail to reflect that different tradeoffs are appropriate between spectrum recovery and impairment level at different clearing target levels in order to ensure the auction's overall success.

42. Finally, the Commission declines to establish a separate standard to limit impairment levels in major markets. The procedure the Commission adopts protects major markets from impairment by weighting the population in such markets more heavily. The Commission rejects arguments that the procedure it adopts might disproportionately impair top markets. These commenters express concern that the optimization procedure will impair top markets to allow for fewer impaired markets nationwide. On the contrary, the procedure will seek to avoid impairing high-demand markets due to the added cost of such impairments in the mathematical optimization. The one-block-equivalent standard strictly limits impairment levels on a nationwide, aggregate basis. Accordingly, and based on staff simulations reflecting the number of Category 1 licenses that the Commission projects would be available in major markets under the procedure it adopts, the Commission is not persuaded that a separate standard to limit impairment levels in major markets is necessary, particularly at the cost of added complexity and less flexibility in accommodating market variation.

IV. Qualifying To Bid

A. Qualifying To Bid in the Reverse Auction

43. In order to qualify to bid in the clock phase of Auction 1001, the reverse auction, an eligible broadcast television licensee interested in voluntarily relinquishing spectrum usage rights in exchange for an incentive payment must submit an application in which it identifies, for each station that it wishes to enter in the clock phase of the reverse auction, every relinquishment option for which it would consider bidding for that station. If the broadcaster's application is timely filed and deemed complete, it must then commit to at least one relinquishment option per station at the opening price for that option for that station. Administrative details regarding the application and initial bid commitment procedures, including the application deadline, will be addressed in the

Application Procedures PN.

The Commission adopts its proposal with respect to an additional certification by applicants in the reverse auction regarding their exercise of due diligence. In the

Auction 1000 Comment PN,

the Commission sought comment on requiring all applicants in the reverse auction to certify to the truth of the following statement: “The applicant acknowledges and agrees that any information provided by the Commission's outside contractors who are advising and assisting it with education and outreach in connection with the reverse auction is for informational purposes only and that neither the Commission nor any of its outside contractors makes any representations or warranties with respect to any such information and shall have no liability to the applicant in connection therewith.” The Commission noted that this certification will help assure that each applicant accepts responsibility for its bids and will not attempt to place responsibility for its bids on either the Commission or the information provided by third parties as part of its outreach. The Commission received no comments in response. The additional certification serves the intended purpose and the Commission therefore will require all applicants in the reverse auction to make the certification. The Commission describes the available bid options, adopts procedures for setting the opening prices, and adopts the process by which applicants that are willing to accept the opening price for one or more relinquishment options will commit to that option and a fallback option(s), if they so choose, in order to become qualified to bid in the clock phase of the reverse auction.

1. Options for Relinquishing Spectrum Usage Rights

44. Reverse auction applicants will be able to select from three possible bid options to relinquish their spectrum usage rights on their auction applications. An applicant's ability to select options on its application will be limited by its pre-auction band and the hierarchy of relinquishment options. These options correspond to the bid options that will be available to bidders in the clock phase of the reverse auction. The three bid options are a bid to go off-air (available to all stations), a bid to move to a Low-VHF channel (available to UHF or High-VHF stations), and a bid to move to a High-VHF channel (available only to UHF stations). A participant that intends to share a channel with another station post-auction will bid to go off-air. The auction system will treat the intention to relinquish spectrum usage rights in order to channel share the same as a bid to go off-air because “from the perspective of the auction system, a channel sharing bid is identical to a license relinquishment bid.” No parties filed comments directly addressing the proposed bid types. The Commission concludes that offering these three bid options is appropriate to implement the relinquishment options that the Commission adopted in the

Incentive Auction R&O

and is consistent with its goal of making reverse auction participation straightforward for broadcasters.

45.

Option Hierarchy.

The auction system will treat the three possible bid options as a one-way hierarchy during the clock phase of reverse auction bidding. The hierarchy reflects the relative value of the relinquishment options to the auction system's ability to recover spectrum and simplifies the bidding process. Of greatest value in the hierarchy is a bid to go off-air, which is a bid to relinquish all spectrum usage rights to a particular channel. This option is followed in order of value by a bid to move to the Low-VHF band, then a bid to move to the High-VHF

band. For each station, the final option in the hierarchy is always to exit the auction in order to remain on the air in its pre-auction band. The option to which a bidder is designated pursuant to its initial commitment will represent the most spectrum rights it will be able to bid to relinquish in the auction. If the bidder subsequently decides to switch its bid option in accordance with the reverse auction bidding procedures, the only bid option(s) available to the bidder will be options that relinquish less spectrum usage rights. The one-directional nature of the bid options is important for bidders to consider when filling out their auction applications and committing to an initial relinquishment option.

46. Some broadcasters support the one-way option hierarchy because it will “facilitate the orderly conduct of the reverse auction,” while others advocate for flexibility to switch between bid options without restriction. Contrary to concerns that its design will discourage participation or complicate decision-making, the Commission concludes that limiting the direction in which bidders may switch bid options—from greater to lesser relinquishments—will make bidding easier because it will establish a simple framework for evaluating options and will improve price predictability. A bidder that wishes to preserve flexibility to bid for all the options may do so by selecting all of its options on its auction application and committing to go-off-air as its preferred initial relinquishment option. Furthermore, allowing bidders to “move freely between any relinquishment options” as Joint Broadcasters suggest would create a significant risk of harmful strategic bidding. Allowing bidders to switch bids unrestricted by the hierarchy would create opportunities for them to manipulate prices in the auction by moving back and forth between off-air and VHF options. Creating such strategic opportunities would actually make bidding more complicated for broadcasters because they would have to consider a broader range of strategies prior to and during the bidding.

47. Joint Broadcasters posit that the one-way hierarchy will create inefficiencies since a bidder might be willing to bid to go off-air once the price to move to VHF falls too low, but such a bidder would be precluded from doing so by the one-way-hierarchy. The Commission disagrees. The one-way hierarchy, together with the reverse auction bid processing system the Commission adopts, will provide for a more efficient repacking than if broadcasters were able to shift among the options without restriction. Based on the available vacancy in the VHF band, the reverse auction bid processing system will reduce the price differential between the off-air and VHF prices, in order to encourage bidders that can be accommodated in the VHF band to bid to move to VHF rather than to go off-air. Substantial movement back and forth between options could reduce the overall efficiency of repacking in the VHF bands. Additionally, bidders that move to VHF are unlikely to want to switch to off-air bids, as Joint Broadcasters posit, because generally the price to go off-air will decline more rapidly than the price to move to High- or Low-VHF. Accordingly, the Commission is unconvinced that the one-way hierarchy design will unduly restrict bidders. The benefits of the one-way hierarchy in terms of added simplicity, preventing harmful strategic bidding, and repacking efficiency outweigh any costs in terms of lost bidder flexibility.

2. Opening Price Offers

48. The Commission adopts its proposal for calculating opening price offers for each station using two factors: (i) A base clock price of $900, which represents the full per-unit of volume value to the auction of clearing a channel in the UHF band; and (ii) a station-specific “volume” factor that equally weights a station's interference-free population and the number of constraints that it imposes on the auction system's ability to repack other stations. The Commission will calculate opening price offers for UHF stations to go off-air by multiplying the base clock price of $900 by their station-specific volumes. Opening price offers for bid options other than a UHF station bidding for off-air relinquishment will be calculated by multiplying fractional portions of the nationwide uniform $900 base clock price by a station's volume. The Commission will publicly announce opening price offers for each bid option available to each station eligible to participate in the reverse auction at least 60 days in advance of the deadline to file an application to participate in the reverse auction.

a. Base Clock Price and VHF Clock Prices

49. The Commission adopts a slightly modified version of its proposal to set a nationwide uniform base clock price, representing the full per-volume value to the auction of clearing a channel in the UHF band, from which it will calculate the opening clock prices for each bid option for stations in each band. The Commission will set the base clock price at $900 per unit of volume so that the maximum opening price offer to any particular station is $900 million. The Commission will calculate a volume for each eligible station based on its interference and population characteristics. The Commission will then re-scale this volume calculation so that the highest volume for a UHF station is one million, in order to yield the maximum opening price for a UHF station to go off-air of $900 million. If any VHF stations have a higher calculated volume than the highest volume UHF station, such stations may have their volume re-scaled to greater than one million. However, because the opening clock prices for VHF stations are calculated as fractional portions of the base clock price, the Commission expects that the opening price offers for VHF stations will always be lower than $900 million. By scaling based upon the highest volume UHF station, the Commission can ensure that one station will be offered an opening price of exactly $900 million. Although the Commission proposed to scale the volume of other stations based on the highest volume station, regardless of its pre-auction band, the Commission concludes that using the highest volume UHF station is more appropriate because that station's off-air price will reflect the greatest value to the auction.

50. The Commission concludes that a $900 base clock price strikes the correct balance between attracting robust broadcaster participation across multiple markets and conducting an efficient—and ultimately, successful—auction. The Commission disagrees with broadcasters who argue that the base clock price should be increased to reflect the results of Auction 97 (AWS-3). Raising the base clock price would, according to these commenters, motivate greater broadcaster participation because stations would be offered higher opening prices, and this increased participation would ultimately result in more cleared spectrum. There is no basis to believe, beyond broadcasters' assertions, that opening prices of up to $900 million will be insufficient to encourage reverse auction participation. On the other hand, increasing the base clock price as suggested would raise the cost of repurposing spectrum and likely reduce the amount of repurposed spectrum. Increasing the base clock price would raise clearing costs for a given clearing target, increasing the likelihood of not meeting the final stage rule, necessitating additional stages at lower spectrum clearing targets. These risks would be compounded by the absence

of a dynamic reserve pricing (DRP) mechanism, because the auction system will not have a mechanism to mitigate the risk that a station will receive its opening price. Thus, increasing the opening prices in actuality would likely result in fewer stations having the opportunity to become winners in the auction. In addition, increasing the base clock price would risk increasing the length of the auction, making participation more difficult and costly for both forward and reverse auction bidders. Accordingly, the Commission adopts the $900 base clock price to ensure robust broadcaster participation without undermining its other auction goals.

51. While opening price offers for a UHF station to go off-air will always equal the base clock price multiplied by the station's volume, opening price offers for other bid options—for a UHF station to move to VHF or for VHF stations to move to a lower band or to go off-air—will equal the station's volume multiplied by a portion of the base clock price. Because the value to the auction of a cleared channel in the UHF band is the same whether a UHF station relinquishes its spectrum by going off-air or the channel is cleared through a series of intermediate moves involving VHF bids, the Commission will calculate the per-volume opening prices for intermediate moves to add up to the per-volume opening price for a UHF station to go off-air. Thus, the per-volume opening prices for a UHF station to move to High-VHF, a High-VHF station to move to Low-VHF, and a Low-VHF station to go off-air will add up to equal the base clock price, since these three moves are equivalent to a UHF station going off-air in terms of value to the auction. Likewise, the per-volume opening prices for other intermediate moves will add to the opening price for an equivalent direct move. Thus, in per-volume terms, the opening price offer for a direct move from High-VHF to off-air will equal the sum of the opening price for a move from High-VHF to Low-VHF and the opening price for a move from Low-VHF to off-air. During the clock rounds, however, the portion of the base clock price attributable to each intermediate move will vary from round-to-round, since price offers to stations during the clock rounds will also depend upon the availability of channels in the VHF bands in the station's area. For example, while the per-volume opening price for a High-VHF station to go off-air will be 40 percent of the opening base clock price, this percentage will vary in subsequent clock rounds depending upon congestion in the VHF bands.

52. More specifically, the Commission will apportion the base clock price for a station to move from the UHF band to off-air among the equivalent series of intermediate moves using the midpoint of the ranges the Commission proposed in the

Auction 1000 Comment PN.

The per-volume opening price for a UHF station to move to Low-VHF will be 75 percent of the base clock price (or $675), and the per-volume opening price to move from UHF to High-VHF will be 40 percent of the base clock price (or $360). The ranges that the Commission proposed represent the relative value of each band and its related relinquishment options to the auction, and reflect the scarcity of channels and different technical characteristics of each VHF band. In response to commenters that urge the Commission to increase the opening prices for VHF options, it is persuaded that it should not choose opening prices at the bottom of the proposed ranges in order to avoid discouraging broadcasters from choosing these options. At the same time, choosing opening prices at the top of the ranges proposed would run the risk of under-incentivizing the option to go off-air or to consider channel sharing. The Commission concludes that the values it choose strike the right balance between conducting an efficient auction and encouraging bidders to consider all bid options, include the VHF options.

53. Because the opening price for a UHF station to move to Low-VHF will be 75 percent of the base clock price, the opening price for a move from Low-VHF to off-air must be 25 percent of the base clock price for these two intermediate moves to add up to the base clock price (

i.e.,

100 percent). Similarly, because the opening price for a UHF station to move to High-VHF will be 40 percent of the base clock price, the opening price for a move from High-VHF to off-air must be 60 percent of the base clock price. Lastly, since the opening price for a UHF station to move to High-VHF is 40 percent and for a Low-VHF station to go off-air is 25 percent, the opening price for a move from High-VHF to Low-VHF must be 35 percent of the base clock for these intermediate moves to sum and equal the base clock price. Given a per-volume opening base clock price of $900, the per-volume opening price for a Low-VHF station to go off-air will therefore be $225 (25 percent of $900), for a High-VHF station to go off-air will be $540 (60 percent of $900), and for a High-VHF station to move to Low-VHF will be $315 (35 percent of $900).

54. Several broadcasters oppose offering opening prices for the bid options to move to VHF that are lower than the bid option to go off-air. As an initial matter, the Commission rejects NAB's unsupported claim that it lack the statutory authority under the Spectrum Act to offer different prices for VHF options. Although the statute does not expressly authorize different price offers for VHF options, it does not follow that the Commission lacks authority to offer different prices: Such authority is inherent in its mandate to conduct a reverse auction—which requires establishing opening price offers—and nothing in the Spectrum Act's statutory language, context, or legislative history suggests that in doing so the Commission cannot distinguish between relinquishment options. The Commission also rejects PBS's argument that discounting UHF to VHF bid options “is inconsistent with the basic purpose of the auction” to discover prices through market-based means. Setting opening price offers for bid options that are proportional to the value of the relinquishment to the auction will send the appropriate price signals to bidders regarding the relative value of the options to the auction system and encourage bidders to initially commit to go off-air, recognizing that as price offers are reduced, they may request to switch to one of the VHF options. Moreover, price offers for VHF options and VHF stations in subsequent rounds will be determined by the actual demand for VHF options and the availability of channels in the VHF bands. As a result, the relative values for the various bid options will not remain fixed at the opening bid offer amounts, and the ultimate prices paid to winning bidders will reflect market demand for the options in the auction.

55. The Commission disagrees with NAB and the Joint Broadcasters that the auction system should be indifferent between the relinquishment options available to UHF stations because each option will result in clearing a channel in the UHF band. In order to clear a UHF channel by paying a UHF station to move to the VHF band, the auction system may first have to pay one or more stations to relinquish spectrum usage rights in the VHF band. A bid to go off-air also is of greater value than a bid to change bands because it provides the auction system with more repacking flexibility: Accepting an off-air bid by a UHF station clears a UHF channel without first requiring the system to find a feasible channel in another band. Conversely, a UHF station that agrees to

move to one of the VHF bands is less valuable because it must be assigned a feasible channel in that band, limiting the auction's ability to assign another station to VHF, and significantly increasing the complexity of the repacking process. A station that agrees to move to Low-VHF is of greater value to the auction than one that agrees to move to High-VHF due to the greater availability of channels in the Low-VHF band and the greater number of stations for which that bid option will be available, both of which make repacking easier. Consequently, of least value to the auction is a station that agrees to move to High-VHF, since in many markets few channels are available, and only UHF stations may bid on this option.

56. The Commission also disagrees with NAB that offering the same price for all three bid options would better serve the public interest by encouraging stations to move to the VHF band and continue to provide broadcast television service. NAB's premise is flawed, because a UHF station moving to VHF may necessitate a VHF station going off-air first. In any event, in keeping with its goal of allowing market forces to determine the use of spectrum, the public interest will be best served by pricing bid options according to their value to the auction and the repacking process, rather than based on separate broadcast-related policy goals. The Commission also rejects PBS's suggestion that if the Commission discounts price offers for VHF options, it should provide a bidding credit for noncommercial educational (NCE) stations that successfully bid to move to VHF in order to help pay for their relocation expenses. Unlike in the traditional auction context, where bidding credits are intended to help small or disadvantaged businesses that may lack the financial resources to effectively compete for licenses with larger ones, winning bidders in the reverse auction will receive—and not make—payments, and can factor their relocation expenses into their consideration of whether to accept a price offer.

57. The Commission disagrees with the Joint Broadcasters that its opening price offers for VHF bid options will fail to account for the “substantial technical inferiority of VHF channels” and to “provide the proper incentives for broadcasters to accept these limitations.” Contrary to Joint Broadcasters' argument, its approach does provide an incentive to accept the less favorable propagation characteristics and other technical properties of VHF channels—this is precisely the point of offering higher opening prices to UHF stations to move to Low-VHF than to move to High-VHF. Nor are the Commission persuaded that requiring stations moving to VHF to pay relocation expenses will “greatly reduc[e] the desirability of a UHF-to-VHF move.” Bidders can—and, the Commission expects, will—factor their relocation expenses into their consideration of whether to accept a price offer. The value inherent in a station retaining the exclusive right to use a full six megahertz channel will encourage stations to seriously consider bidding for VHF options.

58. The Commission also disagrees with the Joint Broadcasters' argument that offering lower opening prices for VHF options will hinder the efficient use of spectrum by encouraging channel sharing over moving to VHF, thereby reducing its flexibility to repurpose additional UHF spectrum in the future. First, the Spectrum Act authorizes only one broadcast television spectrum incentive auction. Its goal, therefore, is to ensure the success of this auction. Second, contrary to the Joint Broadcasters' assumption, the two options are not mutually exclusive: Two UHF stations may agree to share a channel in VHF (with one agreeing to go off-air, and the other bidding to move to a VHF channel which both stations would share) in order to receive greater compensation than if only one station participated in the auction.

b. Station-Specific Volume

59. The auction system will calculate each participating station's volume using the following formula: Station Volume = (Interference)0.5 * (Population)0.5. The Commission will set the interference component to equal the number of co- and adjacent channel constraints a station would impose on repacking on a pairwise basis, and the population component to equal the number of people residing within the station's interference-free service area. The Commission's approach to setting the interference component along the borders will be subject to the agreements it reaches with Canada and Mexico. For instance, it may be necessary to adjust the interference component for the purpose of determining station-specific volume. Considering population will “enable[e] the Commission to clear more spectrum in markets where the forward auction value of relinquished spectrum usage rights is apt to be higher,” and it concludes that a volume formula that equally balances interference and population components will best achieve the goals of the incentive auction. Once the auction system has calculated a station's volume, its volume metric will be fixed throughout the auction. While AT&T encourages the Commission to consider a dynamic volume adjustment based upon the provisional assignment of stations to channels, the Commission finds that the approach it adopts for calculating price reductions will capture similar efficiencies with less complexity.

60. The Commission rejects arguments by EOBC and other broadcasters against considering population when calculating each station's volume metric. As an initial matter, EOBC's argument that considering population is inconsistent with the policies the Commission adopted in the

Incentive Auction R&O

is without merit. The Commission expressly stated in the

Incentive Auction R&O

that the factors to be used in setting prices could “include the number of stations that a station would interfere with and block from being assigned channels, the population the station covers, or a combination of such factors.” EOBC points out that the

Incentive Auction R&O

“explained that a station's price would account for objective factors `that affect the availability of channels in the repacking process and, therefore, the value of a station's bid to voluntarily relinquish spectrum usage rights.' ” The Commission's volume formula is wholly consistent with this explanation. Likewise, its formula is consistent with its statement that “a station with a high potential for interference will be offered a price that is higher than a station with less potential for interference to other stations”: Between two otherwise identical stations, the one with more interference constraints will have a greater volume, and thus higher opening price offers. The Commission did not state that stations with more interference constraints would receive higher offers than those with fewer interference constraints regardless of other factors. Contrary to EOBC's argument that population has nothing to do with a station's impact on the repacking process, “population served [is] one of the major constraints on the availability of channels in the repacking process” in light of the Spectrum Act's mandate that during the repacking process the Commission make all reasonable efforts to preserve the population served of eligible stations that will remain on the air.

61. Moreover, considering population alongside interference will allow the auction system to clear more spectrum in markets where the value to the forward auction is likely to be highest.

The purely interference-based approach advocated by EOBC and other broadcasters would result in larger payments to stations that serve small populations and smaller payments to stations that serve particularly large populations—an outcome at odds with both the typical metric by which spectrum is valued in spectrum auctions (

i.e.,

MHz-pops) and with stations'

own assessments:

As WRNN points out, “[p]opulation is one of the most, if not the most, important elements by which the Commission and other broadcasters value its properties, and distinguish its stations from others. This is critical for the repacking process because participation of many stations with high population counts, especially in the major cities, is essential to meet larger clearing targets.” The Commission notes that high participation levels by stations that serve small populations in markets adjacent to high-demand markets will not make up for low participation levels by stations in high-demand markets that serve large populations. Participation by both types of stations is required in order to allow the auction to repurpose a significant amount of spectrum. While the Commission affirms its determination in the

Incentive Auction R&O

not to set bid prices based upon a station's enterprise value, population is nevertheless an important metric for assessing

spectrum

value. Ignoring this metric would send the wrong price signals and discourage participation by large stations in major markets, thereby harming its ability to clear spectrum in such markets. For example, in certain border markets, a small Class A station may serve only a small population but there may also be few channels available for repacking stations. In such markets, the value of clearing and selling this spectrum in the forward auction may likewise be low. Ignoring or reducing the weight of population, as proposed by EOBC, could potentially result in the Class A station being offered an opening price significantly higher than a full power station in a major market that serves many more people, regardless of the price at which each station values itself. Furthermore, the value of clearing and selling the spectrum in the forward auction in the larger market is likely to be much higher. Using the balanced volume formula that the Commission adopts will help to avoid these results and will result in higher price offers to stations in markets where the spectrum is particularly valuable. The Commission need not resolve EOBC's argument that it is not required to consider the statutory goals of recovering a portion of the spectrum value for the public and avoiding unjust enrichment in the context of the reverse auction because these statutory provisions apply only to auctions of licenses. Even if EOBC were correct, nothing in the statute precludes the Commission from considering these goals in designing the reverse auction, and the Commission concludes that doing so will serve the public interest. The Commission also rejects Local Media TV's proposal to calculate volume based entirely upon the pairwise interference constraint files.

62. The Commission also disagrees with arguments that, if it retains a population component, it should reduce its weight in its volume formula. In particular, EOBC proposes a formula that would reduce the weight of the population component from 0.5 to 0.25, raising opening prices for almost all stations and de-emphasizing the impact of population in price offers. The Commission is not persuaded by the supposed benefits of this unbalanced weighting. The Commission rejects broadcasters' assertions that it more closely reflects the pricing policy the Commission adopted in the

Incentive Auction R&O,

for much the same reason it rejected EOBC's consistency argument. The Commission has no reason to think, and broadcasters have not established, that its opening price methodology results in prices that are too low to attract robust participation. However, raising opening prices would raise the costs of repurposing spectrum, increase the likelihood of repurposing less spectrum, and could even jeopardize the success of the auction. Absent Dynamic Reserve Prices (DRP), the Commission no longer has any mechanism to reduce prices in markets that are particularly constrained (due to the impact of Canadian or Mexican stations, or non-participants), further increasing opening prices would decrease the likelihood of a successful auction. Reducing the weighting of population would also likely increase clearing costs significantly for the same amount of cleared spectrum, which could drive the auction to lower clearing targets because forward auction revenue is insufficient to close the auction in a given stage. On the other hand, using a balanced weighting where the sum of the exponents equals one will result in appropriate price signals for all stations: If a broadcast station has twice the number of constraints and twice the population of another, under its approach its opening prices will be twice as much. Furthermore, a square-root weighted volume score (

i.e.,

using an exponent of 0.5) can improve the efficiency of algorithms similar to its pricing and bid processing algorithm.

63. EOBC additionally argues that reducing the weight of population would be in the public interest because it would result in less loss in broadcast service, since smaller stations would more often become winning bidders. In keeping with its goal of allowing market forces to determine the highest and best use of spectrum, the public interest will be best served by setting prices according to each station's value to the auction and the repacking process. While encouraging stations that serve smaller populations to go off-air might result in loss of service for fewer over-the-air viewers, it would do so at the risk of discouraging large stations in high-demand markets from participating in the auction. In order to fulfill the goals of the Spectrum Act, it is appropriate to set price signals that encourage broadcasters to relinquish their spectrum usage rights in the reverse auction, not to discourage certain stations from participating so that they will remain on the air. The Commission concludes, therefore, that considering population and interference, in an equal, balanced weighting, will best achieve the goals of the incentive auction.

3. Committing to an Initial Relinquishment Option

64. As the second condition for qualifying to bid in the clock phase of the reverse auction, an applicant that has submitted a timely and complete application must commit to a preferred relinquishment option for each station that it intends to bid for in the reverse auction, and under the circumstances, it may commit to additional “fallback” options. An applicant will be able to commit only to relinquishment option(s) that it identified for a particular station when initially submitting its auction application. If an applicant did not identify a particular relinquishment option on its auction application, that option will not be available to the applicant when it logs in to the FCC software to commit to an initial relinquishment option for that station. The commitment(s) will constitute an irrevocable offer by the applicant to relinquish the relevant spectrum usage rights in exchange for the opening price offer for that bid option. A commitment to a fallback relinquishment option is treated as a binding commitment in the alternative to the preferred option. An applicant need only commit to a fallback option in the event that its preferred option is to move either to the Low- or High-VHF band. Therefore, the auction will

commence with the submission of initial bid commitments. An applicant that fails to commit to an initial relinquishment option for a given station by the applicable deadline will not be qualified to bid in the clock phase of the auction for that station.

65. As part of determining an initial clearing target, the auction system will assign or designate each station to a relinquishment option consistent with its initial bid commitment in order of the priority rules proposed in the

Auction 1000 Comment PN

(proposing the following priority order: (1) Minimize the number of participating UHF stations that must be repacked in their pre-auction band; (2) minimize the number of participating VHF stations that must be repacked in their pre-auction band; (3) maximize the number of participating stations that will commence bidding on their preferred option; (4) maximize the number of participating stations that will commence bidding on their alternative bid option to go off-air; and (5) minimize the sum of impaired weighted-pops across all licenses), modified by the additional priority rules the Commission adopts to take account of the secondary and tertiary objectives in the initial clearing target determination procedure. The technical details of the modification to take account of the additional clearing target objectives will be released in an appendix to the

Application Procedures PN.

That relinquishment option will be the starting point for each station to bid in the clock phase of the reverse auction. Due to the limited availability of VHF channels and the technical constraints on repacking, the auction system may not be able to accommodate every station that commits to move to the Low- or High-VHF band. The auction system can always accommodate going off-air as a preferred option because going off-air does not require finding a feasible channel assignment. In order to increase the likelihood that stations will be able to participate in the auction, the Commission established procedures to allow applicants that commit to move to VHF as their preferred option to also commit to a fallback option(s) if they so choose. Applicants that commit to a preferred option may decline to commit to fallback options. In order to qualify to bid in the clock phase of the reverse auction, an applicant that identified only one relinquishment option on its auction application must still affirmatively commit to that option as its preferred option—it will not have any fallback options available to it. The auction system will attempt to designate a station to the preferred option for that station. If the auction system is unable to accommodate a station in its preferred option, the system will attempt to designate the station to its fallback option(s), if the applicant committed to any. If an applicant declines to commit to a fallback for a station and its preferred option for the station cannot be accommodated—or, if neither its preferred nor fallback options can be accommodated— the station will be designated to be repacked in its pre-auction band and will not participate in the reverse auction bidding.

66. As applicants consider which option to commit to as the preferred option for a station, they should be mindful that once the bidding system designates a station to an initial relinquishment option, future bid options for that station will be limited by the one-way hierarchy of relinquishment options. For example, if a UHF bidder identified all three options on its auction application and then committed to go off-air, it may, in a subsequent bidding round, request to switch to Low-VHF or High-VHF. However, if that same bidder instead committed to move to Low-VHF as its preferred option and the auction system were able to accommodate that option, that bidder would begin the auction bidding to move to Low-VHF and would be precluded from ever bidding to go off-air.

4. Final Auction Application Status

67. Once the auction system processes the initial bid commitments and designates each station that can be accommodated to an initial relinquishment option, the Commission will send confidential letters to each reverse auction applicant to inform them of their status with respect to the clock phase of the reverse auction. The letters will notify applicants for each of their stations either that (1) the station is qualified to participate in the clock phase of the reverse auction; (2) the station is not qualified because no initial commitment was made, and therefore, that station will be designated to be repacked in its pre-auction band; (3) the commitment(s) made by the applicant for the station could not be accommodated, and therefore, that station is not qualified and will be designated to be repacked in its pre-auction band, or (4) the auction system determined that the station is not needed, and therefore, the station is not qualified and will be designated to be repacked in its pre-auction band. As part of the process of determining the initial clearing target, the auction system may determine that certain stations will always have a feasible assignment in their pre-auction band at the initial and all subsequent clearing targets. Such stations' spectrum usage rights will never need to be purchased to meet the clearing target and their participation in the clock phase of the reverse auction is not needed. Qualified bidders will begin the first round of the clock phase bidding for each station's designated initial relinquishment option. Each applicant that submits an initial commitment is obligated to relinquish at the relevant opening price the spectrum usage rights associated with its initial relinquishment option if the auction system selects its station to relinquish its rights at the opening bid price.

68. Prior to the deadline to apply to participate in the reverse auction, the Commission intends to provide, in various formats, detailed educational information to would-be participants, including among other things an auction tutorial that will be available on the Auction 1000 Web page for prospective bidders to walk through the auction process and the application and bidding screens. Once applicants have qualified to participate in the clock phase of Auction 1001, registration materials will be distributed. Additionally, all bidders qualified to bid in the clock phase will be able to participate in a mock reverse auction prior to bidding in the clock phase of Auction 1001, which will enable bidders to obtain hands-on experience with the auction system. Further details about the mock auction and the auction tutorial, including relevant dates and how to access these tools, will be announced in the

Application Procedures PN.

B. Qualifying To Bid in the Forward Auction

69. In order to qualify to bid in Auction 1002, an applicant must timely submit an auction application that is deemed complete and timely make a sufficient upfront payment. The amount of the upfront payment will determine a bidder's initial bidding eligibility in terms of bidding units,

i.e.,

the maximum number of blocks, as measured by their associated bidding units, a bidder may demand in the clock phase of the forward auction. The

Application Procedures PN

will address the process of applying to participate in Auction 1002, including descriptions of the information required to be disclosed, instructions for completing the form, and specific deadlines for submission. The Commission adopts procedures for assigning bidding units to each spectrum block that will be

available in the forward auction. The Commission also adopts a method for calculating the upfront payment each applicant must make to obtain bidding eligibility for forward auction spectrum blocks.

1. Bidding Units

70. The Commission will assign to each spectrum block that will be available in the forward auction a specific number of bidding units and will use the bidding units to calculate minimum opening bids, upfront payments, and bidder eligibility, and for measuring bidding activity. In particular, as the Commission proposed, it will assign bidding units to spectrum blocks in each PEA by using a weighted population method similar to the method it will use for measuring the extent of impairment in a PEA. The only difference is that, in measuring the extent of impairment in a PEA, the Commission will use the index value specific to the PEA—it will not group the price index by deciles and apply the lowest index value in a decile to all of the PEAs in that decile, as it does for calculating bidding units.

71. The

Application Procedures PN

will set forth the updated indices and number of bidding units that will be assigned to spectrum blocks in each PEA under its adopted approach. The Commission notes that some of the bidding unit values that will be announced will differ from those in Appendix F of the

Auction 1000

Comment

PN

because they will incorporate the results of Auction 97. The Commission will derive these values by incorporating auction results from Auction 66, Advanced Wireless Services (AWS-1); Auction 73, 700 MHz Band; and Auction 97, Advanced Wireless Services (AWS-3) into an index of area-specific relative prices from prior auctions. This relative price index is the same index used for measuring the impaired weighted-pops for a license. Consistent with the approach used for Auction 96 (H Block) and Auction 97, the Commission will multiply the population of each PEA by the index value for the PEA. The Commission will incorporate the results from past auctions for spectrum licensed in Economic Areas (EAs) and Cellular Market Areas (CMAs) by breaking the data down to the county level and then aggregating the county-level data up to the PEA level. For the purpose of assigning bidding units to spectrum blocks in each PEA, the Commission will group the relative price index by deciles and apply the lowest index value in each decile to all PEAs in that decile. Next, the Commission will divide the result of the calculation by 1,000 and round it using the Commission's standard rounding procedures for auctions. Specifically, the Commission will round numbers greater than 10,000 to the nearest thousand; numbers less than 10,000 and greater than 1,000 to the nearest hundred; numbers less than 1,000 and more than 10 to the nearest ten; and numbers less than 10 to the nearest one. All PEAs will have at least one bidding unit. As a result, the Commission will calculate bidding units for the spectrum blocks in most PEAs as (pops * index)/1000, rounded. Because not all of the licenses covering U.S. territories and protectorates had winning bids in past auctions, for spectrum blocks in the PEAs for Puerto Rico, Guam-Northern Mariana Islands, U.S. Virgin Islands, and American Samoa, the Commission will divide the results of the weighted population calculation by 2,000 and round the results. Further, the Commission will assign one bidding unit to spectrum blocks in the Gulf of Mexico PEA.

72. Each block available in a PEA will have the same number of bidding units regardless of category. This approach will facilitate bidding across categories by enabling bidders to switch their demand for Category 1 blocks to Category 2 blocks and vice versa without affecting their bidding eligibility. The number of bidding units for the blocks in a given PEA will be fixed and will not change during the auction, regardless of price changes.

73. The Commission disagrees with arguments that it should determine bidding units (and, therefore, upfront payments and minimum opening bids) based solely on population or without regard for the final results from Auction 97. By incorporating past prices, its approach reflects the relative value bidders have assigned to the different markets in the past better than would a calculation based solely on population, and hence, is more likely to reflect the relative prices for markets in this auction. Its approach also helps ensure that bidders' upfront payments are reasonably proportional to the market prices of the spectrum blocks they demand. Further, using a price index rather than a population index ensures that the Commission does not exclude significant past price differences between similarly-sized markets in its calculations. At the same time, using the results of several previous auctions and the decile approach helps to reduce the impact of any unusual price variation from a single auction. Thus, this approach addresses concerns about incorporating auction-specific anomalies from prior auctions.

74. The Commission is not persuaded by CCA's argument that including pricing data from Auction 97 will prejudice smaller bidders. Prices from Auction 97 are useful in that they provide the most recent data on the relative prices bidders were willing to pay for spectrum licenses in various markets. While prices in Auction 97 generally were higher than in previous auctions, the Auction 97 information being incorporated consists of additional data on relative prices across markets and does not reflect overall price levels. The updates will have a varying effect on different markets, but it will not result in a substantial change in the total number of bidding units, upfront payments, and minimum opening bids.

2. Upfront Payment Due After Initial 600 MHz Band Plan Determined

75. The Commission adopts an upfront payment amount of $2,500 per bidding unit—half of the amount of the minimum opening bid for each spectrum block. The upfront payment amounts for generic blocks in every PEA for Auction 1002 will be announced in the

Application Procedures PN.

The Commission will base the upfront payment for each generic block on the number of bidding units associated with the blocks in a specific PEA established. The Commission notes that in the

Auction 1000 Comment PN

it proposed to multiply the number of bidding units of a spectrum block by $2,500 and then round the result of that calculation. The upfront payments the Commission adopts here will use the same calculation, but the result will not be rounded so as to maintain a two to one relationship between minimum opening bids and upfront payments. This approach is consistent with its usual practice and supported by the record. Thus, to become a qualified bidder, a forward auction applicant must make an upfront payment sufficient to obtain bidding eligibility for the quantity of generic blocks in each PEA on which it may wish to bid in any round.

76. Its experience in past spectrum license auctions indicates that requiring upfront payments protects against frivolous or insincere bidding and provides the Commission with a source of funds from which to collect payments owed at the close of the auction. For these reasons, the Commission declines to reduce the upfront payment to $1,000 per bidding unit as suggested by CCA. Contrary to CCA's assertions, the Commission finds that insincere bidding is a real risk in any spectrum

license auction. Moreover, the Commission is not persuaded that setting an upfront payment amount at half of the minimum opening bid price will threaten small carrier participation. Even after applying discounts for license impairments and bidding credits, the final winning bid amount for a license will exceed the “cost” (

i.e.,

upfront payment) to obtain enough eligibility to bid for the generic block. Thus, it is reasonable to require that forward auction applicants be willing and able to make upfront payments in the amount of $2,500 per bidding unit.

77. The Commission finds it unnecessary to discount upfront payments for Category 2 licenses. The upfront payment is a refundable deposit meant to help ensure sincere bidding and to establish initial eligibility levels for use with the activity rules. Basing an upfront payment on a spectrum block's potential degree of impairment would not further the purpose of an upfront payment, especially since the number of spectrum blocks in each category and their respective degrees of impairment may change from stage to stage of the auction.

78. Upfront payments will be due after the initial clearing target and associated band plan scenario has been determined. This timing will enable an applicant to take into account the number of spectrum blocks in the band plan scenario associated with the initial clearing target when determining the amount of its upfront payment. In keeping with the Commission's usual practice in spectrum license auctions, all upfront payments must be made by wire transfer in U.S. dollars. Specific instructions for submitting upfront payments, including wiring instructions, will be set forth in the

Application Procedures PN.

79. An applicant's total upfront payment must be enough to establish eligibility to bid on at least one block in one of the PEAs selected on its auction application for Auction 1002, or else the applicant will not be qualified to bid in the auction. An applicant must select on its auction application one or more PEAs in which it may place bids during the forward auction. An applicant will not be required to identify on its auction application the number of blocks within a PEA it demands because the Commission will not know the maximum number of spectrum blocks that will be offered in the forward auction until the initial spectrum clearing target is determined. Because bidding unit amounts pertain to a single paired 5+5 megahertz block for each PEA, a bidder that wishes to bid on multiple generic blocks within a PEA simultaneously will need to ensure that its upfront payment provides enough eligibility to cover more than one paired 5+5 megahertz generic block in the PEA.

80. An applicant does not have to make an upfront payment to cover blocks in all of the PEAs the applicant selected on its auction application, but it should make an upfront payment that covers the maximum number of bidding units that are associated with the quantity of blocks in the PEAs on which it wishes to place bids in any given round. The total upfront payment does not affect the total dollar amount the bidder may bid for quantities of generic blocks, nor will it be attributed to specific blocks or PEAs. Rather, the bidder may place bids for quantities of blocks in any combination of the PEAs it selects on its auction application, provided that the total number of bidding units associated with those blocks will not exceed its eligibility when it places the bid(s). Bidders will not be able to increase their eligibility during the auction; bidders only will be able to maintain or decrease their eligibility. Thus, in calculating its upfront payment and hence its initial bidding eligibility, an applicant must determine the maximum number of bidding units on which it may wish to bid in any single round and submit an upfront payment covering that total number of bidding units.

81. For example, under the approach the Commission adopts, assume there are 27,000 bidding units associated with each block in the New York, New York PEA, and 21,000 bidding units associated with each block in the Los Angeles, California PEA. If a bidder wishes to bid on one block in both PEAs in a round, it must have selected both PEAs on its auction application and purchased at least 48,000 bidding units (27,000 + 21,000) of bidding eligibility. If a bidder only wishes to bid on a block in one of these PEAs, purchasing 27,000 bidding units would allow the bidder to bid on a block in either PEA, but not on a block in both PEAs at the same time. If the bidder purchased only 21,000 bidding units, it would have enough eligibility to bid on a block in Los Angeles, but not on a block in New York. If a bidder wishes to bid on more than one block in a PEA, it must have purchased sufficient eligibility for that number of blocks. Thus, continuing with its example, a bidder interested in bidding on three blocks in Los Angeles must purchase at least 63,000 bidding units (21,000 * 3) of bidding eligibility.

82. The Commission notes that its rules require that any auction applicant that certifies it is a former defaulter—

i.e.,

has been in default on any Commission license or has been delinquent on any non-tax debt owed to any Federal agency—must submit an upfront payment equal to 50 percent more than that set for each spectrum block. Recently in the

Updating Part 1 Competitive Bidding Rules

80 FR 56764, September 18, 2015 proceeding, the Commission narrowed the scope of the defaults and delinquencies considered for purposes of this rule. Under its amended rules, applicants may exclude from consideration as a former default any cured default on a Commission license or delinquency on a non-tax debt owed to a Federal agency for which any of the following criteria are met: (1) The notice of the final payment deadline or delinquency was received more than seven years before the relevant auction application deadline; (2) the default or delinquency amounted to less than $100,000; (3) the default or delinquency was paid within two quarters (

i.e.,

six months) after receiving the notice of the final payment deadline or delinquency; or (4) the default or delinquency was the subject of a legal or arbitration proceeding that was cured upon resolution of the proceeding. Additional details concerning the application of the Commission's former defaulter rules to forward auction applicants, including any required certifications and the higher upfront payment requirement, will be set forth in the

Application Procedures PN.

After the auction, applicants that are not winning bidders or are winning bidders whose upfront payment exceeded the total net amount of their winning bids may be entitled to a refund of some or all of their upfront payment.

3. Final Auction Application Status

83. Consistent with its normal auction procedures, a public notice will announce all qualified bidders for the forward auction (

Qualified Bidders PN

). Qualified bidders are those applicants with submitted auction applications that are deemed timely-filed and complete, provided that such applicants have timely submitted an upfront payment that is sufficient to qualify them to bid. Since the rule prohibiting certain communications applies to both reverse and forward applicants and the prohibition commences on the auction application deadline, the Commission anticipates setting concurrent application filing deadlines for the reverse and forward applicants.

84. Similar to what will be provided for potential reverse auction participants, the Commission intends to provide, in various formats, detailed educational information regarding the forward auction, including among other

things an auction tutorial that will be available on the Auction 1000 Web page for prospective bidders to walk through the auction process and the application and bidding screens. Registration materials will be distributed to qualified bidders prior to the auction. All qualified bidders will be eligible to participate in a mock auction prior to bidding in Auction 1002, which will enable bidders to obtain hands-on experience with the auction system prior to the auction. Further details about the mock auction and the auction tutorial, including relevant dates and how to access these tools, will be announced in the

Application Procedures PN.

V. Reverse Auction Bidding

85. The Commission will use a descending clock auction format in the reverse auction, in which participants will bid over a series of rounds by responding to new price offers for one or more relinquishment options. The Commission establishes reverse auction bidding procedures and explain how the auction system will both calculate new price offers during the clock rounds and process bids to determine which bidders will be selected by the auction, and at what price, to relinquish spectrum usage rights.

86. The Commission generally adopts the reverse auction bidding procedures proposed in the

Auction 1000 Comment PN,

except that the Commission will not use dynamic reserve prices (DRP), and the Commission adopts its alternative proposal to simplify the reverse auction bidding process by not providing an intra-round bidding option. Notwithstanding the potential benefits of using DRP, the Commission concludes that not using it will encourage voluntary participation in the reverse auction by removing uncertainty among broadcasters, and is consistent with the record consensus in favor of minimizing the potential for impairments. In addition to the information the Commission proposed to provide, the auction system will provide information to each active bidder regarding the available room for repacking stations at the end of each round of the auction.

A. Availability of Auction-Related Information

87. The Commission will make auction information public as soon as possible, consistent with its rules, policies, and procedures that help protect the competitiveness of the auction, as well as with applicable statutory requirements. As in past Commission auctions, the public will have access to certain auction information, while auction participants will have secure access to additional non-public information. Details of how to access auction information will be provided in the

Application Procedures PN.

88. The Application Procedures PN also will detail the prohibition on communicating information relating to bids or bidding strategies, such as the non-public information that bidders may access in the auction system, to broadcast licensees eligible to participate in the reverse auction or to forward auction applicants, subject to specified exceptions. The Commission cautions eligible broadcast licensees that communicating non-public information that they receive to others, whether directly or indirectly through third-parties or public disclosure, could violate that prohibition.

89. In response to the numerous commenters that contend that the Commission should make as much information available regarding the reverse auction as possible, either to the public or to the auction participants, more information will be provided to both the public and reverse auction participants than was proposed in the

Auction 1000 Comment PN.

The Commission will make public, before the deadline for filing applications to participate in the reverse auction, the opening prices for all stations whose spectrum usage rights are eligible to be offered in the auction and for each bid option available to each station. The Commission set forth the formula for these prices in the

Auction 1000 Bidding Procedures Public Notice.

Prices for each station and for each bid option for each station may be calculated using this formula and publicly available information. Rather than require each licensee to make these calculations separately, the Commission will make them public. The Commission does so to encourage participation, to further the transparency of the auction, and in response to comments requesting that the Commission do so.

90. Reverse auction bidders will be informed of the initial bidding round schedule when they are informed that they are qualified to bid in the clock phase. The schedule will establish the length of time each round will last. Bidders may respond to price offers for available bid options in each round. Round results will be released to bidders after each bidding round.

91. The Commission will make public the initial spectrum clearing target as soon as possible after completion of the initial clearing target determination procedure. Many commenters support this approach. Some suggest that the Commission announce a clearing target before broadcasters make initial commitments, in order to assist broadcasters in doing so. The initial commitments, however, are an essential component for determining the initial clearing target. The Commission will announce the initial clearing target before any bidding takes place in the clock phase of the reverse auction.

92. Once the bidding in the clock phase of the reverse auction begins, the Commission will make publicly available information about the current stage of the auction and whether or not reverse (or forward) auction bidding is currently open. Information regarding amounts necessary to meet the final stage rule will be public, as well as whether or not the final stage rule has been met. Such information will include the aggregate amount of provisionally winning reverse auction bids to relinquish spectrum usage right, which is part of the second component of the final stage rule. In addition, the auction system will provide each reverse auction bidder with non-public information that it can use in determining how it will bid. More specifically, the auction system will provide to each bidder—but not to the public—each station's bidding status and price offers for all options relevant given the station's status.

93. The auction system also will provide each reverse auction bidder with vacancy index information, indicating the relative availability of channels in each relevant band, as part of each round's bidding results for active stations. Providing this information is consistent with the strong record support for providing reverse auction participants with as much information as possible to help with bidding. A broadcaster can use vacancy information to assess the likelihood of various developments, such as whether a price for a given option may continue to decline. Given that the auction system incorporates such information in price computations, and sophisticated bidders might be able to extract the information in a limited set of cases, the Commission concludes that providing such information to each bidder will promote transparency and information parity among all bidders, and that the auction system can provide such information without unduly complicating participation or compromising the confidentiality of participation in the reverse auction.

94. The auction system calculates vacancy information when setting prices. For a given station, the auction

system will determine the number of channels available in the station's “neighborhood” for the relevant band. A station's neighborhood consists of all active stations,

i.e.,

all participating stations that have not exited or become provisional winners including the station itself, that could interfere directly with the station in the relevant band and therefore potentially limit assigning the station to an available channel in that band. The auction system uses each station's volume to weight the number of channels available to it and then averages those weighted results for all stations in the station's neighborhood. The vacancy index information that the auction system will provide to bidders will indicate whether the average of weighted channels available to active stations in the neighborhood falls within one of three ranges, low, medium, or high. The range format should prevent the information from being used to identify the neighboring stations consistent with its obligation to protect the confidentiality of reverse auction participation.

95. More specifically, for each bidder with an active UHF station, the UHF vacancy index will indicate whether the average of weighted UHF channels available to the active stations in the neighborhood is: Less than three (low); greater than or equal to three, but less than or equal to six (medium); or more than six (high). Given the smaller number of channels in the VHF band, the ranges will be narrower. For each bidder with an active VHF station, the vacancy index in the station's pre-auction band will indicate whether the average of weighted channels available to the active stations in the neighborhood for the pre-auction band of the bidder's station is: Less than two (low); greater than or equal to two, but less than or equal to four (medium); or more than four (high). With respect to relevant bands other than a station's pre-auction band (

i.e.,

for UHF stations, High-VHF and Low-VHF, and for High-VHF stations, Low-VHF), the values used to define the three ranges will be determined based on the ratio of the level of vacancy in that band to the level of vacancy in the station's pre-auction band. This ratio is already used in setting prices for moving to the same bands. Consequently, bidders with prices for a station that may move to a new band could infer the information without the vacancy index. The vacancy index puts it to use in an explicit report to the bidder. The auction system will report the values that define the ranges when providing the vacancy index information. The technical formulas for setting the values will be provided in the

Application Procedures PN.

96. In all cases, a value in the low range for the index will indicate a higher potential for the relevant band to fill soon; a value in the medium range will indicate less likelihood; and a value in the high range will indicate still less likelihood. The Commission emphasizes that this information will be based on the results of the prior round and will provide no certainty with respect to developments in future bidding rounds. Ultimately, the bidding of other reverse auction participants will determine when any available channels are filled. Nevertheless, the vacancy index information based on past round results will help bidders make rough estimates of whether a particular bid option will continue to be available, as well as provide bidders with a sense of the relative likelihood that a station's various bid options will continue to be available. Changes to the vacancy index from round to round also may provide helpful information regarding changes in the status of neighboring stations at current clock prices. The Commission notes, however, that a station's vacancy index may change if a second neighboring station becomes provisionally winning, even though that did not change the number of available channels. For example, if a non-neighboring third station's decision to exit the auction made it infeasible to repack the neighboring second station, the neighboring station would become a provisional winner and therefore would no longer be included in the calculation of the first station's vacancy index. In that circumstance, the first station's index may change even though no available channel in its neighborhood was filled.

97. The Commission declines to adopt EOBC's proposed alternative to the vacancy index, which likewise uses the average of the weighted number of channels available to all stations in a given station's neighborhood, but instead of providing station-specific information on a confidential basis would involve averaging that information across all stations in each Designated Market Area (DMA) and disclosing the information publicly. The vacancy index will confidentially provide each bidder with information targeted to its station(s), which should better predict how soon a price offered that station is likely to freeze. The station-specific information provided by the vacancy index the Commission adopts also will be more uniformly useful to all bidders than EOBC's alternative. EOBC argues that a publicly disclosed metric is fairer as it would provide more uniform information, in particular assuring that the information each bidder possesses is the same regardless of the number of stations it offers in the auction. The Commission disagrees. Some bidders might be able to infer information unavailable to others based on a combination of average DMA vacancy information and station-specific vacancy information, which is used by the auction system to calculate prices. The approach the Commission adopts will provide each bidder with station-specific information without providing an advantage to some bidders. Further, providing vacancy index information for each station will avoid putting participants with fewer stations in the auction at a disadvantage, as bidders will have the same information relative to each of their participating stations.

98. Because the vacancy index the Commission adopts will assist broadcasters seeking to forecast the outcome of the auction, it addresses requests by commenters for information regarding the reverse auction that would enable “outcome discovery” by broadcasters. The other information that will be provided satisfies many requests that commenters make for specific information regarding the reverse auction, such as the initial spectrum clearing target and opening prices for all stations. In combination, all of the information will facilitate efforts by broadcasters to forecast prices in the auction. The Commission conclude that providing additional information to reverse auction bidders could unduly complicate participation in the reverse auction or compromise the confidentiality of such participation.

99. In addition to the bidding information, the Commission will use the auction system to make auction announcements regarding any other necessary information to reverse auction participants, such as schedule changes. Providing auction announcements through the auction system has been an effective and efficient way to communicate necessary information to auction participants in past auctions, and the Commission expects that this will be the case for the reverse auction as well.

100. The Commission notes that while reverse auction bidders will have access to far more information than it originally proposed, in order to serve the interests of broadcasters, it is required to make less information public regarding the reverse auction than it does regarding the forward auction. To begin with, the Spectrum Act expressly requires that the Commission take reasonable steps to

keep confidential Commission-held data of licensees with respect to their participation in the reverse auction, including their identities. Commission rules further extend confidential treatment with respect to non-winning bids and bidders for two years after the close of the auction, so that broadcasters may participate in the reverse auction without being compelled to disclose their willingness to relinquish spectrum usage rights for that longer period.

101. Accordingly, the Commission will not disclose the name of the licensee, the channel number, call sign, or facility identification number of its participating station(s), or its network affiliates in connection with the participation of any licensee in the reverse auction. The Commission also will keep confidential any other information that may reasonably be withheld to protect the identity of the licensee as a reverse auction participant, such as information regarding the status of licensees as participants or provisional winners during the auction. To safeguard this confidential information, the Commission will not make public any information relating to applications to participate in the reverse auction until after the auction concludes. Whether similar information was made public in prior spectrum license auctions, or has been provided on a non-public basis by the Commission, does not change whether the rule applies. Unlike in conventional spectrum license auctions, the Commission will not issue public notices with respect to the status of the reverse auction applications that are filed. Instead, the Commission will communicate regarding these applications directly—and confidentially—with the respective applicants. Finally, because information regarding a participant's station is integral to determining the bids offered in the auction, information regarding specific bids during the course of the auction cannot be made public.

B. Determining New Price Offers in Clock Rounds

102. Under the descending clock auction format that the Commission adopted for the reverse auction, in every clock round, the auction system will decrement the per-volume nationwide base clock price. As with opening price offers, a UHF station will be offered a price to go off-air in each clock round that will equal the base clock price multiplied by its station-specific volume factor. The price offer for a UHF station to go off-air is the base clock price times the station's volume. Therefore, if the per-volume base clock price is decremented by five percent, the price offer will decrease by five percent. Unlike opening price offers, however, the new price offers in clock rounds for UHF stations to move to the VHF bands, or for VHF stations to move to a lower band or go off-air, will reflect the relative availability of channels for each station in the VHF bands. Opening prices for intermediate moves will in aggregate be equal to the full base clock price (or, in percentage terms, will sum to 100 percent) for a move from UHF to off-air since in terms of value to the auction intermediate moves, when taken together, are equivalent to a move from UHF to off-air, which is set by the base clock price. The opening prices for intermediate moves will form the starting point for prices for such moves in the clock bidding rounds, but as relative vacancy rates change, these prices will vary. These differences in relative price changes are intended to encourage moves that promote more efficient repacking of the VHF bands. For example, if the High-VHF band is particularly congested in an area, the price offer for a UHF station in that area to move to High-VHF will decrease more quickly than if the High-VHF band were less congested. As a result, a UHF station will have less incentive to request a move to High-VHF than if the High-VHF band were less congested and price offers decrease more slowly. By setting price offers in this way, the auction system will encourage moves that are particularly beneficial to the reverse auction's goal of clearing spectrum in the UHF band.

103. In each round of the reverse auction, the base clock price decrement will be the larger of: (i) Five percent of the current base clock value or (ii) one percent of the $900 opening base clock price. Consistent with the Commission's standard auction procedures and as proposed in the

Auction 1000 Comment PN

(to reduce the base clock price by between three percent and 10 percent per round) the size of the decrement may be adjusted in the reverse auction. Although the Commission does not anticipate that the decrement in the reverse auction will need to be adjusted, if circumstances warrant, the change and the new decrement will be announced at least 24 hours in advance to all bidders. Although several commenters urge the Commission to decrease prices by no more than one percent in each round, a decrement of five percent will better balance its interests in completing the reverse auction bidding within a reasonable amount of time while avoiding significant losses of efficiency or increases in costs. Because the forward and reverse auctions run sequentially within a stage and because there may be multiple stages, it is important to limit the number of reverse auction rounds. The combination of (i) and (ii) ensures that the reverse auction will require no more than 52 rounds in any stage. In subsequent stages, the reverse auction may require even fewer rounds, depending on the level to which the base clock price must be reset after a new stage transition, and how quickly newly-active stations either drop out or become provisionally winning. Using a decrement of one percent would require considerably more bidding rounds. For example, using just part (ii) of the Commission's price decrement rule—a price decrement of one percent of the base clock's opening value—would require 100 rounds, whereas using a price decrement of one percent of the current base clock value, without part (ii) or a similar mechanism, could cause the auction to continue for hundreds of more rounds as the decrement gets increasingly smaller. The Commission recognizes commenters' concerns that larger decrements could cause some stations to drop out quickly, but find that with a decrement of five percent any loss of efficiency or increased costs is likely to be

de minimis.

Moreover, a decrement of one percent risks increasing the cost of repurposing spectrum. In the absence of the proposed DRP mechanism, the prices offered to stations in some areas may “freeze” near opening price levels; in such cases, a one-percent decrement might require higher payments to individual stations. Higher payments are likely when stations are able to engage in coordinated behavior to manipulate the point at which their prices “freeze.” The Commission's rules and procedures are intended to prevent such manipulation, but do not prevent coordinated behavior by bidders that own multiple stations within an individual market. In addition, five percent price decrements would be small enough to allow the system to provide useful information to participants to guide their bidding.

C. Bidding Mechanics

104. Consistent with its proposed procedures, at the commencement of the clock phase of the reverse auction, each participating bidder will begin bidding for each of its stations at the opening price for that station's “currently held option,” which will be the initial relinquishment option determined by the initial commitment procedures. So long as the auction system can determine a feasible channel assignment

for that station in its pre-auction band—by conducting a “feasibility check” prior to the clock round—the system will continue making new, reduced price offers to that station. For each station the auction system must, prior to processing its bid, find a feasible channel assignment in the station's pre-auction band—that is, an assignment that does not violate any of the pairwise constraints and is therefore consistent with the Spectrum Act's preservation mandate. To do this, the system conducts a “feasibility check” using mathematical satisfiability-solver software to quickly determine whether such a channel assignment exists. The bid options for which the system will calculate price offers will be based on the station's pre-auction band, the options the bidder selected for that station on its application, the currently held option for that station, and the hierarchy of bid options. If, however, a feasible channel assignment does not exist for a station in its pre-auction band in the first round, the station will be “frozen” in its currently held option from the start of the auction at the opening price offer to which it initially committed. The system will then ask the bidder to place a bid for that station by indicating whether it is willing to accept the new price offer for its currently held option, wishes to switch to a different bid option (if applicable), or wishes to drop out of bidding. If the system is able to find

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