Incentive Auction Overview

1. Incentive Auction Overview [DATE]

2. What are Spectrum Incentive Auctions? Incentive auctions are a voluntary, market-based means of repurposing spectrum by encouraging licensees to voluntarily relinquish spectrum usage rights in exchange for a share of the proceeds from an auction of new licenses to use the repurposed spectrum.

3. Broadcast Incentive Auction: From Idea to Law National Broadband Plan (Mar. 2010) “Congress should consider expressly expanding the FCC’s authority to enable it to conduct incentive auctions in which incumbent licensees may relinquish rights in spectrum assignments to other parties or to the FCC.” President’s Nat’l Wireless Initiative (Feb. 2011) “As recommended in the FCC’s National Broadband Plan, legislation is needed to allow the FCC to conduct “voluntary incentive auctions” that enable current spectrum holders to realize a portion of auction revenues if they choose to participate.” “…the Commission may encourage a licensee to relinquish voluntarily some or all of its licensed spectrum usage rights in order to permit the assignment of new initial licenses subject to flexible-use service rules by sharing with such licensee a portion…of the proceeds…from the use of a competitive bidding system...” Spectrum Act (Feb. 2012) “The FCC issued a Notice of Proposed Rulemaking on October 2, 2012, which launches the process which will leverage the collective expertise of the leading authorities in telecommunications, computer science, engineering, economics and law, as well as members of the public at large, to craft the best possible incentive auction.” Notice of Proposed Rulemaking (Oct. 2012)

4. Broadcast Incentive Auction: Objectives

5. Broadcast Incentive Auction: Design Goals

6. Broadcast Incentive Auction: Key Components • Broadcaster Options • Reverse Auction Design • Repacking of Broadcast Stations • Forward Auction Design • 600 MHz Band Plan • Integration of Forward and Reverse Auctions • Unlicensed Use/TV Whitespaces 5 • Broadcasters • Offer to relinquish spectrum usage rights 1 • Mobile Broadband Providers • Offer to purchase spectrum licenses Reverse Auction Forward Auction 2 3 4 Integration 6 7

7. Auction Design Considerations

8. Three Basic Design Elements • The NPRM discusses three basic auction design elements for both the Reverse and Forward Auctions as well as the assignment stage of the Forward Auction • Bid Collection • Assignment / Winner Determination • Determining Payment Amounts • The NPRM includes Appendix C, prepared by auction experts proposing one possible auction design • The Commission has also released a Supplement to Appendix C, prepared by its auction experts, that provides additional details about several of the Forward Auction proposals discussed in the NPRM

9. Incentive Auction Decision Tree Descending clock stopping rule: Stops for a station when it either has exited or must be cleared to achieve the clearing target. (The stage ends when all clocks have stopped. Reverse Auction Maximum Opening Bids Initial spectrum clearing target (# channels) Reduce spectrum clearing target, continue auctions No Closing Rule Met? Forward Auction Yes Ascending clock stopping rule: Stops for a license category when there is no excess demand for that category. (The stage ends when all clocks have stopped.)  Reverse auction: Winning bidders paid last offer they accepted, channels assigned to others Forward auction: Winning bidders go to assignment stage to be assigned specific frequencies Close Auction Minimum Opening Bids

10. Eligibility for Participation in the Reverse Auction • Who is eligible? • Spectrum Act authorizes full power and Class A stations only • Primary interference protection • Ceded in exchange for auction proceeds • Who is not eligible? • Station whose license is expired, cancelled or revoked • LPTV and translator stations • Interference protection is secondary to full power and Class A stations, and new wireless services • Three ways to participate: Go off air • Channel share • Move from UHF to VHF

11. Participate and Stay on the Air: Channel-Sharing Stations share single transmitter and antenna Pairing through private negotiations Capital infusion from contribution of spectrum OpEx and CapEx savings Each station is licensed portion of 6-megahertz channel Two stations on a channel share 19.4 Mbps Can allocate bandwidth dynamically as needed Each station remains a primary FCC licensee Call letters, channel guide number (PSIP), other indicia of station identity remain Includes all current licensee rights (e.g., must carry) 21 Former 17 Former 21 6 MHz Current: 12 MHz for Broadcasting Channel 17 21 WXXX WYYY 6 MHz 6 MHz Potential: 6 MHz for Broadcasting 6 MHz for Auction Channel

12. Participate and Stay on the Air: UHF to VHF Station contributes a UHF channel in exchange for auction proceeds and the promise of a VHF channel Retain 6 megahertz Can still multicast Retain must-carry rights Coverage area may have more interference Mobile broadcast more difficult Current: 6 MHz in UHF Future: 6 MHz in VHF

13. Overview of Repacking and Interference Issues

14. Repacking • FCC is looking to recover contiguous blocks of spectrum (contiguous channels) on a nationwide or market-wide basis • Broadcast service will continue after the auction: • Stations not participating • Stations not purchased in the auction • Stations remaining on the air will be repacked into channels remaining for TV use

15. Legislative Mandates and FCC Goals • “the Commission shall make all reasonable efforts to preserve, as of [February 22, 2012], the coverage area and population served of each broadcast television licensee, as determined using the methodology described in OET Bulletin 69” • Transition expeditiously to: • minimize viewer disruption • Make recovered spectrum available sooner • Minimize channel change requests

16. What is OET-69 ? Interfering Station B Green = coverage Yellow = no coverage Red = Interference 16

17. Effect of Repacking 21 50 ChannelChange Station on Ch 50 receives new allotment on Ch 21 21 21 Potential for service loss from co-channel interference Service Impacts Service POP A (Old) Service POP B (Old) Interference (POP C) Service POP A (New) Service POP B (New) New interference must not reduce population coverage by more than 0.5%

18. Interference Protection Constraints • Operating U.S. Stations (Full-power and Class A) as of February 22, 2012 • Land Mobile operations on UHF television channels • Protected television stations and allotments in Canada and Mexico near the common border respect international commitments • Radio Astronomy and medical telemetry • Offshore Radiotelephone Service

19. Reconfiguring the UHF Band – Wireless Band Plan

20. Incentive Auction NPRM • Flexible framework rather than fixed band plan • Amount of spectrum not known until conclusion of auction, depends on final results of both reverse and forward auctions • Generic 5 MHz blocks • Location not known, so must promote fungibility, including the use of guard bands • Building blocks • Bidders bid on one or more building blocks • Mechanism to contiguously assign a winner’s blocks in a license area • Market variation • Allow limited variation in band plans across areas • May increase amount of spectrum returned by preventing border markets or other markets with poor clearing from limiting nationwide clearing

21. Geographic Exclusions • Market variation means that some frequencies have both TV and wireless • These services need to be geographically separated, that is, wireless can only be auctioned at a sufficient separation from TV • The areas in which wireless can be offered based on interference calculations will not necessarily align with license areas such as EAs • These exclusions will apply only to the blocks that are not cleared nationwide • Level of coordination with Canadian and Mexican TV stations has a major effect on the extent of geographic exclusions • How much of a license area should be clear to be auctioned? • Can bidders specify how exclusions impact their bid for an area?

22. Incentive Auction Process Timeline Bidding & Repacking Payments Licensing Stakeholder Input & Final Procedures Mock Auction Stakeholder Input Report & Order Application to Participate NPRM Rulemaking Pre-Auction Auction Post-Auction Broadcast Incentive Auction: Process 2013 2014