We are live for the 18th year in a row from florida for the miami book international. That is a few of the affairs. Coming up, an interview with gary epstein, and then a discussion on the u. S. Mexico border and then a discussion on irans role in the middle east after the Nuclear Agreement with the international community. Cspan, brought to you by your local cable or Satellite Service provider. Host now on the the communicators, we want to introduce you to gary epstein, he is fair of the Fcc Incentive Auction Task force. What does that mean . Guest thank you, peter, i am the head of the task force at the fcc which is responsible for implementing the incentive auction which as a First Time Ever auction at the fcc for spectrum. Host and the incentive auction is the spectrum auction involving the broadcasters. It is called a twosided option and it will acquire spectrum from broadcasters in reverse auction, turn around, repackage it, and make it available to the wireless carriers. It is a backtoback auction and a reverse auction. Host two followups to that is the fcc set march of 2016 as the date for the incentive auction to happen. Will that date hold and how long have you been working on this . Gues guest i can answer two ways. I have been back at the commission since april of 2012 and in some sense i feel i have been working on it for 44 years. Host this has been in the works since 2012 . Guest correct and the statute was passed in feb of 2012 and the commission turned to implement it and we have been working since then to put it into affect. Host one final question before bringing in our guest report. In august, the fcc voted on rules of the incentive auction and broadly speaking what are some of the rules . Guest they have to do with the detailed rules of implementing the auction. About a year ago, the Commission Adopted the broad principles and rules and something called the incentive order. This is called the procedure public notice. It goes to the really next level about how to set opening bid prices, what spectrum levels we will seek to acquire, whose eligible to bid for the rules and a whole series of detailed rules to make the auction happen. Host gothem is joining us. Thanks for having me back, peter. Gary, this incentive auction is about taking spectrum from tv broadcasters is reallocating it to the wireless companies. Why do you guys feel that the broadcasters are the right place to go for spectrum and how much spectrum are you hoping to get from this auction . Guest yes, gothem, it is a congressional determination made in the spectrum app. We are not taking the spectrum. It is voluntary. Broadcasters continue to be a valuable service but Congress Passed an act where broadcasters on a one time only bases will be able to let go of their spectrum rights in return for proceeds of the forward auction. It is congress determination and the fccs implementation to use market force do is make l lowland spectrum. The need is increasing and there is not a lot of good lowland spectrum left. This is a new and novel method congress put in this and the fcc is to implement. Can you explain why lowland is desirable or suitable for wireless . Guest it is spectrum below one gigahertz. The physics of it allow it to go long distances and through buildings better than midband or high band spectrum. It is called coverage spectrum as opposed to capacity spectrum. This is the last lowland spectrum which is available on the fcc for the foreseeable future. The airwaves will allow carriers to cover larger areas. Guest yes, and penetration through buildings. All types of spectrum are valuable. We had a spectrum auction for midband spectrum and that was more capacityspectrum. This is the coveragespectrum which has different characteristics. Host going back to the aws3 the price of they have spectrum was more than double what you expected . Guest expectations were in the 20 billion range at the high end. Actually 44 billion was received by the fcc with respect to this spectrum. So, yes, turns out it was really pretty valuable and it looks like a good sign for the lowland auction coming up. Host what if a broadcaster doesnt have to tell his or her spectrum . Guest broadcaster is free to take a number of option. Number one is fought to participate at all not if a broadcaster decides not to participate we have a statutory obligation to protect the areas of that broadcaster and they will keep broadcasting in their home band. Secondly they can release everything and participate or they can decide to child share with another operator or broadcaster and participate in the auction. And finally a broadcaster can go from uhf to uvf and put the uhf in the auction and receive a uvf in return. A broadcaster doesnt have the participate. Host is there a fear from local communities they will be loosing some of their local broadcast coverage . Guest it is a good question. Some issues have been raised. I think that the commission has taken good steps in certain areas with respect for example public broadcasting and other really important services. But, you know, overall, i think probably with the channel sharing and the options and the migration of some Video Services to the internet that the public will not lose service overall. The fcc has released preliminary projections or estimates of the high and low end for what they think stations could get for their spectrum. In major markets these projections are very high in the hundreds of millions of dollars in some cases. Do you think that is going to hold true at the auction itself . What are the implications . Many of the stations seem to be more valuable for the airwaves than going businesses. Guest those numbers were in the report called the green hill report why commissioned an Investment Banking firm to treat what we are doing as a business opportunity. We are not great at that and needed outside help. But the fcc generated the numbers and what they are are opening bid numbers. Not predictions of what a broadcaster will receive in the auction but they are the numbers we will put on the table for opening bids for broadcasters. In the order that the fcc just adopted in august, we set the final formula for opening bid prices. It is very close to what the esmates were a couple of months ago. So i think those are the prices that the broadcasters will see for opening bid. One other point, which is crucial, the opening bid prices are going to be made public. More than 60 days or 60 days or more before the close of the window for broadcasters and wireless carriers to further applications. The broadcaster wants to participate and all it has to do is file an application and say i commit that opening bid. And that application by law is anonymous. We will then start the auction, which is called a reverse option that starts high and moves down. If the number drops one or ten or a Million Dollars the broadcaster has the right to say i am out and i want to go back to my home band and broadcast in my home band and be protected as if i were never in the auction at all. That is why the chairman said this is a nolose proposition. The broadcaster will publish the opening bids and then decide whether to participate in the auction. After the opening bid price, if may get the opening bid price, but we suspect there will be Competition Among the broadcasters. Any time during the process, the broadcaster can say i am out and i want to go to my home band and that is the end of it and the participation is kept anonymous. Host the fcc is setting the opening bids; is that correct . Guest yeah, like any auction, the fcc adopted a formula in august, the commission itself, not the staff, adopted a formula with two components. One is the amount of interference the station causes. We are ultimately seeking to get spectrum back so it is relevant to the value how much interfe interference it was causes. None of this has to do with the fair market value or fair market value of the station. We are seeking spectrum and the opening bid prices are based upon spectrum. Host you said it is an anonymous bid. Anonymous to whom . Guest anonymous to the outside world. If you as a broadcaster say i am participating that is fine. But when you file your application with the fcc we will not disclose to anyone the fact you are participating in the auction. Host gothem . Thank you. As you mentioned the value of the spectrum has been perhaps under estimated by analyst and people in the market and the recent aws3 auction drew 45 million which was larger than many of us expected. One of the factors that drove the bidding higher in the markets was the fact that two companies affiliated with dish n network were bidding multiply times. The fcc in august moved to essentially remove discounts that the Smaller Companies got. Can you explain the thinking behind that . Will that affect the dynamic and the incentive auction at all . Guest there aare a couple related questions. The fcc adopted new rules on par advertiseitation and bidding credits. It was concerned about how the rules were being used and whether they truly benefited small business. They put caps on and tightened up the rules. That will apply to the incentive auction. There are special rules for bidding credits, and there is something called the market base reserve which is part of the incentive auction, and i think the commissions new rules will affect the bidding to that extent. The other thing is recently the commission determined that certain participants in the aws3 auction didnt qualify. The purpose of the auction is to reallocate spectrum to the Wireless Industry, but who exactly constitutes the Wireless Industry . Dish network holds a bit of spectrum but as of now they are a Satellite Tv Company for the most part. And we see there are four Major National wireless carriers and some smaller wireless players. There was a lot of debate over whether spectrum should be set aside in the incentive auction for the smaller players. Can you explain why the commission landed where it did and why it did . Guest remember this is lowland spectrum. Certain carriers have the great majority of lowland spectrum that has been allocated over the years. So the commission setup something which was fairly unique. It setup a market based reserve which will set aside in each geo graphic market 30 mega hertz of spectrum. At the time the bidders who were eligible to bid for it meet a reserve price, which has been set by the commission and pay their share of the holocaust cost of the broadcasters. It is new, innovative and des n designed for providers who dont have lowland spectrum. Doesnt mean the established carriers wouldnt have a lot to bid on. Should spectrum be available to companies that are not in the Wireless Industry. There is a lot of concern about the highs and deprecation are causing the speculation do is get in the market about nut creating new airwaves and the value is likely to increase. There are two sides to this. One side is the reverse side. Have people brought up the broadcast stations with the intent of selling them in the auction . I think the answer is yes and i am not sure there is anything wrong with that. Broadcasters have to make the choice about participating in the auction and some entrepreneurs have voiced station with the broadcasters and may well participate. In the forward auction side i think we have tried to make the opportunities for more competition by having the market base reserve but there are build out requirements on the forward auction side. It is less likely and we dont see, you know, entrepreneurs or more speculaters to bid. We encourage new entry and par adverti participants. Host gary epstein, you talked about bidding credit. What does that mean . Guest bidding credit is an established process the fcc has. It has been used for decades. Entities eligible for bidding credits get to bid at the normal rate but get a discount when they pay. A bidding credit of 15 , i bid a hundred and someone bids 90, i only pay 85. Host how do you qualify for bidding credits . Smaller user of spectrum . Guest that is right. In the Decision Just talked about just recently, and this was a broader decision that applies to incentive auction and other auctions, the they tightened up the rules and it is primarily Small Businesses who meet certain characteristics and there is a new 15 credit for world telephone providers. So the commission determines who should be eligible for the credits. Host when it came for setting the rules it was a partisan vote, 32. What concerns were expressed by the Republican Committee . Guest we had a whole series of decision. Some 32. Some have been 50. I much prefer 50 votes than 32 votes. But the are policy differences among the commissioners. And one of them really has to do with this market base reserve we talked about. I think it is one of the key ones there. Two of the descenting commissioners are not in the agreement with the majority and how it uperates and how large it is. Operates there are other policy issues about pricing for the broadcasters but if i had to pick one, there is the biggest k division it has to do with the reserve. We hear at the wall street journal some broadcasters are forming the possibility of forming a coalition of their own and selling spectrum directly to the wireless carriers. The fcc has the authority to approve license transfers but how would the fcc react to that and would that be allowed under the rules . I think there are practical and legal issues. There is no fundamental objection. This has been tried over the years a number of time. When i described the auction i talked about the three parts and one is reverse auction of buying the spectrum but we reorganize and repack it into a smaller, more efficient tv band and take the Broad Spectrum we have been able to get as a result of this repacking and sell it to or auction it to the wireless providers. Groups and broadcasters dont have the power to reorganize the spectrum. We got that from the 2012 congressional act and there is a 1. 7 billion fund set aside to reimburse the broadcasters. So i think the individual stations or groups of stations would be difficult to do. This is a onetime authority we have from congress. Host are the cable providers worried about this auction . Guest i dont know. I think that they would be welcome and eligible to participate to buy spectrum. They are bought spectrum in the past. And competition is good. Competition on the video side by the wireless providers and the Cable Companies and broadcasters were all positive things. Host gary epstein, if the auction goes through and begins march 29th, 2016, is there an end date and how soon would the spectrum actually be online . Guest the end date is a function of the bidding that is involved. Again, this would be longer than most traditional auctions because we have to run two backtoback. First the reverse auction and then a forward auction. And i will not get down into real details of it but if we can close in the first round because we dont get enough money from the forward auction to pay the broadcasters we have to run the second round and lower the clearing target. We will get there. I am talking about a matter of months. Not one or two but several. Then there is a transition period set by the commission and that is 39 months for the broadcasters to be relocated and moved. So there will be an established transition period after the close of the auction for the broadcasters to relocate to their new channel. Host why 39 months . Guest part of the reason is Congress Said you need three months to actually file your application and congress authority to give out money stopped after 36 more. So that is one of the reasons and a big reason we picked the 39 month period. Our reimbursement authority and the funds come out of the forward auction that ends in 36 months after we begin paying it out. The markets have been a bit spooked especially concerning verizon, at t, at the numbers that came out of the aw3 auction because spectrum is expensive and cost so much to build out the Wireless Networks there is concern the amount of debt the carriers will have to kerry following the incentive auction will saddle them going forward. We saw an example of this in europe. Is this a concern for the fcc that the cost in all of these auctions is becoming prohibitive and may prevent carriers from upgrading in the future . Guest i think the midsize and Large Companies are financially able to borrow money. We heard them make commitments of going forward. It is more their issue than our issue. We would love their participation. Verizon announced they would sell, at t confirmed commitment, tmobile has been talking about joining in. Is there enough spectrum or are we reaching the point where it isnt possible giving the demands of data use . Guest more spectrum is one phenomenal thing. And we are doing our best. But there are other technologies, small cells coming, and i have confidence in the innovation of the carriers out there. Yeah, it would be great to get more spectrum out there. That has been an imperative of the obama administration, the commission and all of in the commissioners are anxious for the auction to go forward and be a success. Host gary epstein, if and when the additional spectrum gets online, will consumer cost remain the same . Down because of more spectrum or up because of the cost of the spectrum . The key is competition. Things like market base reserve and competition between the small and large carriers you can see it working in the marketplace now. You can see the prices dropping and that is a phenomenal we would like to see looking forward and it is one of our goals in this auction. It is to get the spectrum out and get this lowland spectrum out in a procompetitive manner do you have any estimates you can share in terms of a range or number in terms of how much spectrum you expect to get and what sort of revenue you expect to have able to compensate the broadcasters . Guest i will try here. From a spectrum availability standpoint, at the beginning i said we dont know which broadcasters will show up and in which markets, that is the ultimate determination and what makes the auction unique versus any other auction anywhere in the spectrum area. We have seen, you know, people coming in with estimates or band plans ranging from 40 megahertz up to the 180 or more megahertz. I think those are too low and high so somewhere in the middle. People talked about 126 or 84 megahertz and that balances what we are talking about. As for proceeds, again that is a function of demand, and what is on the wireless side. I do note a couple months ago, cvo came out with an estimate saying it could be up to 40 billion net coming after you pay the broadcasters. But that is an estimate and the fcc doesnt give or make estimates. Host you are talking about the local broadcasters . Guest i am talking about the approximately 2,000 broadcasters ranging from the smallest to the largest. In a lot of markets, in new york, there are 2530, i dont know the number of stations in the market, but some may fee this is a great opportunity to monetize their investment, maybe they are not make money, maybe they are the fourth or fifth or sixth station in the market. This is a onetime only opportunity under the spectrum act to participate in this groundbreaking reverse auction. Host we have time for one more question. So you mentioned incentive auction, range of spectrum, one thing i have seen a lot of people agree on is no matter how much you get it will probably not be enough. Where do you go next for spectrum . Guest a great question. There are other things we are doing in other spectrum bands. Spectrum sharing is one of the key things particularly with the government. We had a large initiative to take some of that spectrum and find ways to make that available. The commercial section. In a way that doesnt jeopardize the National Defense or National Security use. Host has that initiative been implemented . Guest it has been. And the aws3 auction was a great example of that. Host gary epstein, you said you have been working on this issue for 44 years. What did you mean by that . Guest i have been in this business as a lawyer or in business or in government since 1971. Host why . How did you get into that . Guest engineer undergrad, degree from harvard and i thought communication law was a great way to put them together. Host we are happy gary epstein, chair of the Incentive Auction Task force, happy to be on the program and we hope you come back before march 29th, 2016. Guest certainly would like to. Thanks
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