FCC Sets Broadcast Auction

Bidders for nearly 200 TV and radio licenses limited to competing applicants

By Bill McConnell
Date Posted: 5/14/1999

Regulators this fall will give the go-ahead for construction of almost 200 new full-power TV and radio stations when the government conducts its first auctions of radio and TV spectrum.

The bidding is intended to clear the FCC's docket of competing applications, some of which have lingered for as long as five years. All told, the agency has pending 782 requests for 27 TV, 152 FM, and 8 AM outlets.

(Unlike TV licenses to be offered in future auctions, this round of licensees will have been allotted both analog and digital channels. After the backlog is cleared, new auction winners will be permitted to transmit only in digital TV.)

The agency in April cleared the way for the auctions by rejecting most requests to change its auction rules, which were issued in August. Staffers are now putting finishing touches on specific procedures for the fall auctions, which the agency is expected to issue in the next two months. A date for the bidding has not been set.

The TV auctions are expected to be extremely lucrative for the government and will include permits for stations in three top-50 markets: Salt Lake City; Hampton Roads, Va.; and Oklahoma City. (See below for full list of licenses that will be offered.) The radio licenses are located primarily in small markets and are listed on the FCC's Web site at www.fcc.gov.

The winning entries for each of the three largest TV licenses up for bid could top $10 million, predicts Frank Higney, vice president at Tucson, Ariz.-based media broker Kalil & Co.

"Those markets are big enough to generate significant interest," adds Tim Pecaro, partner with Washington-based media broker Bond & Pecaro. "Each is expected to have over $100 million in total yearly TV revenues by 2000."

The hottest property to be put on the block appears to be Channel 21 in Virginia Beach, a station that would serve the burgeoning Hampton Roads area. There are 22 applicants currently vying for the license. The new station could fetch a price on par with the $14.75 million Paxson Communications paid for WPXV(TV) in 1997, Pecaro says. Though comparing the value of start-ups to ongoing operations is tricky, he says, WPXV's minuscule ratings prior to the Paxson purchase make it a suitable benchmark for what a new station in that market would be worth.

Some applicants may decline to bid, however, such as A.H. Belo Corp. and Sinclair Broadcasting, both of which already own stations in the Hampton Roads area and would need the FCC to drop its ban on TV duopolies to qualify for the winning offer.

A.H. Belo lobbyist Michael McCarthy is clinging to what he admits is a dim chance that the FCC will ease its duopoly prohibition prior to the auctions. "Hampton Roads is a great market, and we would like another station there," he says.

The largest market available is Salt Lake City, which could be served by Channel 32 in Provo, Utah. Salt Lake City is the country's 36th largest TV market. Pecaro notes that Acme Television Holdings paid $5 million last year for KUPX-TV, a new station also based in Provo. Bids for Channel 32 could come in anywhere between $5 million and $10 million, he says. The channel's 13 applicants include Winstar Broadcasting and KM Communications.

Ch. 46 in Norman, Okla., with 10 applicants, also is expected to top the $10 million mark. The most recent example of a new operation in the area is KPSG-TV, a noncommercial station purchased by Paramount Stations Group in July for $24 million. Pecaro said Paramount paid a premium, because it was especially eager to break into the Oklahoma City market and doubts that Channel 46 will go for that much.

The bulk of the available TV stations are in smaller markets and are expected to draw less than $1 million, several sources say.

"I don't see this as a bonanza for the FCC," says an executive at one of the license applicants.

Ramar Communications, for instance, is trying to capture new stations in Abilene, Texas, and Roswell, N.M. The two licenses, for Chs. 15 and 21, respectively, each have four applicants. Roswell may get lots of attention from UFO conspiracy theorists, but Ramar President Brad Moran says his company wants to use the license there simply to retransmit the signal from its Albuquerque station.

Rapid City, S.D., despite having 12 applicants for Ch. 21, also is likely to draw less than $1 million because the market generates only $9 million in TV revenues, Pecaro says.

Court challenges may delay some auctions. More than 20 applicants asked the FCC to reconsider the auction rules issued last summer. Many were miffed about having already gone to the expense of filing and preparing for comparative hearings, a process Congress eliminated when it ordered auctions as part of the 1996 Telecommunications Act. Last month, the FCC turned down a request to reimburse applicants for legal expenses incurred in preparing for hearings. A few applicants, however, are still expected to take the FCC to court over that decision, but they face an uphill battle, says communications attorney Erwin Krasnow of the Washington firm Verner Liipfert Bernhard McPherson & Hand. "The FCC was acting pursuant to congressional mandate," he says.

The rules for future auctions also face complaints. For instance, the FCC won't allow applicants to resolve competing applications after it closes a six-month bid application window allowed for each license that is put on the block--a prospect some say will keep stations off the air. By discouraging settlements, they say the FCC is likely to face lengthy court battles when losing bidders challenge the victors' qualifications. "The government seems more interested in maximizing bids than in getting new services on the air," says Gary Smithwick, partner at Smithwick & Belendiuk.

Despite a bidding credit for new entrants to the broadcast industry, Shook, Hardy & Bacon attorney Thomas Hart says the auction rules won't do much for minority buyers and others who lack access to capital. During auctions for personal communications services spectrum, he notes, bidding credits served only to inflate the offers. "I'm not particularly optimistic that broadcast auctions will result in diversity of ownership," he said.

On the block
TV licenses up for bid this fall

Abilene, Texas Channel: 15 No. of apps.: 4

Boise, Idaho Channel: 14 No. of apps.: 2

Butte, Mont. Channel: 24 No. of apps.: 4

Charlotte Amalie, Virgin Islands Channel: 43 No. of apps.: 2

Coos Bay, Ore. Channel: 41 No. of apps.: 3

Grants Pass, Ore Channel: 30 No. of apps.: 4

Great Falls, Mont. Channel: 26 No. of apps.: 4

Idaho Falls, Idaho Channel: 20 No. of apps.: 2

International Falls, Minn. Channel: 11 No. of apps.: 2

Ishpeming, Mich. Channel: 10 No. of apps.: 4

Ithaca, N.Y. Channel: 52 No. of apps.: 3

Kailua, Hawaii Channel: 50 No. of apps.: 7

Logan, Utah Channel: 12 No. of apps.: 2

Manteo, N.C. Channel: 4 No. of apps.: 6

Marquette, Mich. Channel: 19 No. of apps.: 6

Missoula, Mont. Channel: 17 No. of apps.: 5

Norman, Okla. Channel: 46 No. of apps.: 10

Provo, Utah Channel: 32 No. of apps.: 13

Rapid City, S.D. Channel: 21 No. of apps.: 12

Roswell, N.M. Channel: 21 No. of apps.: 4

Silver City, N.M. Channel: 6 No. of apps.: 5

Sun Valley, Idaho Channel: 5 No. of apps.: 8

Tallahassee, Fla. Channel: 24 No. of apps.: 13

Tazwell, Tenn. Channel: 48 No. of apps.: 6

Virginia Beach, Va. Channel: 21 No. of apps.: 22

Waimanalo, Hawaii Channel: 56 No. of apps.: 5

Waterloo, Iowa Channel: 22 No. of apps.: 6

Source: FCC

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