Coming next year is an incredibly important auction, and it's like no art sale you've ever seen. Instead of selling off tickets to a ballgame or pricey antiques, this auction will sell spectrum — the invisible airwaves that carry voices, pictures and data over the air and into your home. It's spectrum that makes your 3G and LTE connections work. Spectrum is behind WiFi and satellite communications. It's what makes broadcast television possible.
"Twenty-first century consumers … have a seemingly insatiable appetite for wireless services, and thus, for spectrum," Federal Communications Commission Chairman Tom Wheeler wrote in a blog post last year.
With more of us taking our video consumption on the road with tablets and phones, mobile wireless networks will need a lot more capacity if they're going to keep up. That's where TV stations come in. Under this auction, they'd sell their airwaves to wireless carriers. But it's a complicated process. Nobody can predict for sure how it will turn out — or if it will even work.
Some broadcasters might choose not to bring their spectrum to the table. If that happens, the whole auction could fall apart. That would be disastrous for wireless carriers such as AT&T and T-Mobile, many of whom want access to those airwaves so they can build faster cellular data networks and offer better voice service.
But if the broadcasters, lured by the prospect of cashing huge checks from the wireless industry, all decide to get in the game, what we'll witness is a historic nationwide transfer of corporate real estate.
To get an idea of how big a deal this is, consider a similar spectrum auction that the federal government wrapped up in January. A lot of people predicted that the auction would raise around $18 billion for the U.S. Treasury. In the end, the actual figure was about two-and-a-half times that. Financial analysts had massively underestimated how much the wireless carriers would shell out for airwaves. Turns out they were willing to pay a lot — $45 billion.
Some now say the 2016 broadcast spectrum auction could fetch nearly twice what the government raised in January.
"Write this down: This auction will raise at least $84 billion," Preston Padden, a former ABC executive who represents a coalition of 84 TV stations interested in participating in the auction, said at an industry conference in Las Vegas on Monday. In addition, he said, that $84 billion would result in 100 megahertz of spectrum going to the wireless industry — a very large swath of radio waves.
It's "very doable," Padden added.
Not everyone is so optimistic. That's because there's a huge controversy surrounding the way the broadcast auction will be run. For example, federal regulators responsible for designing the auction have decided to set aside a portion of the broadcast spectrum for smaller wireless carriers to compete over, for fear that the big companies — AT&T and Verizon — will outbid everyone else and take all the spectrum for themselves.
This is a life-or-death decision, according to some wireless industry execs who point out that the most recent spectrum auction saw three companies gobbling up 94 percent of the sold airwaves.
"This whole thing should scare the hell out of you and every other wireless consumer in the U.S.," T-Mobile chief executive John Legere wrote in a recent blog post. "This playfield isn't going to level itself."
If relatively cash-strapped companies like T-Mobile and Sprint are effectively shut out of the auction, that could limit their long-term ability to compete with the big carriers. And if they go under as a result, that would be bad in the eyes of the FCC, which has sought to preserve competition by maintaining four national wireless carriers in the United States.
Senior officials from dominant wireless companies, such as AT&T's Joan Marsh, argue it would be simple for T-Mobile and Sprint's foreign backers — Germany's Deutsche Telekom and Japan's Softbank, respectively — to pony up the funds needed to compete in an auction without a special set-aside. The FCC should design the rules to reflect that, Marsh said Monday at the conference.
"AT&T has never sat out a major auction, and we won't sit out of this one," she said. "I predict that when the FCC's ready to move forward, we'll be there."
If all this back-and-forth sounds confusing, that's because the untested nature of the auction is forcing everyone to talk in hypotheticals. If there is to be a special spectrum reserve for small carriers to fight over, it's unclear how much spectrum will be in it. And that's because nobody knows with much certainty how many TV stations plan to join the auction in the first place.
Some, particularly Republican officials, predict it could depress the amount of money the auction will raise. Democrats say the plan as written has received widespread support.
The uncertainty is having an effect on wireless carriers. Some of the larger companies are low-balling their expectations such that they fall far short of Padden's hopeful scenario. Instead of moving 100 MHz of spectrum, it might be more like 70, according to a person familiar with the carriers' thinking.
In Las Vegas this week, officials from the broadcast industry said the best thing that can happen is for the auction rules to be a simple as possible — which would convince TV stations that they stand to make top-dollar from selling their spectrum, even if it means denying some airwaves to the likes of Sprint and T-Mobile.
"This participation is contingent on the FCC getting the auction rules right," said Gordon Smith, chief executive of the National Association of Broadcasters. "If the commission can stay out of the way, I believe we can have a successful incentive auction."
To sell their plan, FCC officials have effectively been waging a political campaign, reaching out to broadcasters all across the country with the case for participating in the auction.
For many TV station owners, particularly in lucrative city markets, the promise of a big payout will be key to bringing them aboard. Without the promise of a huge check, however, they would likely hold back — and Americans might then have to wait a lot longer for better wireless service.