Federal Communications Commission INCENTIVE AUCTION IMPLEMENTATION

1. Federal Communications Commission INCENTIVE AUCTION IMPLEMENTATION Incentive Auctions and Broadcast Spectrum CBG State and Local Government Webinar Rebecca Hanson Senior Advisor, Spectrum Media Bureau, FCC May 2, 2012

2. Incentive Auctions Implementation What is an “Incentive Auction”? Concept developed as part of the National Broadband Plan of 2010 Use of wireless broadband is increasing exponentially through smart phones and tablets • Viewers of over-the-air television have been steadily shifting to cable/satellite • Now averaging around 10% nationally Needed a market-based mechanism to redirect spectrum to where it is needed most • An auction of spectrum • Contributed voluntarily by broadcasters • Configured into large, contiguous blocks by the FCC to create more value for stakeholders • More value for wireless companies, contributing broadcasters, and consumers • Auctioned by the FCC • Proceeds shared between contributing broadcasters and the Treasury Incentive auctions could be applied to a variety of spectrum bands, but first auction will focus on the television bands.

3. Incentive Auctions Implementation Middle Class Tax Relief and Job Creation Act of 2012 Signed by the President on February 22 Includes incentive auction authority (ability to share auction proceeds) Consistent with the vision we laid out in our previous webinars: • Spectrum contributions will be voluntary • Three options for contributing are included • All 6 MHz • Channel Share • Move from UHF to VHF

4. Incentive Auctions Implementation Three Options for Broadcaster Participation Contribute a 6 MHz channel • Set reserve price • Relinquish 6MHz license and take station off the air • Could use proceeds to strengthen other stations in a multi-station group • Could invest proceeds in new content distribution or other businesses Channel-share • Set reserve price for sharing of 6 MHz channel • Channel share with like-minded station in your market • Retain direct license from FCC, including must-carry rights • Maintain core business on primary stream Move to VHF • Set reserve price • New 6MHz VHF channel assignment, retain multicast opportunities • Retain must-carry rights Both channel-sharing and moving to VHF would allow broadcasters to receive a portion of auction proceeds and stay on the air.

5. Incentive Auctions Implementation Important Broadcaster Protections in the Act For participating broadcasters: Confidentiality of contributions Preservation of must carry rights for channel sharing stations For broadcasters not participating: No involuntary moves from UHF to VHF Reasonable efforts to preserve coverage area and population served $1.75 billion to reimburse repacking costs

6. Incentive Auctions Implementation How will proceeds be shared? Broadcaster contributions referred to as “reverse auction” in statute. • A volunteering broadcaster would identify what spectrum they want to contribute and a reserve price. • A reserve price would be the minimum price at which a broadcaster is willing to contribute its spectrum. • Station value might be a starting point in formulating reserve price. • Station value is an accepted sales metric used today. • For what price would you sell your station in an acquisition? • For what price would you channel share (give up capacity)? • For what price would you move from UHF to VHF (give up coverage)? • Other considerations for setting a reserve price

7. Incentive Auctions Implementation Some Considerations for Public Television Stations High concentration of public television stations in some markets States are cutting public television budgets Channel sharing is an opportunity to rationalize the sector, trim duplicative stations, increase efficiencies in programming • Moving to VHF may also be appropriate choice for some stations Working to develop viable ways for public broadcasters to receive auction proceeds and fulfill coverage mission Consider long-lead actions that may facilitate participation by state-owned or controlled stations • Any restrictions in a station’s state law? • Any restrictions in a state-owned station’s organizing charter? • Any other relevant restrictions? Conducting due diligence now could increase your options later

8. Incentive Auctions Implementation Next Steps FCC in process of organizing the work streams, timelines, coordination with Canada and Mexico, and drafting a variety of new notices and rulemakings • Issued first R&O on channel sharing on April 27 • Workshop on channel sharing announced for May 22 • Workshop on reimbursement for repacking costs being planned New wave of interest from broadcasters • Lots of questions about channel sharing, how to formulate a contribution and reserve price • We are encouraged by this show of interest as signs for a successful auction

9. Incentive Auctions Implementation Questions?