The Dream Could Come True

Bid For Your Own Radio Station In Auction #79

The FCC has announced Auction #79 for FM radio station construction permits. Auction #79 will offer 122 construction permits in the FM broadcast service as listed in Attachment A. The construction permits to be auctioned are for new FM allotments, and include construction permits for three FM allotments that were defaulted on after a previous auction, and a construction permit for one FM allotment that was offered but not sold in Auctions 37 and 62.

Those wishing to participate in this auction must:

* Submit a short-form application (FCC Form 175) electronically prior to 6:00 p.m. ET, June 25th, 2009.

* Submit a sufficient upfront payment and an FCC Remittance Advice Form (FCC Form 159) by 6:00 p.m. ET, July 31st, 2009.

The FCC affords limited bidding credits to "new entrants." The size of a New Entrant Bidding Credit depends upon the number of ownership interests in other media of mass communications that are attributable to the bidder-entity and its attributable interest-holders:

* A 35% bidding credit will be given to a winning bidder if it, and/or any individual or entity with an attributable interest in the winning bidder, has no attributable interest in any other medium of mass communications;

* A 25% bidding credit will be given to a winning bidder if it, and/or any individual or entity with an attributable interest in the winning bidder, has an attributable interest in no more than three mass media facilities, none of which serve the same area as the proposed broadcast station.
Thus, those qualifying for one of these credits will find themselves bidding with "cheaper money."

Once the short-form filings are submitted, they will be reviewed by the Commission staff for sufficiency. An announcement will be made of those submitted that are determined to be "eligible bidders," after which each of them must each submit an "upfront payment" by a specified date. Thereafter, the Commission will issue a list of "Qualified Bidders," conduct a mock auction so that bidders or their designated representatives can practice electronic bidding in the FCC's Internet-based bidding system, and then the actual auction will commence on September 1st, 2009.

Here is a summary of the typical relevant bidding procedures: A bidder may designate up to three alternative bidders. A bidder can specify the markets in which it is interested, or may specify the entire list. However, its bidding will be limited to the markets it lists on its short form application. In addition, each permit is assigned a "bidding unit" amount, which serves both as the opening bid for that permit as well as the amount of the upfront payment that must be submitted in order for a bidder to be eligible to bid for that permit. In other words, if a bidder submits $80,000 as its upfront payment, then its collective bidding in each round would be limited to permits having no more than $80,000 worth of bidding units.

Keeping with past practice, the auction will be a simultaneous multiple-round auction. That means that bids will be placed on all CPs at the same time. The Commission generally starts with two rounds a day. Based on experience, the number of rounds should increase quickly to four a day and then up to six or even eight rounds a day.

In the opening round, the only acceptable bid for each permit will be for the minimum amount. That means that everyone will be tied. The Commission will assign a random number to each bid. The bid with the highest random number will be deemed the high bidder. This tie-breaking strategy will be employed in all rounds.

After the first round, bidders can bid in nine different increment amounts -- 10% to 90% of the high bid, rounded to the nearest $1,000. For example, if the opening bid is $10,000, the bids in the next round can range from $11,000 to $19,000. If the high bid in the second round were $11,000, the third round bids could range from $12,100 (additional 10% over $11,000) to $20,900 (additional 90% over $11,000). In most cases, we can expect a minimum bid increment of 10% for each round.

It is worth noting how the total amount at risk can increase. For example, assume an opening bid of $80,000 and rounds that proceed in 10% increments. After seven rounds on an $80,000 initial bid, the bidder would be committed to at least $156,000 and after 20 rounds, $538.000. Were the average provisionally winning bid to be 50% higher than the previous round's provisionally winning bid, the bid would be $1,367,000 by the seventh round and well ... way too high by the twentieth round ($266,021,000).

To maintain current bidding eligibility, a bidder has to be active on construction permits representing at least 75% of its current bidding eligibility. In stage two, that requirement will increase to 95% of current bidding eligibility. (Of course, this applies when the bidder applies for more than one permit.)

There is also an activity rule that bidders must use their bidding credits in all bidding rounds or lose bidding credits. If, for example, a bidder starts out with $80,000, it cannot lose any bidding credit and must be active in all rounds, except that the rules will allow three activity waivers. The waivers may be taken by affirmative action, but the Commission will not allow a bidder to skip a round, so if no bid is placed in a round, an activity rule waiver will be automatically imposed. An activity rule waiver applies to an entire round of bidding and not to a particular construction permit. If a bidder is inactive for more than the allowed waivers, the bidder will become ineligible and will be out of the auction.

In other words, a bidder desiring to maintain its full eligibility is required to be active on construction permits representing 100% of its current eligibility. A bidder's activity will be the sum of the bidding units associated with the construction permits upon which it places a bid during the current round and the bidding units associated with construction permits upon which it is the standing high bidder. That is, except for a round in which an activity waiver is consumed, a bidder must either place a bid and/or be the standing high bidder during each round of the auction.

Here is a summary of important dates. Click on the title Auction 79 to take you to the FCC's auction's website, where you will find the list of construction permits up for auction. (or click on Attachment A to go directly to the )

This is only a "taste" of the bidding rules. They are more complex than we can provide in this summary, but can be mastered with a little guidance and some practice. If you would like further information, please let us know.

Gregg Skall
Peter Gutmann

This column is provided for general information purposes only and should not be relied upon as legal advice pertaining to any specific factual situation. Legal decisions should be made only after proper consultation with a legal professional of your choosing.