Oh Boy, More Radio Stations: Get Ready for Auction 91

By Gregg Skall, Womble Carlyle Sandridge & Rice PLLC

Perhaps it's gone unnoticed. It has certainly not created a buzz. Did you know that the FCC has set yet another date for auctioning off more FM radio stations? The new auction, Auction 91, is scheduled for March 29th, 2011. The Commission will offer 147 construction permits for new stations. A list of the FM allotments for which construction permits are being offered along with their reference coordinates can be found here. Auction 91 Radio Stations

The FCC takes pains to mention that it makes no representations or warranties about the use of the spectrum or the suitability of any of the stations. It insists that each applicant perform their own due diligence and analysis. In the Report and Order that announced the auction the FCC encourages applicants to continue their research throughout the auction process.

Based on past experience and the R&O proposals, here's a rundown how the Auction 91 will most likely be conducted. In its next Report & Order, the Commission will establish filing dates and announce critical dates for a pre-auction seminar, the full application filing window, the upfront payment deadline and a mock auction. We already know that the actual start of the auction will be March 29th, 2011. Typically the pre-auction seminar is held in Washington but is also webcast, so you can attend online. The Form 175 Application to participate in the auction is prepared on-line at the FCC auction portal.

The rules offer limited bidding credits for FCC "new entrants." The size of the new entrant bidding credit depends on the number of ownership interests in other media of mass communications attributable to the bidder and its attributable interest-holders:

• A 35% bidding credit is offered where the winner has no attributable interest in any other media of mass communications;
• A 25% bidding credit is awarded where the winner has an attributable interest in no more than three mass media facilities;
• No bidding credit is allowed if any of the commonly owned mass-media facilities serve the same area as the proposed broadcast station, or if the winning bidder has an attributable interest in more than three mass media facilities.

The submitted applications are reviewed by the Commission staff, following which an announcement is made of those who are determined to be "eligible bidders." Each eligible bidder must then submit the required "upfront payment" by a specified date. The Commission then will issue a list of "qualified bidders" and conduct a mock auction where each qualified bidder may practice the online bidding procedures.

The auction is conducted as a simultaneous, multiple-round auction. That means that bids are placed on ALL C's at the same time. Generally the Commission starts with two rounds a day, and quickly increases the number of rounds to four and then up to six or eight rounds a day, depending upon the amount of bidding activity in the prior rounds.

In the opening round, the only acceptable bid is for the minimum amount. That means that all bidders will be tied. A random number is then assigned to each bid and the bid with the highest random number is deemed the high bidder. Typically, this same tie-breaking strategy is used in any subsequent round where there is a tie for high bidder.

After the first round, bidders are usually allowed to bid in nine incremental amounts, initially at least, 10% to 90% of the previous high bid, rounded to the nearest $1,000. The Commission has proposed again that for Auction 91 the minimum incremental amount will be 10%.

Typically and also proposed for this auction, the bidding is in two stages. The increments and the bids in the first stage are more gradual. When the Commission believes it is appropriate, they will move to stage two, increasing the bidding increments to move up the pace of the auction.

To maintain current bidding eligibility, in stage one a bidder will have to be active on construction permits representing 75% of the current bidding eligibility. In the next stage, the requirement is increased, typically to 95% of one's current bidding eligibility.

Also, to keep bidders active, if a bidder does not use all of its qualified bidding credits in a round, it will lose the ability to use the unused bidding credits in subsequent rounds. These rules are reflected again in the Commission proposals for Auction 91.

Once the bidding round has closed, a bidder is not permitted to withdraw a bid, so be careful what you wish for!

As you can see, the bidding rules get quite complex. This is only a brief overview of some of them. Typically, considerable study and experience is required to master them. So, anyone wanting to get into Auction 91 should start the homework now.

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.