 This is JSA TV the newsroom for tech and telecom professionals. I'm Dean Perine and welcome to JSA TV Today we are talking FCC spectrum auction with industry observers from Vertix Consulting with us in the virtual studio today. We have mr. Greg Weiner Greg is the co-founder and partner at Vertix and mr. Daniel Vitulich. Daniel is a principal consultant at Vertix guys Welcome to JSA TV All right, let's go ahead and get started Greg this one's for you Why don't you tell our viewers quickly about Vertix consulting and what this FCC spectrum auction business is all about exactly? What does it mean to our industry sure happy to thanks for having us today? So Vertix worse a booty consulting firm focused almost exclusively on the wireless space we our customers are Wireless carriers the OEM service providers even infrastructure owners like fiber and small cell and and tower owners as well Fairly broad array of services we provide similar to most of the larger management consulting firms How will we focus as I said very narrowly on the on the wireless space and primarily have experts Who've worked in and around the industry for decades with respect to the auction? You know you're all familiar with the 600 megahertz auction that's that's underway with the FCC right now The this auction is a bit different than ones of the auctions in the past Previously set of spectrum was identified and simply auctioned off to the wireless carriers Who would then go through the steps to clear that spectrum and reallocate those those existing users into to other spectrum bands Or out of the space altogether in this case The the FCC is embarked on a fairly complex and ambitious mission to try and take spectrum that has an incumbent set of users and namely the broadcast television providers and Identify through this dual auction process a reverse and a forward auction a price that The broadcasters would be willing to take to release their spectrum And matching that with a price that the wireless carriers are willing to pay To acquire that spectrum it was born and it's been it's been the works for a number of years It was born out of the 2012 recovery and reinvestment act and is just now finally underway and starting in the middle of 2016 As I said unlike past auctions, we're really looking at market forces to try and marry supply and demand The broadcasters are bidding against one another in what they call a reverse auction where the price actually bids down over time They're bidding against one another who's willing to take the least amount of money to free up their spectrum Once they achieve certain certain benchmarks, it then flips over to a round of the forward auction at which point the wireless carriers Bid in in you know bid up against one another and what you know what most would view as a traditional auction And and this is this is really an opportunity for spectrum that is perceived to be underutilized and in an industry that's Perhaps not growing the way that the wireless industry is and repurpose it to something that's an industry where Demands have continued to grow dramatically over over the years. Thank you very much Greg and Daniel over to you There have been a number of developments over the last several months and really even the last couple of weeks Why don't you tell our viewers a little bit about those latest developments? Sure, I mean thanks for having us So the option is currently at stage four in its reverse bidding phase It is expected that for bidding and all this would be wrapping up by the end of January now I think it's it's useful to look at what's happened since the auction started back then at stage one when roadcasters opened it up and Plays are asked the FCC was trying to clear 126 megahertz worth of spectrum out of which 100 megahertz were Usable for the bidders The industry quickly realized that for bidding was not even close From what broadcasters were expecting pretty much at 22.5 billion dollars a lot of noise surrounding that that huge gap Triggered a lot of comments and noise in the industry now many believe that this was to be expected and That what was happening was the players were simply testing the water That actually led way to stage two stage two was targeted to clear 114 megahertz so that Broadcasters would relinquish that spectrum and make room for 90 megahertz of usable spectrum for bidders or carers Stage two ended up abruptly only with one round of forward bidding Again hitting only 21.5 billion dollars worth of bids very close to what happened in stage one now What was reduced considerably was the asking price from broadcasters, which? Seemed to have been realigning or at least aligning to what seemed to be back then more realistic expectations With that things moved on to stage three where now the SEC was trying to clear 108 megahertz to make room for 80 megahertz of usable spectrum for For bidders carriers or new market entrance Again the asking price dropped to 40.3 billion dollars yet the Forward bidding we made at very close levels when compared to stage one and two the number was 19.7 billion dollars worth of bidding Now if you go back in time and remember what was happening back then this was post election time So there was a lot of noise surrounding the the auction a lot of speculation So people were wondering what's happened next what's gonna happen with this new administration? Again when stage three ended up abruptly There will there were a lot of pessimistic views up in the air and people thinking this auction is going to be a failure however, if you go back in time and read or Go over what the SEC had stated before they started they did design this process so that the forward auction takes place fast and avoids Broadcasters from having to wait months before they get to four bids So we believe that this is taking place pretty much by design The option is working as planned and an attempt to find the as big as big balance for this market So now we're at stage four and many believe this is the sweet spot, right? This is where Things are gonna get real why because we're now talking about 70 megahertz of usable spectrum Which is according to analysts much closer to potential demand from the big players out there naming AT&T Verizon T-Mobile so That along with a dip in the clearing calls because we're now talking about 84 megahertz as opposed to 108 megahertz Expectation is that the asking price from broadcasters is gonna be significantly as the question is they're gonna be closer to the $20 billion mark and our carriers or for bidders gonna be willing to put up that amount of money after The holiday break and all these speculations that took place after the election that's yet to be seen and Yet to be seen if there's gonna be a stage five or not So with that we just have to wait and see All right guys, so our viewers are gonna want to know some predictions here So Greg will kick this back over to you. How are things gonna play out say in the next six to 12 months? Yeah And I wish I knew the right answer, but You know, I feel pretty strongly that this is still gonna play out favorably I think this round four and maybe round five are probably the critical rounds to watch We need to see some momentum. We need to see continued interest on both sides of the of the auction You know really this is this is the environment the FCC fostered they created this structure Perhaps they didn't know all of the consequences of the the auction design But they designed this specifically to marry supply and demand and that's what's happening here You've got too much supply too high of a price right now And then that needs to come in line price and supply need to come in line with demand So, you know not all together surprised that it's gotten where it has I think if we don't see meaningful momentum in the in this round or maybe next round You know, we started having very real conversations about was this auction a failure You know, did it not achieve its stated objectives? I say related to this You know as Daniel alluded to it happened at the same You know kind of in Contemporaneously with the the elections you've got a new incoming administration. You've got Potentially a greater opportunity for industry consolidation in the coming in this common term maybe in the very short term so The the ongoing auction actually presents some interesting challenges for the industry because generally you've got you've got quiet Periods that prevent any type of spectrum transaction from happening at a marketplace Other than that what's what's happening the auction. So that means a dish network for example who has Build constraints coming up on their spectrum, and you know, they're widely believed to be shopping their spectrum out to the major carriers Or even a sprint in a T-Mobile who you know again the speculation surface again about them potentially merging Those types of things those meaningful Transactions that involve spectrum really around hold until this auction plays out So there are broader further reaching consequences to this auction not wrapping up and maybe as quickly as as others thought I think the other thing, you know finally to point out is The option is just the first step in the process So while we do still feel confident that the the auction's gonna come to a successful conclusion We you know we realize that there's still three plus years of work to be done after this auction In order to make the let the spectrum be put to use and you know for that reason I think you know we should highlight the spectrum is not on critical path for 5g deployments You know we talk about the carriers not stepping up to the plate and and you know Maybe not doing their bidding sufficient amounts to to marry up with their demands for more spectrum being released This spectrum is not prime spectrum for 5g You know the FCC has other initiatives underway to release Those those different types of spectrum in the marketplace for the carrier So it doesn't really hold up any major network evolutions in our estimation Very good. Thanks Greg and Daniel same question So for those who believe that this is going to be successful right be the stage four or five There's still the question about the timeline that the FCC wants everybody to hit so those 39 months that everybody's being Presenting opinions about over the last year if not more so the NAB has been very vocal about the fact that Or about their assumption or believe that this is something that's not achievable because of the complexity surrounding the transition You're repacking hundreds of stations resources in the industry of various cars unlimited So the question is what is the FCC going to do to make sure that? Broadcasters can hit that timeline the FCC released a scheduling methodology Trying to alleviate that that challenge But if you really read into it and understand how it works They're going to be staggering each station and assigning it into a phase to keep everything Order In doing that they need to prevent interference between stations that are moving from one channel to another That's going to be we believe the driving factor and they also took into account into their modeling You know resources timeline whether you name it right that the constraints are many our question is Are those going to be are those going to have any meaningful impact in the scheduling when truly what we believe is going to happen Is that interference going to be dictating how those things? Happen now if you look at how many resources you have out there There's still that question to get dressed even though stations are going to be assigned to different phases Everyone can start and will start on day one and everybody will be trying to reach out of the same resources at the same time Why because everyone wants to be able to submit and file for the reimbursements as soon as possible So even though the scheduling methodology that the FCC is going to be used may help We believe it's not going to be significant in terms of alleviating that resource constraint So a lot to be seen. We believe the timeline is aggressive and it's going to be challenging And we believe more needs to be done to make sure that the resources that are available in industry will be enough to To cope with this Daniel and Greg. Thank you both very very much. It sounds to me like this warrants a another Interview at some point down the road. So again, thank you guys for being on the show today And thank you viewers for watching JSA TV. We'll see you soon