Incentive Auction Opportunities for Broadcasters February 2015 Prepared for the Federal Communications Commission by Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. This presentation was prepared by Greenhill & Co., LLC (“Greenhill”) for the Federal Communications Commission (“FCC”) for use in explaining and promoting to broadcasters the Incentive Auction opportunities under the FCC’s Incentive Auction Report and Order issued in May 2014 (“Report and Order”) and the Broadcast Incentive Auction Comment Public Notice issued in December 2014 (“Comment PN”). This presentation may not be used for any other purpose or relied upon by any person. This presentation is summary in nature and is subject in all respects to the detailed terms of the Report and Order, Comment PN and related rules. This presentation summarizes the Report and Order and Comment PN as in effect on the date hereof. Greenhill has no obligation to update this presentation for any changes in the Report and Order, Comment PN or the rules related thereto or official interpretations thereof. This presentation is designed to assist broadcasters and their agents in their analysis of the Incentive Auction opportunities, but does not purport to contain all information required by broadcasters or their agents to determine whether to participate in the Incentive Auction, and does not constitute financial, legal, regulatory, tax or accounting advice. Greenhill makes no representation or warranty with regard to this presentation or the Incentive Auction. In preparing this presentation, Greenhill has relied on publicly available information and other information furnished to it by the FCC and has assumed, without independent verification, the accuracy and completeness of all such information. In particular, the estimates and forecasts of auction bids and proceeds contained in this presentation were supplied by the FCC and have been relied upon by Greenhill without any independent verification thereof. Actual results may vary from such estimates and forecasts and such variations may be material. This presentation is for informational purposes only, is not intended to provide the sole basis for evaluating the Incentive Auction opportunities, and should not be considered a recommendation, opinion, or advice of any kind with respect to the Incentive Auction opportunities. Broadcasters are strongly urged to conduct their own independent investigation and due diligence regarding the Incentive Auction opportunities and make any decisions based on the advice of their own financial, legal, regulatory, tax, accounting and other advisors. Disclaimer Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. What is the Incentive Auction? – The Incentive Auction is a market-based approach to repurposing the 600 MHz spectrum band that will provide Broadcasters the opportunity to sell their spectrum usage rights while retaining the flexibility to remain on the air – The Incentive Auction is comprised of a Reverse Auction and a Forward Auction, which together will create a structured spectrum marketplace for Broadcasters and Mobile Broadband Providers – The FCC has the unique ability to unlock value for Broadcasters by reorganizing the 600 MHz spectrum band into contiguous blocks on a nationwide basis and reallocating it for wireless use The Incentive Auction Represents a Unique Opportunity for Broadcasters to Monetize the Value of their Spectrum Mobile Broadband Providers Forward Auction Broadcasters Reverse Auction Broadcasters relinquish spectrum usage rights for compensation Mobile Broadband Providers bid for spectrum licenses 3 Source: FCC Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. – Participation is strictly voluntary – Broadcasters decide whether to participate after they see the opening bid price offered by the FCC and have the flexibility to drop out in any subsequent round – The FCC has committed to keep all information identifying Broadcasters who participate and drop out or are not chosen confidential for two years – Furthermore, Broadcasters who participate and drop out remain protected (as if they had not participated) – With multiple bidding options, participation does not mean a Broadcaster has to exit its business – Channel Sharing and moving to VHF are flexible ways to reap auction proceeds and stay on the air – The IRS has provided guidance on the tax implications for each bidding option(1) Why Should You Participate? – The FCC has the unique ability to unlock spectrum value through its authority to repurpose broadcast spectrum for wireless use and reorganize the 600 MHz Band on a nationwide basis – A private sale of spectrum is not an option – The FCC has no other Incentive Auctions planned or expected Unique Opportunity Voluntary with the Potential for Significant Upside – Recent trends (including the AWS-3 auction and other spectrum transactions), suggest highly attractive spectrum valuation levels – Independent studies have estimated robust proceeds from the Forward Auction – Broadcasters in large and small markets are pivotal to clearing spectrum on a nationwide basis Attractive Valuation Levels The Incentive Auction Offers a Compelling Opportunity for Broadcasters Source: FCC (1) Federal Tax Principles Applicable to the FCC’s Proposed Broadcast Incentive Auction, Internal Revenue Service (July 3, 2014) , available at wireless.fcc.gov/incentiveauctions/learn-program/docs/irs-letter.pdf . A summary of this guidance can be found in the attached Appendix. 4 Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. How the Incentive Auction Will Affect Broadcasters – Broadcasters receive cash proceeds for relinquishment of their spectrum usage rights based on final bids – If a Broadcaster accepts a license relinquishment or Channel Sharing bid, it is required to vacate its existing channel within three months of receiving proceeds – If a Broadcaster accepts a UHF to VHF or High VHF to Low VHF transition bid, it must cease operations on its pre-Auction channel within 39 months Congress Authorized the FCC to Reorganize (“Repack”) Broadcasters That Are Not Selected or Do Not Participate in the Auction Source: FCC Stations that Participate and are Selected Stations that Participate and are Not Selected – Broadcasters retain spectrum usage rights subject to repacking – After the Incentive Auction, the final channel assignments will be released – Broadcasters will be treated as if they had not participated in the Auction – If a Broadcaster’s channel is changed during the repacking process, it must cease operations on its pre-Auction channel within 39 months • Broadcasters will receive a portion of the $1.75 billion Relocation Fund to reimburse them for relocation costs Stations that Choose Not to Participate – Broadcasters retain spectrum usage rights subject to repacking – After the Incentive Auction, the final channel assignments will be released – If a Broadcaster’s channel is changed during the repacking process, it must cease operations on its pre-Auction channel within 39 months • Broadcasters will receive a portion of the $1.75 billion Relocation Fund to reimburse them for relocation costs 5 Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Unique Opportunity for Broadcasters – The FCC has the unique ability to unlock broadcast spectrum value ? Value unlocked as a result of FCC-backed repurposing and reorganization of broadcast spectrum for wireless broadband use – There are several advantages for Broadcasters participating in the Reverse Auction ? Ability to receive compensation by relinquishing spectrum, while retaining the flexibility to stay on air through Channel Sharing and UHF-to-VHF options ? The FCC will conduct the Auction, enabling Broadcasters to avoid complexity and costs associated with repurposing spectrum The Incentive Auction Represents a Unique Opportunity for Broadcasters to Monetize their Spectrum Given the FCC’s one-time authorization for this Incentive Auction, Broadcasters who choose not to participate will miss this unique opportunity to unlock value 6 Source: FCC Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. – Increased demand for wireless communication, greater coverage and increased speeds have driven wireless carriers to continue to build out their networks • Global mobile data traffic is forecasted to increase at a CAGR of 61% from 2013-2018(1) – UHF spectrum currently being utilized by television Broadcasters is a rare and valuable resource • Low band spectrum, such as the 600 MHz band, has the ability to travel for longer distances and penetrate buildings better than higher-band spectrum – as such, low band spectrum transactions have drawn higher MHz-POP prices, and those prices have continued to trend upwards – With the potential for unexpected technological shifts and uncertainty about future broadcast technical standards (e.g., Advanced Television System Committee (“ATSC”) 3.0), the Incentive Auction provides Broadcasters an opportunity to maximize value today Your Low-Band Spectrum Usage Rights are Valuable (1) Cisco Visual Networking Index: Forecast and Methodology, 2013–2018 (June 10, 2014); Compound annual growth rate - year-over-year growth rate of mobile data traffic from 2013 to 2018 (2) Source for all Auction 73 data: FCC Source: FCC Last Auction of Comparable Low-Band Spectrum(2) ($ / M H z- P O P ) The 2008 700 MHz auction (Auction 73) raised $19 billion – Average unit price for all blocks: $1.28 per MHz-Pop – Average unit price for paired blocks (most comparable to 600 MHz band plan): $1.35 per MHz-Pop $1.13 $2.65 $0.76 $0.74 $0.00 $0.50 $1.00 $1.5 $2.00 $2.50 $3.00 Bl ck A: 12 MHz (698-704 / 728-734) Block B: 12 MHz (704-710 / 734-740) Block C: 22 MHz (746-757 / 776-787) Block E: 6 MHz (722-728) 7 Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. – Over $9 billion in secondary market transactions over the past five years – Major recent transactions include: – MHz-POP unit prices for spectrum licenses have increased at an approximately 6% CAGR over auction prices, or approximately 33% over a five-year period – The AWS-3 auction ended in January 2015 with $41.3 billion in total net bids and $39.5 billion for paired bands $ / MHz-POP Figures from Recent Comparable Transactions – 700MHz and AWS ($ / M H z- P O P ) Wireless Spectrum Prices Have Continued Trending Upwards ATT-Qualcomm 700 MHz Band $1.9 Billion Dec 2010 Dec 2011 Jan 2013 Jun 2013 Jan 2014 Verizon-SpectrumCo AWS Band $3.6 Billion Verizon-Grain 700 MHz Band $189 Million T-Mobile-USCC AWS Band $308 Million T-Mobile-Verizon 700 MHz Band $3.3 Billion Source: FCC, Public press releases AWS-1 Auction, $0.54 700 MHz Auction, $1.35 Qualcomm / AT&T, $0.85 Verizon / SpectrumCo, $0.68 Verizon / Cox, $0.52 Grain / Verizon 700MHz B Block, $4.08 T-Mobile / US Cellular, $0.96 T-Mobile / Verizon 700MHz A Block, $1.85 AWS-3 Auction $2.53 $0.00 $0.50 1.00 $1.50 $ . 0 $2.50 $3.00 $3.50 $4.00 $4.50 6/30/2005 12/30/2006 6/30/2008 12/30/2009 7/1/2011 12/30/2012 7/1/2014 12/31/2015 700MHz transactions AWS transactions 8 Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Robust Participation From All Sized Markets is Key to the Incentive Auction’s Success… Due to the “Daisy Chain” Nature of Interference, Stations in Mid to Smaller- Sized Markets will be able to Derive Substantial Value “…under the assumption of full participation, we learn that to clear 84 MHz of spectrum, a minimum of roughly 200 voluntary Broadcaster exits are needed ignoring the domain constraints as identified by the FCC, and approximately 250 exits, if those constraints are considered” AT&T Computational Study (June 18, 2014) Participation of More Than 200 Broadcasters is Needed Select Commentary Illustrative Interference Effect Across Multiple Markets B C A D – Interference from Broadcasters in smaller markets can affect nearby larger markets – For example, relinquishment of spectrum usage rights by Station A would enable the repacking of Station B and thereby free up more channels in Station B’s market for sale in the Forward Auction – That in turn could facilitate the repacking of Station C or other stations in Station C’s market – Participation by Station D could have the same effect Source: FCC 9 Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. DMAs Below the Top 30(1) …Which Unlocks Value for Broadcasters in Markets of all Sizes Top 10 DMAs(1) Proposed Opening Bid Prices Indicate Compelling Value for Eligible Full Power Broadcasters Across the Nation, Not Just in Top Markets (1) DMA rankings per Nielsen 2013-2014 Source: FCC Opening bid prices for going off-air have been calculated using the methodology that has been proposed by the Commission in the Incentive Auction Comment PN, with a 33% discount from the UHF relinquishment price for Low-VHF stations and a 67% discount for High-VHF stations. The proposed methodology, including discounts for VHF stations, is currently subject to public comment and final approval by the Commission. Final opening bid prices will depend on final determination of the constraints each station imposes on repacking. Actual compensation will be determined through the auction bidding process. Markets and stations needed in the Reverse Auction will depend on which stations choose to participate; low VHF stations are least likely to be selected in the auction because of the availability of low VHF channels. The Appendix includes a chart showing the maximum and median opening bid prices per station for each television market. 10 Maximum - Median New York, NY $870 $660 Los Angeles, CA 630 560 Chicago, IL 610 520 Philadelphia, PA 680 490 Dallas-Ft. Worth, TX 350 290 San Francisco-Oakland-San Jose, CA 540 410 Boston, MA 540 420 Washington, DC 490 410 Atlanta, GA 470 380 Houston, TX 290 270 DMA FCC's Proposed Opening Bid Prices Per Broadcaster ($mm) Maximum - Median 38 West Palm Beach-Ft. Pierce, FL $360 $290 43 Harrisburg-Lancaster-Lebanon-York, PA 420 310 46 Greensboro-High Point-Winston Salem, NC 480 350 52 Buffalo, NY 210 170 53 Providence, RI-New Bedford, MA 430 340 68 Flint-Saginaw-Bay City, MI 360 190 71 Tucson, AZ 140 100 86 Harlingen-Weslaco-Brownsville-McAllen, TX 90 86 98 Burlington, VT-Plattsburgh, NY 160 63 113 Youngstown, OH 390 360 DMA FCC's Proposed Opening Bid Prices Per Broadcaster ($mm) Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Class A Stations Could Also Receive Significant Compensation in Many Markets Top 10 DMAs(1) DMAs Below the Top 30(1) Likewise, Proposed Opening Bid Prices are Compelling for Eligible Class A Broadcasters in All Sized Markets (1) DMA rankings per Nielsen 2013-2014 Source: FCC 11 Maximum - Median New York, NY $460 $380 Los Angeles, CA 510 410 Chicago, IL 450 360 Philadelphia, PA 340 240 Dallas-Ft. Worth, TX 280 270 San Francisco-Oakland-San Jose, CA 260 240 B ston, MA 270 260 Washington, DC 280 130 Atlanta, GA 290 220 Houston, TX 270 250 DMA FCC's Proposed Opening Bid Prices Per Broadcaster ($mm) Maximum - Median 34 Milwaukee, WI $170 $160 38 West Palm Beach-Ft. Pierce, FL 140 84 53 Providence, RI-New Bedford, MA 120 120 55 Fresno-Visalia, CA 120 110 71 Tucson, AZ 93 89 78 Rochester, NY 120 100 86 Harlingen-Weslaco-Brownsville-McAllen, TX 72 41 125 Monterey-Salinas, CA 87 72 157 Wheeling, WV- Steubenville, OH 82 41 178 Harrisonburg, VA 62 17 FCC's Proposed Opening Bid Prices Per Broadcaster ($mm)DMA Opening bid prices for going off-air have been calculated using the methodology that has been proposed by the Commission in the Incentive Auction Comment PN, with a 33% discount from the UHF relinquishment price for Low-VHF stations and a 67% discount for High-VHF stations. The proposed methodology, including discounts for VHF stations, is currently subject to public comment and final approval by the Commission. Final opening bid prices will depend on final determination of the constraints each station imposes on repacking. Actual compensation will be determined through the auction bidding process. Markets and stations needed in the Reverse Auction will depend on which stations choose to participate; low VHF stations are least likely to be selected in the auction because of the availability of low VHF channels. The Appendix includes a chart showing the maximum and median opening bid prices per station for each television market. Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Reverse Auction Description Round Bid Price Stations Accepting Bid Price Stations in Excess of Clearing Target 1 $$$$$$ 3 stations 2 $$$$$ 1 station Dropped Out Participants Repacked into Pre-Auction Band 3 $$$$ 1 station 4 $$$ 0 stations Market Clears / Dropped Out Participants Repacked into Pre-Auction Band ? Illustrative Reverse Auction Example where 2 Stations are Needed The Reverse Auction will use a Descending Clock Format to Make Participation Easy and Transparent for Broadcasters (Assumes technically identical stations) 12 Note: Not all stations willing to accept an offered price will be selected to relinquish their licenses. Since all stations are not technically identical, as is assumed in this slide, stations are not perfectly substitutable in the repacking process. The auction system will take into account bid amount and the feasibility of repacking stations into the broadcasting band when it selects stations to receive a relinquishment payment. Source: FCC Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Significant Flexibility for Broadcasters Through Multiple Bidding Options The Reverse Auction is Structured so Broadcasters Can Receive Compensation, but also Retain the Optionality to Continue Broadcasting License Relinquishment ? Relinquish entire 6 MHz channel and go off the air ? Highest level of proceeds for winning bidders ? Enables Broadcasters to reallocate proceeds to support other operations, reinvest in more strategic markets or return capital to stakeholders ? Potential for long-term capital gains tax treatment(1) UHF to VHF / High VHF to Low VHF Move ? Relinquish 6 MHz UHF or high VHF channel in exchange for another channel ? Remain on the air and receive proceeds from the auction with no loss of licensee status ? Maintain cable carriage rights ? Flexibility to limit bids to a high or low VHF channel ? May be able to defer taxes on a portion of gain through like-kind exchange (1) Channel Sharing ? Relinquish entire 6 MHz channel and negotiate a commercial arrangement with another Broadcaster to share channels / facilities and stay on the air ? Winning bidders will receive the same level of Auction proceeds as in a License Relinquishment bid, prior to any effect of sharing arrangement ? Remain on the air and receive proceeds from the Auction with no loss of licensee status ? Maintain cable carriage rights ? Lower operating costs and capital expenditures through facility sharing ? Immediate value in markets in which commonly owned Broadcasters can pair up ? Broadcasters in dozens of markets already transmit two top-4 network signals on the same 6 MHz channel, and Sinclair recently announced that it will transmit two network signals on the same channel(2) ? Channel sharing by two different licensees was successfully validated in a trial conducted in early 2014 ? May qualify for tax deferral for the portion of the gain associated with moving to a shared channel(1) “The framework established in the Report and Order offers a win-win for Broadcasters to generate revenue and continue to broadcast over the air, while ensuring that consumers will benefit from more robust competition among wireless carriers.” DISH Network (July 9, 2014) (1) Federal Tax Principles Applicable to the FCC’s Proposed Broadcast Incentive Auction, Internal Revenue Service (July 3, 2014) (2) FCC 2014 Quadrennial Review Further Notice of Proposed Rulemaking; Sinclair press release (March 20, 2014) Source: FCC 13 Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Overview of the Channel Sharing Option 14 – Under this option, a Broadcaster will relinquish its existing 6 MHz channel in the Reverse Auction as if it were to go off the air and, after the auction, move to a shared channel – The opening bid prices published in the Incentive Auction Opportunities for Broadcasters document apply to Channel Sharing participants, who will receive a full valuation for their UHF 6 MHz • The Broadcaster relinquishing its 6 MHz license will receive auction proceeds and must agree on how to share these proceeds with its Channel Sharing partner • For commonly owned Broadcasters in the same market, the Channel Sharing option drives immediate value without having to share proceeds with a third party – This option enables Broadcasters to remain on the air, receive proceeds with no loss of licensee status, and reduce operating costs and capital expenditures through facility sharing • Channel sharing can take place in the UHF or VHF band – Each shared station remains a primary FCC licensee on a 6 MHz channel with all current licensee rights, including must carry • Broadcasters will privately negotiate financial, operational and technical arrangements regarding sharing of channel and transmission facilities Enables Broadcasters to Remain on the Air While Also Receiving Substantial Compensation Through the Incentive Auction Ch. 21 Ch. 49 Illustrative Channel Share Ch. 21 Standalone Ch. 49 Station 1 Station 2 Sold in Auction Station 1 Station 2 (1) FCC 2014 Quadrennial Review Further Notice of Proposed Rulemaking; Sinclair press release (March 20, 2014) Source: FCC Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Overview of the UHF to VHF Band Change 15 – Under this option, a Broadcaster will bid to relinquish its UHF spectrum in the Reverse Auction and be assigned a full 6 MHz channel in the VHF spectrum – enabling delivery of the same services as on UHF • UHF to VHF bidders have the flexibility to limit their bids to a high or low VHF channel – Broadcasters will remain on the air and receive auction proceeds with no change to licensee status – Pursuant to statute, Broadcasters will retain must carry rights at their new channel • Broadcasters could also utilize online delivery for programming for which they hold the applicable distribution rights – The FCC will make all reasonable efforts to preserve a Broadcaster’s population served and coverage area on its VHF channel, under the same standards applicable to repacking – The FCC will work with winning UHF to VHF bidders seeking to modify their operations in order to mitigate any over-the-air reception issues – For Broadcasters who rely largely on cable and satellite to reach their audience, there will be little loss of viewership from the switch to the VHF band • Likewise, Broadcasters in less dense locales may be able to generate significant payouts with little to no effect on existing coverage – Allows Broadcasters to defer immediate taxation on a portion of the received auction proceeds – Broadcasters can also elect to relinquish a high VHF channel in exchange for a low VHF channel UHF High VHF UHF 2 3 4 5 6 7 8 9 Low VHF 10 11 12 13 High VHF 14 15 50 51 … UHF Channel Source: FCC Unique Opportunity to Receive Portion of Auction Proceeds, Remain on the Air and Maintain Current Coverage Standards Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Opening Bid Prices for UHF to VHF Band Change 16 Source: FCC (% of valuation level) FCC Estimate of Opening Bid Prices for UHF to VHF Band Change Option – The Opening Bid Prices published in this document are for UHF 6 MHz license relinquishments – For the UHF to VHF band change option, a discount relative to the license relinquishment opening bid levels can be expected, though the final valuation levels for UHF to VHF band changes will depend on auction demand – The discount will vary depending on whether a High VHF or Low VHF channel is requested by the Broadcaster • The FCC has tentatively concluded that the discount for a change to low VHF should be in the range of 20% to 33% • The FCC has tentatively concluded that the discount for a change to high VHF should be in the range of 50% to 67% • The FCC will adopt a final discount percentage within each range prior to the Auction Illustrative Example $100 million $67 – $80 million $33 – $50 million Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. How Broadcasters Should Prepare for the Auction – Broadcasters should review materials prepared by the FCC and third parties, including the Report & Order, the Comment Public Notice and the LEARN website, to better understand the Incentive Auction bid options and the opportunities they present – The FCC has proposed providing opening bid prices 60 days in advance of the Auction participation application due date, in order to allow Broadcasters to sufficiently prepare to participate – Broadcasters should determine the current value of their spectrum usage rights and establish an internal “walk away” price at which they would elect not to participate, which may guide auction strategy • Broadcasters may consider many factors including, but not limited to: – Current and future profitability of a Broadcaster’s television business – Trends in spectrum valuation and the impact of possible disruptive or new technologies that may affect the broadcast business – Opportunities for channel sharing in their market – Population shifts and trends in a station’s coverage area – Competitive broadcasting and video landscape and viewership trends – Potential opportunities for content distribution through other mediums, including programming agreements with remaining Broadcasters – Intangible social value and community-wide branding from providing broadcast services – Potential developments in broadcast technology – Additionally, the FCC has committed to being available throughout the Reverse Auction to answer any questions and provide Broadcaster support It is Important for Broadcasters to Understand and Prepare for the Unique Opportunity the Incentive Auction Presents Source: FCC 17 Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. – Bid options will be arranged in a hierarchy based on the nature of the spectrum rights to be relinquished • The availability of options depends on a station’s pre-auction band – The auction system will permit a bidder to move up the ladder from round to round, from greater relinquishment to less, but not down • For example, if a UHF station initially selects “Move to Low-VHF” as its preferred bid option, and the auction system accepts that bid, the station could not switch its bid to “Go Off-Air” in a later round 18 Remain in UHF Move to High-VHF Move to Low-VHF Go Off-Air / Channel Share UHF Station High-VHF Station Low-VHF Station Remain in High-VHF Move to Low-VHF Go Off-Air / Channel Share Remain in Low-VHF Go Off-Air / Channel Share Source: FCC Proposed Hierarchy of Reverse Auction Bid Options Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Proposed Selection of Reverse Auction Options 19 Source: FCC – A participating Broadcaster must select at least one bid option for each participating station, and may select multiple options • Broadcasters who are choosing to channel share will bid to Go Off-Air, following the same bidding procedures as bidders that wish to Go Off-Air without retaining a license – A Broadcaster that selects multiple bid options must identify a preferred bid option • A Broadcaster may also specify alternative options which would be used in the event that the auction system cannot accommodate the preferred option – Specifying an option will constitute a commitment to relinquish the spectrum usage rights at the opening price associated with that option in the event that the auction system can accommodate that preference • For example, specifying “Go Off-Air” as an alternative to the preferred option of “Move to Low-VHF” binds a station to the former in the initial round if the latter is not feasible • If the auction system cannot accommodate a station’s preferred option or any of its alternatives, then that station will be assigned a channel in its pre-auction band, as if it had not participated in the auction at all Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Post-Auction Transition and Payments Payment Timing – The FCC has said it intends to disburse Incentive Auction proceeds as quickly and efficiently as possible after spectrum licenses have been granted to winning Forward Auction bidders • Spectrum licenses after the Auction will be granted on a rolling basis as license applications become ready for grant Transition Requirements – Participating Broadcasters who relinquish spectrum or channel share will have three months from payment to go off the air – Broadcasters relocating to a new channel after the Incentive Auction closes will have up to 39 months to cease operating on their pre-auction channel Source: FCC 20 Final Channel Assignments – Final channel assignments will be determined based on factors that minimize the impact of repacking on Broadcasters, including: • Maximizing the number of stations assigned to their pre-auction channel • Minimizing the number of stations predicted to receive aggregate new interference above one percent • Avoiding reassignments of stations with high anticipated relocation costs in order to minimize total relocation costs The FCC Plans to Pay Funds to Winning Broadcasters As Soon As Practicable Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. 21 – Non-participating Broadcasters and those that do not have bids accepted will continue to operate in their pre- auction spectrum bands following the Incentive Auction – The FCC will “repack” Broadcasters so that television stations occupy a smaller portion of the UHF band – This will allow the FCC to reconfigure a portion of the UHF band into contiguous blocks of spectrum suitable for wireless use – In carrying out the repacking, the Spectrum Act requires the FCC to make “all reasonable efforts” to preserve broadcast station “coverage area” and “population served”as of February 22, 2012 (the date of enactment) Repacking Process is Designed to Preserve Population and Coverage Area B-Ch.21 (Former “interference contour”) A-Ch.20 (Noise-limited contour) C-Ch.50?Ch.21 (New “interference contour”) Unique new interference area not permitted unless ? 0.5% Former interference area – Channel assignment not permitted if new interference would reduce population served by more than 0.5% (yellow) – Predicted areas of no change (black) – Station’s coverage area will replicate original channel as closely as possible Key Repacking Dynamics Source: FCC Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. – Congress established a $1.75 billion TV Broadcaster Relocation Fund to pay reasonable relocation costs of TV stations and MVPDs • Non-participating Broadcasters and those that do not have bids accepted are eligible for reimbursement from the fund if they are repacked – Reimbursement funds will be available to stations and MVPDs as they incur expenses • The initial allocation of reimbursement funds will be based on estimated costs – The Media Bureau has developed a list of eligible expenses and estimated costs – The goal is to balance expediency with avoidance of waste, fraud and abuse – Fund expires three years after completion of the auction 22 Overview of Relocation Reimbursement Fund Source: FCC Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Potential for Attractive Valuation Levels – Recent Auctions and Transactions Have Been Driven by Unprecedented Spectrum Demand Why You Should Participate in the Auction Unique Spectrum Marketplace – Unlikely to Occur Again Spectrum Value Unlocked – FCC’s Sole Authority to Repurpose and Reorganize Spectrum Participation is Completely Voluntary and Provides the Potential for Significant Financial Upside Multiple Bidding Options – Flexibility to Receive Compensation While Continuing to Stay on the Air Source: FCC 23 Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Appendix Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. FCC Proposed Opening Bid Prices ($ in millions) 25 Source: FCC Opening bid prices for going off-air have been calculated using the methodology that has been proposed by the Commission in the Incentive Auction Comment PN, with a 33% discount from the UHF relinquishment price for Low-VHF stations and a 67% discount for High-VHF stations. The proposed methodology, including discounts for VHF stations, is currently subject to public comment and final approval by the Commission. Final opening bid prices will depend on final determination of the constraints each station imposes on repacking. Actual compensation will be determined through the auction bidding process. Markets and stations needed in the Reverse Auction will depend on which stations choose to participate; low VHF stations are least likely to be selected in the auction because of the availability of low VHF channels. Set forth below are the FCC’s proposed opening bid prices for going off-air. In the actual auction, prices will be bid down in many markets and the actual payouts to many winning bidders will be lower as a result. On a nationwide basis, it is anticipated that forward auction revenues will exceed the winning bid amounts and the other requirements specified by the final stage rule. Those additional revenues will be deposited in the Public Safety Trust Fund to advance the financial goals identified by Congress in the Spectrum Act. FCC's Proposed Opening Bid Prices per Broadcaster ($mm) Full Power Class A Maximum - Median Maximum - Median 1 New York, NY $870 $660 $460 $380 2 Los Angeles, CA 630 560 510 410 3 Chicago, IL 610 520 450 360 4 Philadelphia, PA 680 490 340 240 5 Dallas-Ft. Worth, TX 350 290 280 270 6 San Francisco-Oakland-San Jose, CA 540 410 260 240 7 Boston, MA 540 420 270 260 8 Washington, DC 490 410 280 130 9 Atlanta, GA 470 380 290 220 10 Houston, TX 290 270 270 250 11 Detroit, MI 380 360 310 180 12 Phoenix, AZ 200 190 220 110 13 Seattle-Tacoma, WA 210 190 n.a. n.a. 14 Tampa-St Petersburg-Sarasota, FL 400 320 220 190 15 Minneapolis - St. Paul, MN 230 140 180 180 16 Miami - Ft. Lauderdale, FL 300 280 300 240 17 Denver, CO 250 220 190 83 18 Orlando-Daytona Beach-Melbourne, FL 350 320 220 150 19 Cleveland-Akron, OH 360 300 120 63 20 Sacramento-Stockton-Modesto, CA 470 370 170 150 21 St. Louis, MO 230 220 130 97 22 Portland, OR 190 170 140 130 23 Pittsburgh, PA 330 280 230 94 24 Raleigh-Durham, NC 390 340 160 65 25 Charlotte, NC 400 310 150 93 26 Indianapolis, IN 300 250 170 140 27 Balt m re, MD 590 480 140 140 28 San Diego, CA 220 200 160 100 29 Nashville, TN 260 220 120 60 30 Hartford-New Haven, CT 420 350 140 130 31 Kansas City, KS-MO 200 200 n.a. n.a. 32 Columbus, OH 310 290 170 72 33 Salt Lake City, UT 140 110 140 73 DMA FCC's Proposed O ning Bid Prices per Broadcaster ($mm) Full Power Class A Maximum - Median Maximum - Median 34 Milwaukee, WI 31 $280 17 $160 35 Cincinnati, OH 32 270 20 200 36 San Antonio, TX 25 200 17 140 37 Greenville-Spartanburg, SC-Asheville, NC 27 220 n.a. n.a. 38 West Palm Beach-Ft. Pierce, FL 36 290 14 84 39 Grand Rapid -Kalamazoo-Battle Creek, MI 28 190 1 55 40 Austin, TX 28 250 19 71 41 Oklahoma City, OK 15 130 2 110 42 Las Vegas, NV 15 84 13 120 43 Harrisburg-Lancaster-Lebanon-York, PA 42 310 n.a. n.a. 44 Birmingham, AL 2 200 2 79 45 Norfolk-Portsmouth-Newport News, VA 23 180 6 110 46 Greensboro-High Point-Winston Salem, NC 48 350 . . n.a. 47 Albuquerque-Santa Fe, NM 99 51 89 75 48 Jacksonville, FL 7 160 7 71 49 Louisvil le, KY 7 200 15 86 50 Memphis, TN 18 150 130 79 51 N w Orleans, LA 19 160 1 110 52 Buffalo, NY 21 170 70 44 53 Providence, RI-New Bedford, MA 43 340 2 120 54 Wilkes Barre-Scranton, PA 9 190 38 16 55 Fresno-Visalia, CA 9 160 2 110 56 Little Rock-Pine Bluff, AR 15 110 9 83 57 Richmond-Petersburg, VA 25 200 n.a. n.a. 58 Albany-Schenectady-Troy, NY 20 130 120 45 59 Mobile, AL-Pensacola, FL 19 150 55 55 60 Tul a, OK 17 130 1 97 61 Knoxville, TN 6 210 n.a. n.a. 62 Ft. Myers-Naples, FL 3 190 85 60 63 Lexington, KY 19 130 n.a. n.a. 64 Dayton, OH 38 330 . . n.a. 65 Charleston-Huntington, WV 18 120 n.a. n.a. 66 Roanoke-Lynchburg, VA 2 170 61 61 DMA Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. FCC Proposed Opening Bid Prices (Cont’d) ($ in millions) 26 Source: FCC FCC's Proposed Opening Bid Prices per Broadcaster ($mm) Full Power Class A Maximum - Median Maximum - Median 67 Wichita - Hutchinson, KS $110 $29 $60 $60 68 Flint-Saginaw-Bay City, MI 360 190 n.a. n.a. 69 Honolulu, HI 100 60 83 83 70 Green Bay-Appleton, WI 160 130 12 12 71 Tucson, AZ 140 100 93 89 72 Des Moines-Ames, IA 160 92 71 44 73 Spokane, WA 77 65 8 8 74 Omaha, NE 160 140 n.a. n.a. 75 Springfield, MO 150 120 50 50 76 Toledo, OH 240 220 120 120 77 Columbia, SC 200 170 n.a. n.a. 78 Rochester, NY 140 140 120 100 79 Huntsville-Decatur-Florence, AL 200 190 87 75 80 Portland-Auburn, ME 170 99 n.a. n.a. 81 Paducah-Cape Girardeau-Harrisburg-Mt Vernon 150 100 43 36 82 Shreveport, LA 160 130 60 41 83 Madison, WI 230 200 92 92 84 Champaign-Springfield-Decatur, IL 210 130 37 37 85 Syracuse, NY 220 170 91 78 86 Harlingen-Weslaco-Brownsville-McAllen, TX 90 86 72 41 87 Chattanooga, TN 340 160 120 110 88 Waco-Temple-Bryan, TX 320 160 75 62 89 Colorado Springs-Pueblo, CO 190 170 39 39 90 Cedar Rapids-Waterloo-Iowa City-Dubuque, IA 160 120 n.a. n.a. 91 El Paso, TX 65 52 n.a. n.a. 92 Savannah, GA 130 110 61 48 93 Baton Rouge, LA 230 170 120 61 94 Jackson, MS 140 130 n.a. n.a. 95 Charleston, SC 130 120 64 45 96 South Bend-Elkhart, IN 250 210 n.a. n.a. 97 Tri-Cities, TN-VA 190 150 89 56 98 Burlington, VT-Plattsburgh, NY 160 63 1 1 99 Greenville-New Bern-Washington, NC 250 140 n.a. n.a. DMA FCC's Proposed O ning Bid Prices per Broadcaster ($mm) Full Power Class A Maximum - Median Maximum - Median 100 Davenport, IA-Rock Island-Moline, IL $170 $110 n.a. n.a. 101 Ft. Smith-Fayetteville-Springdale-Rogers, AR 4 120 84 64 102 Myrtle Beach-Florence, SC 24 170 110 110 103 Johnstown-Altoona, PA 24 150 1 0 65 104 Evansville, IN 4 110 0 66 105 Lincoln-Hastings-Kearney, NE 140 35 n.a. n.a. 106 Tallahassee, FL-Thomasville, GA 150 140 70 16 107 Reno, NV 81 59 43 43 108 Tyler-Longview, TX 5 120 n.a. n.a. 109 Ft. Wayne, IN 17 160 43 43 110 Boise, ID 61 42 55 39 111 Sioux Falls-Mitchell, SD 1 26 n.a. n.a. 112 Augusta, GA 22 120 8 78 113 Youngstown, OH 3 0 360 . . n.a. 114 Springfield-Holyoke, MA 28 270 54 54 115 Lansing, MI 3 230 n.a. n.a. 116 Fargo-Valley City, ND 6 21 n.a. n.a. 117 Peoria-Bloomington, IL 8 110 n.a. n.a. 118 Macon, GA 5 120 57 57 119 Traverse City-Cadillac, MI 110 55 n.a. n.a. 120 Montgomery, AL 5 120 63 45 121 Eugene, OR 9 69 59 54 122 Lafayette, LA 8 140 76 76 123 Santa Barbara-Santa Maria-San Luis Obispo, CA 21 90 53 37 124 Yakima-Pasco-Richland-Kennewick, WA 77 43 49 25 125 Monterey-Salinas, CA 26 200 87 72 126 Columbus, GA 23 130 72 72 127 Bakersfield, CA 4 98 84 84 128 La Crosse-Eau Claire, WI 6 91 45 129 Corpus Christi, TX 75 54 52 31 130 Amarillo, TX 47 28 11 11 131 Wilmington, NC 170 160 n.a. n.a. 132 Chico-Redding, CA 84 70 87 57 DMA Set forth below are the FCC’s proposed opening bid prices for going off-air. In the actual auction, prices will be bid down in many markets and the actual payouts to many winning bidders will be lower as a result. On a nationwide basis, it is anticipated that forward auction revenues will exceed the winning bid amounts and the other requirements specified by the final stage rule. Those additional revenues will be deposited in the Public Safety Trust Fund to advance the financial goals identified by Congress in the Spectrum Act. Opening bid prices for going off-air have been calculated using the methodology that has been proposed by the Commission in the Incentive Auction Comment PN, with a 33% discount from the UHF relinquishment price for Low-VHF stations and a 67% discount for High-VHF stations. The proposed methodology, including discounts for VHF stations, is currently subject to public comment and final approval by the Commission. Final opening bid prices will depend on final determination of the constraints each station imposes on repacking. Actual compensation will be determined through the auction bidding process. Markets and stations needed in the Reverse Auction will depend on which stations choose to participate; low VHF stations are least likely to be selected in the auction because of the availability of low VHF channels. Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. FCC Proposed Opening Bid Prices (Cont’d) ($ in millions) 27 Source: FCC FCC's Proposed Opening Bid Prices per Broadcaster ($mm) Full Power Class A Maximum - Median Maximum - Median 133 Columbus-Tupelo-West Point, MS $120 $95 $36 $34 134 Topeka, KS 110 94 46 46 135 Wausau-Rhinelander, WI 97 68 n.a. n.a. 136 Rockford, IL 220 190 n.a. n.a. 137 Monroe, LA-El Dorado, AR 120 74 13 13 138 Columbia-Jefferson City, MO 91 68 n.a. n.a. 139 Duluth, MN-Superior, WI 56 39 n.a. n.a. 140 Medford-Klamath Falls, OR 45 28 34 19 141 Beaumont-Port Arthur, TX 100 91 n.a. n.a. 142 Salisbury, MD 140 110 n.a. n.a. 143 Lubbock, TX 60 52 41 39 144 Wichita Falls, TX -Lawton, OK 69 59 24 24 145 Minot-Bismarck-Dickinson, ND 26 15 n.a. n.a. 146 Anchorage, AK 39 22 37 37 147 Sioux City, IA 110 90 n.a. n.a. 148 Palm Springs, CA 87 69 200 44 149 Erie, PA 110 82 n.a. n.a. 150 Odessa-Midland, TX 59 44 n.a. n.a. 151 Albany, GA 83 72 n.a. n.a. 152 Joplin, MO-Pittsburg, KS 120 78 n.a. n.a. 153 Rochester, MN-Mason City, IA-Austin, MN 120 93 n.a. n.a. 154 Panama City, FL 150 68 43 41 155 Terre Haute, IN 130 100 n.a. n.a. 156 Bangor, ME 37 26 n.a. n.a. 157 Wheeling, WV- Steubenville, OH 240 220 82 41 158 Bluefield-Beckley-Oak Hill, WV 130 86 n.a. n.a. 159 Binghamton, NY 110 110 6 6 160 Biloxi-Gulfport, MS 170 140 n.a. n.a. 161 Sherman, TX - Ada, OK 160 130 n.a. n.a. 162 Idaho Falls-Pocatello, ID 36 32 1 1 163 Gainesville, FL 190 150 54 41 164 Missoula, MT 30 21 21 16 165 Abilene-Sweetwater, TX 62 48 n.a. n.a. DMA FCC's Proposed O ning Bid Prices per Broadcaster ($mm) Full Power Class A Maximum - Median Maximum - Median 166 Yuma, AZ-El Centro, CA 40 $26 n.a. n.a. 167 Hattiesburg-Laurel, MS 8 85 n.a. n.a. 168 Bill ings, MT 25 16 . . n.a. 169 Clarksburg-Weston, WV 21 68 . . n.a. 170 Quincy, IL-Hannibal, MO-Keokuk, IA 68 45 n.a. n.a. 171 Utica, NY 210 100 12 12 172 Dothan, AL 160 98 . . n.a. 173 Rapid City, SD 4 19 n.a. n.a. 174 Elmira, NY 100 75 . . n.a. 175 Lake Charles, LA 2 110 51 51 176 Watertown, NY 65 47 2 23 177 Jacks TN 120 120 n.a. n.a. 178 Harri burg, VA 2 0 110 62 17 179 Alexandria, LA 150 87 n.a. n.a. 180 Marquette, MI 37 23 . . n.a. 181 Jonesboro, AR 1 0 85 n.a. n.a. 182 Bowling Green, KY 120 85 . . n.a. 183 Charlottesville, VA 230 120 72 72 184 Laredo, TX 23 22 25 24 185 Grand Junction-Montrose, CO 19 16 15 15 186 Meridian, MS 130 67 . . n.a. 187 Lima, OH 120 120 69 69 188 Butte-Bozeman, MT 15 13 17 17 189 Lafayette, IN 160 160 . . n.a. 190 Gre wood-Greenville, MS 86 81 n.a. n.a. 191 Great Falls, MT 14 12 . . n.a. 192 Twin Falls, ID 29 22 n.a. n.a. 193 Bend, OR 21 19 22 20 194 Parkersburg, WV 93 93 . . n.a. 195 Eureka, CA 14 13 n.a. n.a. 196 Cheyenne, WY-Scottsbluff, NE 61 6 6 197 Casper-Riverton, WY 9 6 n.a. n.a. 198 San Angelo, TX 26 21 17 17 DMA Set forth below are the FCC’s proposed openin bid prices for going off-air. In the actual auction, prices will be bid down in many markets and the actual payouts to many winning bidders will be lower as a result. On a nationwide basis, it is anticipated that forward auction revenues will exceed the winning bid amounts and the other requirements specified by the final stage rule. Those additional revenues will be deposited in the Public Safety Trust Fund to advance the financial goals identified by Congress in the Spectrum Act. Opening bid prices for going off-air have been calculated using the methodology that has been proposed by the Commission in the Incentive Auction Comment PN, with a 33% discount from the UHF relinquishment price for Low-VHF stations and a 67% discount for High-VHF stations. The proposed methodology, including discounts for VHF stations, is currently subject to public comment and final approval by the Commission. Final opening bid prices will depend on final determination of the constraints each station imposes on repacking. Actual compensation will be determined through the auction bidding process. Markets and stations needed in the Reverse Auction will depend on which stations choose to participate; low VHF stations are least likely to be selected in the auction because of the availability of low VHF channels. Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. FCC Proposed Opening Bid Prices (Cont’d) ($ in millions) 28 Source: FCC FCC's Proposed Opening Bid Prices per Broadcaster ($mm) Full Power Class A Maximum - Median Maximum - Median 199 Mankato, MN $61 $61 n.a. n.a. 200 St. Joseph, MO 170 140 n.a. n.a. 201 Ottumwa, IA-Kirksville, MO 110 72 n.a. n.a. 202 Fairbanks, AK 16 14 10 10 203 Victoria, TX 76 56 n.a. n.a. 204 Zanesvill , OH 160 160 n.a. n.a. 205 Helena, MT 25 23 n.a. n.a. 206 Presque Isle, ME 7 6 n.a. n.a. 207 Juneau, AK 2 2 n.a. n.a. 208 North Platte, NE 16 12 9 6 209 Alpena, MI 51 37 n.a. n.a. 210 Glendive, MT 2 2 n.a. n.a. Puerto Rico 300 220 200 83 DMA Set forth below are the FCC’s proposed opening bid prices for going off-air. In the actual auction, prices will be bid down in many markets and the actual payouts to many winning bidders will be lower as a result. On a nationwide basis, it is anticipated that forward auction revenues will exceed the winning bid amounts and the other requirements specified by the final stage rule. Those additional revenues will be deposited in the Public Safety Trust Fund to advance the financial goals identified by Congress in the Spectrum Act. Opening bid prices for going off-air have been calculated using the methodology that has been proposed by the Commission in the Incentive Auction Comment PN, with a 33% discount from the UHF relinquishment price for Low-VHF stations and a 67% discount for High-VHF stations. The proposed methodology, including discounts for VHF stations, is currently subject to public comment and final approval by the Commission. Final opening bid prices will depend on final determination of the constraints each station imposes on repacking. Actual compensation will be determined through the auction bidding process. Markets and stations needed in the Reverse Auction will depend on which stations choose to participate; low VHF stations are least likely to be selected in the auction because of the availability of low VHF channels. Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Description of Proposed Methodology for Opening Bid Prices Consistent with the FCC’s determination in the Incentive Auction Report & Order, its proposed methodology for calculating opening bid prices is designed to yield prices that reasonably approximate the value of television stations to the auction. If a station has many constraints and blocks many other stations from being repacked, then its opening price will reflect that contribution to the auction’s ability to clear spectrum. The population component complements the interference metric by enabling the clearance of more spectrum in markets where the forward auction value of relinquished spectrum usage rights is apt to be higher. The proposed formula is not based on a station’s market or enterprise value. The opening price methodology calculates a station’s opening bid price by multiplying the station’s volume times a base clock price. A station’s volume is calculated using this formula: Station Volume = (Interference)0.5 x (Population)0.5. Interference is equal to the number of co- and adjacent channel constraints a station would impose on repacking on a pairwise basis. For each station pairing, the formula would determine the maximum number of constraints that can exist between the two stations on any channel in bands into which both stations can be repacked. Thus, between two UHF stations, all channels in the UHF, High-VHF or Low-VHF bands (channels 2-51) are considered to determine the maximum number of constraints that exist between the two stations consistent with the hierarchy of relinquishment options discussed above. Between a UHF station and a High-VHF station, only channels in the High-VHF band (channels 7-13) and Low-VHF band (channels 2-6) are considered to determine the maximum number of constraints that exist between the two stations. Between a UHF station and a Low-VHF station, only channels in the Low-VHF band (channels 2- 6) are considered to determine the maximum number of constraints that exist between the two stations. These maximums are then summed up for each station to set its interference metric. Population is measured as the number of people residing within the station’s interference-free service area. The base clock price is a constant amount per unit of volume. The base clock price will be set so as to yield an opening bid of $900 million for this station.1 To do this, volume for all stations will be calculated and then rescaled so that the maximum station volume is one million. Dividing the $900 million opening bid price for the highest volume station by one million results in a base clock price of 900. The base clock price will drop in each round of the reverse auction, while a station’s volume will remain constant. The price offered to a bidder to go off air in a given round will be the product of the base clock price in that round and the station’s volume. The markets and stations needed in the reverse auction will depend on which stations choose to participate, and actual compensation to stations will be determined by the auction. Under the Commission’s proposed methodology, opening bid prices for moving from the UHF band to the Low-VHF or to the High-VHF band (the “VHF options”) will be set at a value relative to the opening price for going off-air. The Commission is seeking on comment on these relative prices. For moving from UHF to Low-VHF, the Commission has tentatively concluded that a station’s opening price should be between 67 and 80 percent of the station’s price to go off-air. For moving from UHF to High-VHF, it has tentatively concluded that a station’s opening bid price should be between 33 and 50 percent of the station’s off-air price. Final opening bid prices will depend on determination of the constraints each station imposes on repacking. (1) It should be noted that if this highest volume station is not in UHF, its base clock price would be decreased by the discount applied to its pre-auction band. 29 Source: FCC Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Tax Implications Applicable to Incentive Auction Proceeds / Reimbursements The IRS Has Provided a Letter Identifying Potential Tax Implications for Proceeds / Reimbursements from the Incentive Auction and Repacking Process Relinquishment of Spectrum: – If the relinquished spectrum usage rights are not depreciable or amortizable assets, the gain from the sale of the Broadcaster’s spectrum usage rights is treated as a long-term capital gain, if the rights were held for longer than one year – If the spectrum usage rights are depreciable or amortizable assets, the gain is first subject to depreciation recapture, which would be treated as ordinary income; additional gain would be a §1231 gain and net §1231 gain is generally taxed as a long-term capital gain Channel Sharing: – Federal tax implications of Channel Sharing arrangements will depend on the agreement between the parties, their actions, and other facts and circumstances regarding their arrangement – Two possible tax alternatives are that a Channel Sharing arrangement could be treated as a partnership between the sharing parties or as a cost- sharing arrangement • Cost-sharing arrangement would mean that the relocating party may qualify for deferral from tax for the portion of the gain associated with moving to a shared channel • The character for federal income tax purposes of the gain resulting from the receipt of the cash “boot” (payment from the FCC for relinquishing existing spectrum rights) would be determined in the same manner as the payment for relinquishing spectrum rights described above UHF to VHF / High VHF to Low VHF Move: – Broadcasters may be able to defer immediate taxation of a portion of the gain resulting from the relinquishment of existing spectrum usage rights in exchange for a VHF channel under the like-kind exchange provisions of the Internal Revenue Code • The payment from the FCC for relinquishing existing spectrum rights under this option would constitute “boot,” and any gain attributable to such “boot” must be reported in gross income by the Broadcaster • The character for federal income tax purposes of the gain resulting from the receipt of the cash “boot” by the Broadcaster would be determined in the same manner as the payment for relinquishing spectrum rights described above Reimbursement for Repacking: – Broadcasters who are repacked may not be required to include the reimbursement payments from the FCC in income, as the reimbursement provided by the FCC could be viewed as an amount realized by the Broadcaster from an involuntary conversion of the Broadcaster’s property • The cost of new equipment, capitalized modifications to existing equipment, engineering studies, and construction services in connection with the channel change may be treated as the cost of property that is similar or related in service or use to the property so converted Source: Federal Tax Principles Applicable to the FCC’s Proposed Broadcast Incentive Auction, Internal Revenue Service (July 3, 2014). Neither the IRS letter nor the summary above constitutes tax advice. As the IRS notes, the federal income tax law is complex, and tax consequences depend highly on particular facts and circumstances, including how a Broadcaster structures its particular transaction. Broadcasters will need to consult their tax advisers for specific advice. 30 Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Los Angeles Channel Sharing Pilot Results 31 – In early 2014, KLCS and KJLA, both based in Los Angeles, tested the feasibility of having two non-affiliated broadcast television stations sharing a single 6 MHz radio frequency channel – The trial was a success on both a virtual and physical level • On a virtual level, all the TVs and tuners tested were able to receive and correctly parse all the required information. This included virtual channel ratings (both major and minor), audio configuration, codecs, program titles and descriptions • On a physical level, testing demonstrated that it is technically feasible for two 720p high definition (“HD”) streams, among other combinations, to be combined into a single Advanced Television System Committee (“ATSC”) channel • After the trial, KLCS and KCET announced on September 10, 2014 they had agreed to enter into a Channel Sharing Agreement as part of the upcoming Incentive Auction – ATSC 3.0, if implemented, will give each Broadcaster in a shared environment approximately 14 Mbps – roughly equivalent to what a single Broadcaster has today KLCS and KJLA Demonstrated Channel Sharing can be Successful on Both a Virtual and Physical Level Source: FCC, KCET 9/10/2014 Press Release commenting on KLCS/KJLA trial and KCET’s planned Channel Sharing Arrangement with KLCS for purposes of Auction participation Demonstrated Feasibility of Multiple Channel Streams on Shared Channel – Testing demonstrated that it is technically feasible for the following streaming combinations • 2 HD (720p) streams with several variations of additional SD program streams – Up to two additional SD streams are possible without major impact to the quality of experience of the overall material • 3 HD streams • 1 HD stream and up to 7 SD streams – Future technological improvements could increase the available streaming combinations to Broadcasters Note: These slides present an unofficial summary of the Incentive Auction Report and Order and Rules dated May 15, 2014 and the Broadcast Incentive Auction Comment Public Notice dated December 17, 2014. Should this summary vary from the Report and Order, Rules or Comment Public Notice as released, the official documents govern. Final auction procedures have not yet been adopted by the Commission. Key Channel Sharing Agreement Terms 32 – The opening bid prices published in the Incentive Auction Opportunities for Broadcasters document apply to Channel Sharing participants, who will receive a full valuation for their UHF 6 MHz • The Broadcaster relinquishing its 6 MHz license will receive auction proceeds and must agree on how to distribute these proceeds with its Channel Sharing partner – Bidders will be able to decide which channel will be retained / shared and which channel will be offered in the auction depending on valuation, facilities in place and other considerations Incentive Auction Proceeds Content Delivery and Bitstream Division – Each Channel Sharing licensee must be able to provide at least one Standard Definition (SD) program stream at all times – Subject to the foregoing requirement, Broadcasters will be able to decide how the 6 MHz will be utilized (for example, whether it will be a fixed or dynamic agreement) based on their own unique circumstances – The multitude of channel streams proven in the Los Angeles pilot program allows Broadcasters many options when negotiating current and future channel streaming agreements – The characteristics of the video content to be transmitted by the two parties may affect a Broadcaster’s decision whether to channel share Business Operations – Each Channel Sharing Agreement should address the operation of the shared channel, including the following: • Access to facilities by each Channel Sharing licensee, including access to the shared transmission facilities • How maintenance and repair of the station facilities will be managed and how day-to-day operating decisions will be made • How future investments in the facilities will be made • Potential for termination of agreement and rights of each party in the event of business failure or change of control To Submit a Channel Sharing bid, Broadcasters Must Execute a Privately Negotiated Channel Sharing Arrangement Third Parties Have Developed Template Agreements to Assist Potential Bidders Source: FCC