Botched sale of airwaves puts KCSM in jeopardy

The Federal Communications Commission’s recently concluded auction of television airwaves netted 10 Bay Area broadcasters more than $825 million, creating unprecedented windfalls that will help many cash-strapped stations remain on the air for the foreseeable future.

KCSM-TV, a station owned and operated by the San Mateo County Community College District, was supposed to be the 11th broadcaster on that list. But when the FCC released a trove of data about the auction this month, KCSM’s name was nowhere to be seen.

That has triggered a legal battle between the district and LocusPoint Networks, an investment firm that agreed to keep the station afloat for years in return for a significant chunk of the station’s auction proceeds. Competing lawsuits filed by the district and by LocusPoint could put tens of millions of dollars and the fate of KCSM-TV

on the line.

First authorized by Congress in 2012, the spectrum auction presented an opportunity for TV broadcasters to sell some of their bandwidth to wireless providers eager to meet the ever-growing demand for highspeed mobile Internet. Four monthlong bidding stages took place between May 2016 and January. Under rules devised by the FCC, stations that wished to sell spectrum had to participate in each round; missing a round meant being tossed out of the auction.

After years of operating KCSM at a loss, the district was looking at the spectrum auction as a way to gracefully exit the TV broadcasting business. But it didn’t have enough cash to keep KCSM afloat through the auction period, so district officials solicited bids for outside investors. It eventually selected LocusPoint in May 2013. (KCSM-FM, a radio station also owned by the district, is not involved in the dispute; radio airwaves weren’t up for sale in the FCC auction. It has also struggled financially in recent years.)

The investment firm claims in its lawsuit against the district that it agreed to invest “up to $3.6 million” to fund KCSM’s operations. Under the terms of their agreement, LocusPoint would also devise the procedures needed to participate in the auction in return for a 36.5 percent cut of KCSM’s auction proceeds.

LocusPoint hired consulting firm PricewaterhouseCoopers to help the station submit its bid. Under the FCC’s rules, the investment firm and the district were prohibited from communicating directly with each other during the auction, so the consultants oversaw the bidding process and facilitated communication between the district and LocusPoint.

Precisely how much responsibility PricewaterhouseCoopers had as LocusPoint’s proxy to ensure that the auction was successful is a key part of the dispute between the district and LocusPoint. A spokeswoman for the consultancy declined to comment on the lawsuits.

By all accounts, the bidding process was running smoothly for KCSM up until Nov. 15, “the last day the college district participated in the auction,” said Mitchell Bailey, chief of staff in the college’s Office of the Chancellor, in an email.

On that day, the district had intended to continue participating in the auction, as it had been doing for months. The district claims it was online, at the ready to submit a bid under the supervision of a representative from PricewaterhouseCoopers, but something went awry. Exactly what happened is contested between the two sides, but either way, a bid was never submitted to the FCC. KCSM was out of the auction and, in an instant, the chance to reel in a jackpot of tens of millions of dollars vanished.

Because the station wasn’t allowed to see the auction through to the end, exactly how much money it lost out on isn’t yet known, according to Andrew Bednark, an attorney at the law firm O’Melveny & Myers representing LocusPoint. But, he said, “you can infer what (the FCC) would have offered KCSM by looking at what it offered other stations.”

According to Bednark, the closest comparable regional station that did participate fully in the auction was KTLN, a religious content broadcaster in San Rafael, which brought in $79.3 million from the auction. Bednark’s legal team is still calculating the exact damages that LocusPoint will seek against the district, but as a rough estimate, the investor’s deal for 36.5 percent of KCSM’s auction proceeds could have been worth more than $28.9 million.

Bednark and LocusPoint also allege that the district gave false assurances that KCSM was still participating in the auction for three months after it had been disqualified in order to continue receiving funding.

Bednark said LocusPoint lived up to its end of the bargain with the district, and placed responsibility for the botched auction squarely on the district’s shoulders.

“What the bidding history shows is that (LocusPoint’s) procedures worked, because when they were followed, the district successfully entered its bid and moved on to the next round,” he said. “It’s when the procedures were deviated from that led us to this current dispute.”

Bailey, the district official, blames a PricewaterhouseCoopers consultant for failing “to ensure that the bid was successfully submitted.” According to Bailey, the consultant, hired by LocusPoint, admitted that he did not request a bid receipt from the FCC.

The proceeds “could have been invested in higher education in our community,” Bailey said.