House Republicans Say Following DOJ Letter Could Mean Failed Incentive Auction

Justice raised spectrum aggregation concerns in an April 11 letter (CD April 15 p7). Spectrum aggregation rules are some of the most contested of those being designed for the auction, with AT&T and Verizon Wireless in a fight with small carriers over whether the top-two U.S. carriers should face restrictions on how much 600 MHz spectrum they can buy at least in some markets (CD Jan 29 p1).

Congress had “several goals in mind” in giving the FCC authority to hold a one-time auction of broadcast TV spectrum, the Republicans replied in their letter, dated Friday (http://1.usa.gov/YGMiz6). “We certainly wanted the Commission to design an auction that would make more spectrum available to wireless carriers to meet soaring demand for mobile broadband use,” the letter said. “But, as is clear from the statutory language, we also expected the incentive auction to generate sufficient revenues to compensate television broadcasters that wish to voluntarily relinquish spectrum, to pay for the possible relocation of television stations that remain on air, to cover the cost of the auction, to contribute up to $7 billion toward the construction of a nationwide public safety broadband network, and to reduce this nation’s unacceptable budget deficit. The DOJ submission appears oblivious to these multiple goals."

Justice’s letter “fails to acknowledge or appreciate” the “complexity” inherent in the incentive auction, the Republicans said. The letter rebuts DOJ’s main arguments. It cites Justice claims that “absent compelling evidence” that the largest carriers are using their current licenses efficiently and remain capacity-constrained, “the highest use value” for the spectrum is being sold to competitors. “This assertion borders on the absurd,” the Republicans wrote. “The Commission itself has repeatedly identified the spectrum crunch faced by all wireless carriers.” The letter was signed by committee Chairman Fred Upton, R-Mich., Vice Chairman Marsha Blackburn, R-Tenn., Communications Subcommittee Chairman Greg Walden, R-Ore., and other members of the committee.

Free State Foundation President Randolph May agrees with the thrust of the House letter. “The history of the FCC imposing special exclusions and conditions has been pretty dismal, and I've been consistent in saying I don’t think the agency should exclude any bidders from the coming incentive auction as well,” May said. “I don’t find the DOJ submission particularly persuasive, especially in this respect. If the spectrum put up for auction is of higher value to providers other than Verizon and AT&T, say, to Sprint or T-Mobile, it seems to me that these carriers can obtain the financial backing to raise the necessary funds to secure the spectrum at auction. At least as the marketplace currently stands, I just don’t see these third and fourth place providers so financially handicapped that the auction should be burdened with exclusions."

But Steve Berry, president of the Competitive Carriers Association, said the DOJ raised some legitimate concerns. “The spectrum auction was intended to ensure spectrum would be available to all carriers who need spectrum to compete in the market place,” Berry said. “I agree wholeheartedly with that premise. CCA has never said we want to eliminate certain carriers from being able to bid. However we have suggested, as in the past, under certain circumstances, limiting how much spectrum any one carrier could obtain in a particular market under an incentive auction makes sense.”

"Ever since the [Spectrum Act] passed, House Republicans have interpreted it the way they wanted it to read rather than how it actually reads,” said public interest lawyer Andrew Schwartzman. “The FCC clearly has authority to limit the amount of spectrum that a single bidder can buy."

"The letter claims that DOJ fails to appreciate the complexity of the incentive auction, but as the expert competition agency it understands these issues as well or better than many congressional staffers do,” said Free Press Policy Director Matt Wood. “It’s also funny that the letter’s easy answer to this complex question is to let two big companies buy everything in sight. There’s nothing in circular arguments about the so-called spectrum crunch to suggest that this is the best way to increase consumer welfare and promote competition -- just as there’s nothing theoretical about the foreclosure tactics employed by AT&T and Verizon to preserve their dominant positions."

Public Knowledge Senior Vice President Harold Feld said his first reaction was: “Oh look, the people who oppose spectrum caps continue to oppose spectrum caps despite what the Department of Justice said. What a surprise!” The House Republicans who signed the letter “seem to have the belief that incumbents, left to their own devices, will devise an auction that best serves the interests of the United States rather than the interests of incumbents,” he said. “This seems somewhat naive, to put it mildly. Neither wireless carriers nor broadcasters are going to design an auction that maximizes revenue to the United States, which means the FCC is going to have to step on some broadcaster and carrier toes to maximize revenue. The sooner the House Commerce Committee Republicans understand that, the better for the Treasury’s bottom line."

In Verizon’s Q1 conference call last week, Chief Financial Officer Fran Shammo said “rules that restrict companies from bidding and give other companies priority could actually cause the auction to fail.” Shammo also questioned the Justice letter and the “theoretical” concerns it raises about market foreclosure. “We believe the concern is really around some who buy the spectrum to keep others from buying the spectrum, and I think if you look at history, that has not shown itself,” he said (http://vz.to/17edJ9b). “Verizon has never purchased spectrum for that reason. We buy it to use it, and I think our track record is we really efficiently -- we efficiently use the spectrum that we have.”