700 MHz Auction Worked Largely Because of Lighthanded Rules, Campbell Says

The 700 MHz auction raised more than $19 billion for the Treasury and is widely considered a success, Campbell said. “At the time, some commenters said the primary goal of the auction to be to ensure new competition and recommended that the FCC exclude all incumbents from bidding.” The FCC “wisely rejected” that advice, he said. “As a result of that decision, Verizon used spectrum it won in that auction to build the world’s largest 4G network in record time, which sent pro-competitive ripples throughout the wireless market,” he said. “Had the FCC excluded Verizon from participating, it is unlikely the FCC would have become the world leader in mobile broadband.”

Less successful were FCC rules that allocated the D-block to be used for public safety as part of a public-private partnership, Campbell noted. “As a result, the D-block failed to sell,” he said. “The FCC’s Inspector General later concluded that certain restrictions placed on the D-block deterred potential bidders from trying to win the license in that auction.” Earlier auctions that placed restrictions on larger providers to spur competition “also failed,” he said: Experience shows that “auctions are more likely to fail when they limit the types of companies that can bid or the ways in which spectrum can be used.”

Campbell said the FCC should heed the lessons of the past and not impose restrictions on who can bid in the incentive auction, especially since the auction must both reimburse broadcasters for selling their spectrum licenses and pay out more than $7 billion to fund the new FirstNet. Campbell disputed arguments by the Department of Justice on the need for the FCC to restrict bids by the nation’s largest carriers to promote competition (CD April 15 p7). “I have my own doubts about DOJ’s competitive analysis, but whether or not their plan would enhance competition, it conflicts with congressional goals for the auction,” he said. “In the 700 MHz auction, the FCC rolled the dice with its D-block rules, and a well-intentioned effort to help public safety and the dice came up snake eyes. ... The question the FCC must ask itself is whether it’s willing to roll the dice again and hope the Justice plan doesn’t produce another snake eyes result."

Duke University economist Leslie Marx, a former FCC chief economist, said there are key differences between standard auctions and the incentive auction. A key difference is that in a two-sided auction like the incentive auction, adding complexity “may have lower benefits and higher costs,” she said on the webinar. “The exclusion of strong buyers can have more severe consequences."

Marx said in a two-sided auction, excluding a “strong buyer” from bidding can “affect both the amount paid by buyers and the amount paid to sellers. So you can get increased sensitivity.” The effects grow based on the strength of the carrier excluded from bidding, based on an economic model presented by Marx on the webinar. “In a sense, stronger buyers contribute more to value and to revenue, and so excluding them is more costly,” she said. “In addition, the exclusion of a buyer reduces the expected amount of spectrum that will be transacted. This means less spectrum will be reallocated from broadcast use to mobile broadband, and it potentially affects the repacking of the remaining broadcast licenses."

Wiley Rein engineering consultant Tom Dombrowsky said the FCC has some tricky questions to resolve as it writes auction rules. “Number one is how much spectrum are they going license and how broad will the guard bands be,” he said. The Spectrum Act authorizing the auction said guardbands must be no larger than is “technically reasonable,” he said. “There’s very broad, differing opinions on what is technically reasonable. ... So the FCC is going to determine what is technically reasonable.” Interference protection issues “are critical and must be resolved here as well,” Dombrowsky said. “We have to protect the adjacent band uses, the TV [Channel] 37 wireless medical telemetry -- radioastronomy type uses, as well as TV stations that may remain adjacent to the forward auction license winners."

Public Knowledge Senior Vice President Harold Feld said lessons can be drawn from the 700 MHz auction, just not the ones drawn by Campbell. “It’s absolutely true that we ought to look at the lessons of the 700 MHz auction but it was a complicated auction with a lot of successes as well as some notable problems,” Feld said in an interview. “If the one lesson that you draw from it is ‘look at how right I was about everything and therefore you ought to do exactly the same thing in the 600 MHz auction,’ then I'm pretty confident that you really haven’t learned anything."

"It is critically important for the FCC to ensure every carrier is able to participate at auction,” said Steve Berry, president of the Competitive Carriers Association. “More participants means more revenue for the economy and more choices for consumers. No carrier should be prohibited from participating. However, allowing the largest carriers -- who already do not use all of the spectrum they have -- to unilaterally acquire more spectrum, only harms competition and consumers. ... Competitive carriers need access to more usable spectrum and are ready to participate at auction, and the FCC must ensure they are have meaningful opportunity to participate. This is a no-brainer -- Congress wants more revenue and our carriers are ready to deliver."

Also on the incentive auction, AT&T General Counsel Wayne Watts sent a letter to the FCC commissioners objecting to the DOJ filing. “The Department suggests that the Commission should consider rules that would rig the upcoming 600 MHz incentive auction to ‘ensure’ that the ’two smaller nationwide networks’ -- i.e., Sprint and T-Mobile -- can win much of the spectrum,” Watts wrote (http://bit.ly/15KmVUM). “It is surprising that the Antitrust Division of the Department of Justice would even propose measures that are so nakedly designed to help specific companies. The Commission’s mandate under the Communications Act is to promote the competitive process, not to pick winners and losers in that process.” He said that last year’s Spectrum Act “reinforces that mandate by requiring that 600 MHz spectrum be allocated pursuant to an auction from which no qualified carrier may be excluded."

p.MsoNormal, li.MsoNormal, div.MsoNormal { margin: 0in 0in 0.0001pt; font-size: 12pt; font-family: “Times New Roman”; }table.MsoNormalTable { font-size: 10pt; font-family: “Times New Roman”; }div.Section1 { page: SectioSprint Nextel did not have a comment on the AT&T letter, a spokeswoman said. “T-Mobile agrees with the competition experts at the Department of Justice,” said Tom Sugrue, senior vice president at T-Mobile. “We also stand behind our comments at the FCC advocating for strong competitive rules in the upcoming broadcast incentive auctions.”