Digital Policy Institute Webinar: The FCC Incentive Auction: Previews and Predictions

In case you missed it, the Digital Policy Institute (DPI) hosted its third national webinar addressing the upcoming FCC spectrum auctions. Titled “The FCC Incentive Auction: Previews and Predictions”, the webinar ran Tuesday, May 6, 2014, it is archived and available at: : http://dvisweb1.bsu.edu/media/bsu/dpi/2014/May_6th/

As most are aware, the FCC will host the first-ever incentive auction for wireless spectrum in mid-2015. The FCC meeting on the matter – where it is expected to adopt rules to govern the auction — is scheduled for May 15th. The webinar provided a robust examination of the problems, potential pitfalls and remaining issues surrounding the auction process.

The Digital Policy Institute webinar consisted of a panel of experts led by Barry D. Umansky, Esq., Senior Fellow and Senior Policy Counsel with the DPI. Panelists included Dr. Leslie M. Marx, and Howard M. Liberman, Esq. Dr. Marx is former FCC Chief Economist, now a professor at Duke University and frequent author on auctions and communications policy issues. Mr. Liberman has been a Washington, DC-based communications attorney since 1973, currently with Drinker Biddle & Reath LLP, and represents television station owners in the FCC’s auction proceedings.

Highlights from the webinar included a discussion of the major concerns about the auction being expressed by the broadcast community. Attorney Howard Liberman outlined the choices broadcaster station owners have today:

• Sell your spectrum to the FCC and take the money and do something else with it.
• Turn in half your spectrum and share your remaining spectrum with another TV station.
• For those broadcasting on UHF, they could use a VHF frequency instead and receive some money from the auction to offset spectrum relocation costs.
• Do nothing – wait until the auction is over and be subject to repacking.

When questioned about the risks of doing nothing, Liberman said there were two concerns. First, the FCC may measure your current coverage area and then try to replicate it after repacking into a new channel in a way that may not be ideal for the broadcaster. Second, the broadcaster may not receive adequate compensation to reimburse the costs of moving to a different frequency.

Over the past few weeks, a number of noted economists have questioned the necessity and logic of apply incentive auction restrictions for low-band spectrum by the top two carriers. At best, as Liberman suggested, it would minimize the revenue generated during the auction; contrary to the mandate by Congress. Dr. Leslie Marx was asked her thoughts on what impact these restrictions would have on auction process. She said:

The idea of these restrictions raises a lot of issues. One overarching concern is that the auction is already quite complex and economists are never going to fully understand the incentives for strategic bidding, so before you introduce an additional level of complexity and the chance for strategic manipulation, you need to understand the effects. There’s concern Verizon and AT&T could foreclose rivals from having access to low-band spectrum. First of all, Verizon just sold $2.4 billion worth of low-band spectrum to T-Mobile so that seems at odds with this theory. If we are looking at the incentive to foreclose, let’s look at if rivals are spectrum constrained. We need to remember Sprint and T-Mobile tend to offer unlimited data plans, they didn’t participate in the 700 MHz auctions and they have essentially not been players in secondary spectrum markets. It’s not clear that there is incentive for that type of foreclosure. With that activity in the secondary market, it’s not clear that they’ll have the ability to lock-up low-band spectrum anyway. If the FCC does anonymous bidding, AT&T and Verizon wouldn’t even know if they were foreclosing Sprint or T-Mobile. There is also a spectrum screen that dictates no carrier can own too much spectrum in given markets. Whatever assumptions one makes, Verizon and AT&T cannot buy all the spectrum at the auction – the existing limits prevent that. There’s fear in the press that AT&T and Verizon could buy everything but there are already controls.

A recent report by Dr. Anna-Maria Kovacs, Visiting Senior Policy Scholar at Georgetown’s Center for Business and Public Policy, questioned whether restricting AT&T and Verizon from full participation in the incentive auction would increase coverage or competition in rural America. Although Dr. Marx indicated she had not yet read the paper by Dr. Kovacs, she independently came to a similar conclusion:

My sense is that there isn’t a spectrum crunch in rural markets and the bigger issue is, offering service is less profitable in rural areas than urban areas due to population density. So I’m not sure the type of restrictions being proposed will alleviate a coverage concern.

When asked to predict the outcome from the FCC hearings on May 15th, Marx said:
The FCC has the very best auction theorists designing this auction – I expect an excellent, carefully-designed and successful auction. I think the DOJ is trying to promote restrictions in the auction and the FCC’s move towards embracing that is making the design harder. I think it will be headline news as to how any such restrictions would be implemented. It’s not obvious to me how you would do that in a way that is careful about avoiding really unfortunate opportunities for strategic manipulation in the auction.

For those who missed the webinar, or wish to review the comments from the panelists, the entire program is archived at the following URL:

ARCHIVE: http://dvisweb1.bsu.edu/media/bsu/dpi/2014/May_6th/