Limits on Bidding Rights of Key Players Threaten Wireless Providers and Consumers

By Robert Yadon, Ph.D. and Will Drouillard
When Congress authorized the Federal Communication Commission’s plan to reallocate up to 120 MHz of radio spectrum in February of last year, wireless carriers were finally able to let out a sigh of relief. With consumer demand for mobile data expected to grow more than 50 percent each of the next five years, the proposed 2014 incentive auctions promised to remove some pressure from the carriers.
There is growing debate in Washington over how exactly the spectrum reallocation auctions should be conducted by the FCC and what rules should guide them. In response to the FCC’s NPRM (FCC 12-118), the DOJ has authored an April 2013 ex-parte letter to the Commission that questions whether the nation’s two largest mobile broadband providers, AT&T and Verizon, should be restricted from purchasing more low-band spectrum in the upcoming auction, spectrum that would augment the companies’ current low band spectrum holdings to forestall network capacity constraints.
The Georgetown Center for Business and Public Policy recently published a new paper in which the authors analyzed the issue of whether constraining the ability of the two largest providers to acquire more low band spectrum in the upcoming auctions would have any effect on auction revenues or consumer prices for wireless services. The authors explain that limiting the ability of the two most-efficient users of spectrum would be at odds with the FCC’s “obligation to promote the most efficient and effective use of spectrum”. We concur.
The authors estimate that anything less than a fully open auction would reduce auction revenues by as much as 40 percent, or $12 billion. This is significant because it will signal to broadcasters how much money will be available to buy their spectrum and reimburse them for costs to relocate. Less money means fewer broadcasters will be willing to put up their spectrum to be repurposed for wireless broadband. Further, if carriers who need spectrum are not allowed to obtain it via auction, they will be forced to deploy other, less efficient and more costly solutions to offset capacity shortages. These additional costs will likely get passed on to consumers in the form of higher wireless bills, perhaps as much as 9% higher.
Shapiro warns that blocking the potentially-highest and most qualified bidders could result in as many as 118,000 lost jobs by 2017, along with billions of dollars of lost capital investment.
As the FCC considers the best ways to move spectrum from low value to higher value uses, we encourage the staff to avoid any action or other rules that would have the unintended consequence of reducing auction revenues, minimizing the amount of broadcast spectrum repurposed for commercial wireless broadband, or increasing prices for wireless services.
A full-version of the analysis is available from Georgetown University and the McDonough School of Business at: http://www.gcbpp.org/files/Academic_Papers/EconImplicationsSpectrumAuctions.pdf