Bidder Restrictions, Spectrum Conditions Negate Auction Benefits

Spectrum policy continues to be a hot topic in Washington, D.C., as economists, policy makers and industry groups seek to shape the upcoming auction process and to push for quicker release of underused spectrum. At a roundtable last Friday, Georgetown University’s Center for Business and Public Policy gathered experts to discuss key issues.

Thomas Power, U.S. deputy chief technology officer for telecommunications at the Office of Science and Technology Policy in the Executive Office of the President, discussed the government’s efforts to free spectrum in the 755 MHz band by moving government users to other bands or technologies. He was encouraged by recent legislative efforts that included incentives for federal agencies to relinquish their spectrum.

“In the past, agencies have been directed to turn over spectrum,” Power said, but with no incentives. “We got some good changes in that the spectrum relocation fund can pay for upfront planning, not just the cost for relocation. It can help pay for sharing, and it can be used to fund equipment expenses that represent an upgrade.”

Power noted that 3,200 networks use the 755 MHz space, and it may not be possible to clear the entire band or even a portion of the band completely.

We don’t “have to solve all of this band at the same time, before anyone can move in. We can start auctions and commercial ingress” before the space is clear, Power said. “Sharing is the word of the day,” he added, noting it can include exclusion zones, adaptive radios, architectural changes and smaller cells to allow more reuse.

Power also cautioned against moving too quickly to clear this space: “It’s a complicated system. We don’t want to give up on air combat training systems or unmanned vehicles for fighting terrorism. We have to realize there are real missions being executed in this spectrum.”

Are Auction Set-Asides Beneficial?

Once a spectrum block is cleared and ready for auction. Michael Katz, director of the Institute for Business Innovation at the University of California, Berkeley, advised against set-asides for special interests. According to Katz, set-asides threaten auction benefits because they:

•    Reduce auction revenues by excluding those carriers most likely to be high bidders;
•    Delay productive use of spectrum by creating risk that winners will not be viable wireless operators; and
•    Make it likely that spectrum won’t be put to highest use.

“Rather than creating competition, set-asides would distort it,” said Katz, adding that making it difficult for incumbents to acquire new spectrum drives up marginal costs, which results in higher prices and lower quality for consumers.

Onerous Conditions Restrict Bidding

Anna-Maria Kovacs, a visiting senior policy scholar at Georgetown University’s Center for Business and Public Policy agreed that spectrum auctions should be open to all bidders. She advises against putting conditions on the spectrum after analyzing Auction 73, the 700-MHz auction run in 2008, to assess the impacts of set-asides and conditions.

In Auction 73, the FCC made spectrum available in Blocks A through E. Kovacs’ analysis shows that B Block — which had no conditions, no bidder restrictions and no interference issues — attracted the most bidders and had the greatest winners. B Block raised half of the proceeds of the auction, although it represented less than a quarter of the spectrum sold. B Block also achieved the highest valuation of $2.68/MHz/POP — four times higher than FCC expectations.

By contrast, the FCC placed open-access conditions on the C Block. The spectrum should have been desirable because carriers could have assembled it into a national footprint, Kovacs said. However, burdened with open-access conditions, it achieved a valuation of only $0.76/MHz/POP — about a quarter of the condition-free B- Block.

C Block constituted about 43 percent of the spectrum sold, but it raised only 25 percent of the auction proceeds. “Onerous conditions lower auction proceeds,” she said.

Speed The Auction Process

Christopher Guttman-McCabe, vice president/regulatory affairs at CTIA-The Wireless Association, emphasized the need to get spectrum to market quickly.

“Usage is outpacing predictions,” Guttman-McCabe warned, calling for simple, easy-to-understand auction rules with no restrictions.

“We are hopeful that 120 megahertz will come to market from the broadcast auction,” but we need to focus on where additional spectrum will come from, he said. “755 MHz to 780 MHz is our initial focus. We will work with NTIA to move that spectrum forward.” Guttman-McCabe added that the industry will investigate sharing, but the “gold standard” will be clearing the spectrum for commercial use.

“The focus has to be ultimately on clearing the bands and bringing the cleared bands to market in a flexible way that’s unencumbered,” he concluded.

 — Jennifer Whalen