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Free State reminds us how market manipulation skews markets

So why should the Federal Communications Commission keep conduct a least restrictive spectrum auction for broadcast spectrum?  Because, according to the Free State Foundation, tying conditions to an auction negatively impacts the outcome in terms of pricing and the number of firms that leave the auction with any spectrum at all.

In a recent blog post, the Foundation shares a couple examples of how interference by the FCC, in the form of aiding what the agency deemed as financially weak competitors, resulted in less spectrum being released. In describing the PCS C Block and 700 MHz auctions, the Foundation stated that:

“In the PCS auction, the FCC extended long-term credit to financially weak bidders, with the apparent intention of encouraging small businesses and rural bidders. This manipulation of the auction resulted in a decade of bankruptcy litigation, delayed the availability of spectrum, and cost consumers over $65 billion according to some estimates. In the 700 MHz C block auction, the FCC required the winner of the 22 MHz C license to provide non-discriminatory network access for all devices and applications. This vague “open access” mandate lacked detail on the freedom of a new licensee to set prices or innovate and disincentivized bidding. This condition-encumbered C block sold for 29% of the price as comparable or even less valuable blocks. Additionally, in auctioning the D block in the same 700 MHz auction, the FCC imposed significant conditions on the use of the spectrum and imposed eligibility rules on bidding. The results of this auction were also unsuccessful, since the D license failed to sell even for a reserve price that was one-third of the average obtained for other comparable licenses. As Tom Hazlett, Professor of Law & Economics at George Mason School of Law stated, “this is evidence that regulatory rules and spectrum allocation procedures continue to distort markets.”

This time, the FCC is considering providing help to smaller wireless carriers by either keeping larger carriers out of the auction, or limiting the amount of spectrum larger carriers can walk away with.  Rules have yet to be promulgated for the reverse television spectrum auction so there is still time to consider this: if a carrier is financially weak, what is the likelihood that carrier is able to stay in the market long enough to acquire the customers necessary to be successful?

Whether credit is extended, larger carriers excluded from the auctions, or the amount of spectrum garnered is subjective to caps, why should the FCC spread the small carriers’ risks to taxpayers?  The FCC seems dead  set on getting into market scuffles between investors.  The FCC, like any regulator, manages to maintain too much focus on the companies (the investor facade) versus the investors themselves.  This is a result of the FCC not including in its mandate the balance between consumer and investor.  The FCC can easily pursue the hands off approach to regulation overall and the spectrum auctions in particular if it remembers that investors in these wireless carriers, whether publicly or privately held, accepted risk when they purchased their shares.  The risk investors in smaller companies took on was the chance that larger carriers would continue, through marketing and quality of service, to widen their lead by better serving their customers.

Should larger carriers be punished for leveraging their historical advantages? I hope not.

 

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Cavalier’s Meeting with the FCC Got Me Thinking …

I was preparing a quick note on Cavalier Wireless’ ex-parte meeting with staff from Federal Communications Commission chairman Julius Genachowski’s office when I thought about how granular the FCC could get with the interoperability issue in the 700MHz band. The FCC has a docket opened, WT Docket 12-69, to address promotion of operability in this portion of the spectrum.

Cavalier, who met with the FCC on 8 August 2012, wants the agency to move with haste on the FCC’s notice of proposed rulemaking, which came out last March. Cavalier wants the FCC to focus on technical and competitive issues surrounding interoperability.

By interoperability Cavalier would like a ruling that says all mobile devices for the 700 MHz band should be able to operate all over the 700 MHz band. It appears that Cavalier’s customers have handsets that won’t operate in the blocks of spectrum AT&T and Verizon operate it and without roaming agreements, these customers won’t be able to speak to a larger population of AT&T and Verizon wireless consumers.

I don’t have a problem with the FCC determining the rules of the road for infrastructure, i.e. signal propagation, power requirements for antennas, rules on interference, etc., but ordering what type of car can run on the road is another story. An independent, non-governmental body came up with operating standards for the bands of spectrum. Let private parties continue to make decisions on what type of hardware to provide to carriers and determine the frequencies these handsets can operate on.

Handset providers and wireless carriers should maintain their autonomy of contracting for mobile devices.

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Looks like Obama is keeping his commitment to broadband

Posted February 15th, 2012 in Broadband, D-block spectrum, FCC, Government Regulation, wireless communications and tagged , , by Alton Drew

President Obama may be hearing the word austerity a lot, but it does not show in his fiscal year 2013 budget, at least not for broadband. While there doesn’t appear to be anything specifically related to broadband deployment in the Department of Agriculture’s budget, the Administration makes up for it in the Department of Commerce’s budget.

The Administration is asking for $10 billion to build an interoperable public safety network. During the terrorist attacks of September 11, 2001, public safety agencies in different agencies had a hard time talking to each. Different equipment and different frequencies compounded the problem ten years ago and that problem still exists today. Standardizing equipment would be a good start in my opinion. Digital radios with a set of frequencies dedicated to that network would be the next step.

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Norquist raps FCC on knuckles for pulling a John Kerry

Grover Norquist co-authored a piece criticizing the FCC’s foot-dragging on the issue of spectrum access. As a case study, Mr. Norquist refers to the challenges LightSquared is facing from other agencies while the FCC apparently is looking the other way. According to Mr. Norquist, the FCC is pulling a John Kerry double take: I was for LightSquared building a $14 billion 4G network before I was against LightSquared building a $14 billion network.

I did appreciate Mr. Norquist’s take on the FCC’s push for rules that would basically allow the agency to choose to whom spectrum will go and to decide who gets to bid on it in the first place. What the FCC is signaling is not competitive bidding. The FCC should not be picking winners and losers. The Japanese did something similar in the 1990s; picking the industries they felt should survive.

Have you heard of the Lost Decade? This type of economic strategy didn’t help Japan pull out of its economic and financial doldrums. Why should we expect picking favorites to work here in the U.S.?

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Failure of the super committee no reason for depriving first responders of D-block spectrum

Posted November 22nd, 2011 in D-block spectrum and tagged , , by Alton Drew

For all the rhetoric that Congress puts out regarding the benefits our first responders provide us and yet they cannot authorize the transfer of D-block spectrum directly to first responders. Such an allocation would go a long way to innovating and improving communications between multiple jurisdictions. Do we have to see another terrorist attack for the point to be driven home? Should failure of the Joint Special Committee for Deficit Reduction be an excuse for not transferring the D-block?