Comments Off

FCC’s monopoly creates a monopoly on the H block

The Federal Communications Commission may be getting closer to fulfilling FCC member Jessica Rosenworcel’s worst nightmare for the H block spectrum auction, where instead of selling 65 megahertz of airwaves as authorized by Congress in the Middle Class Tax Relief and Job Creation Act, only 10 MHz will be sold and that sale will likely be to Dish Networks.

“I fear this approach fails the test”, Mrs. Rosenworcel stated back on 13 September 2013.  ”That is because holding a single auction of all 65 megahertz at once is bound to yield more interest, more bidders, and more revenue than dividing this spectrum up and holding an auction of the 10 megahertz H block alone.  As Wall Street analysts have noted, splitting this spectrum up for auction will likely limit interest in the H block to only one or possibly two bidders.  If that is true, we will have a retail sale–not an auction.”

Telecommunications analyst Larry Downes reiterated Mrs. Rosenworcel’s concerns in a piece for Forbes.com, arguing that not only has the expected competition for the H block been stymied, but the FCC has once again shown that picking winners and losers in a market results in failure versus letting market-based competition determine spectrum value while inviting more participants to bid.

In my opinion, the FCC is naive as to its own market power, that of a monopolist.  With the U.S. Department of Justice and the FCC playing anti trust tag team on large companies preferring to acquire spectrum in the secondary markets, the FCC is a bottleneck channel to additional spectrum.  Whatever supply signals the FCC sent out to the big four wireless carriers to ensure a multi-carrier demand, those signals probably didn’t have enough spectrum themselves.  AT&T and Verizon did not bid, which does not surprise me given their preference for the good stuff in the 600 and 700 megahertz range, and T-Mobile and Sprint decided to opt out.  Sprint, after jockeying for terms to its liking in the end decided it didn’t like the terms of the auction.  Mr. Downes writes:

“Sprint’s about-face is hard to explain.  According to an article in The Kansas City Star, Sprint CFO Joe Euteneuer surprised financial analysts in announcing that the company was walking away from the auction just a few weeks before bidder applications were due. Euteneuer ‘said the company took issue with the rules governing the auction,” according to the article, “but didn’t specify any complaints.’ “

Dish created a monopolist’s worse nightmare.  It became the only buyer of spectrum on an aggregated, national basis and with no other buyers available to bid up the per megahertz per population rate, the FCC, as Mr. Downes puts it in his article, was left holding the bag.

If this auction foreshadows the possible outcome of the reverse auction for broadcast television spectrum, the FCC should make sure that no restrictions are placed on carriers that wish to participate.