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The FCC needs to practice spectrum supply neutrality

The Federal Communications Commission may like net neutrality for broadband providers but when it comes to its own gate-keeping rule, equal access to spectrum auctions is not the FCC’s cup-of-tea.  The Hill.com is reporting that a number of GOP congressmen have written the FCC to urge the regulator to take off the reins on AT&T and Verizon and allow them to bid on broadcaster spectrum without being foreclosed by a revenue floor.

“Under Wheeler’s plans, some companies — especially AT&T and Verizon — would be kept from bidding on certain blocks of airwaves in each market once that auction has reached a yet-to-be-determined revenue benchmark”, reports Kate Tummarello. “This is not how a market-based auction should function; it is how a cartel controls price.”

Cartel is probably the wrong phrase.  A cartel by definition is a group of firms with an explicit formal agreement to fix prices and output shares in a particular market.  There is no explicit agreement between the FCC, Sprint, and T-Mobile to fix any prices (I would hope).  Besides the FCC is not a firm and would not benefit financially from any price fixing, even if in the form of discounts to Sprint and T-Mobile; discounts because AT&T and Verizon would be locked out of offering a premium on top of any market price for the spectrum.

The FCC’s projected action would keep the market from searching for, identifying, and determining market signals and prices.

No, the FCC is a monopoly.  It controls the distribution of spectrum licenses, even those in the secondary markets since it must approve spectrum transfers.  While monopolists do sell the same product to different markets at different prices (think of the electric utilities that Susan Crawford is so fond of), they don’t restrict customers from entering a market.

What the FCC needs to practice is spectrum neutrality.  All wireless carriers get to show up and engage in the sale and the purchase of spectrum.   There is no logic to restricting access to an auction unless you simply want to the FCC to make the least amount of money for its efforts?

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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.

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As We Approach September 11th …

The Federal Communications Commission released on 31 July 2012 an order implementing the Middle Class Tax Relief and Job Creation Act of 2012. The Act creates a First Responder Network Authority. The FRNA will be responsible for implementing a nationwide, interoperable broadband public safety network. The FRNA will hold a single license for use of the 700 MHz D-block (758MHz-763MHz/788MHz-793MHz) and existing public safety spectrum (763MHz-769MHz/793MHz-799MHz).

The Act gives FNRA the authority to issue “open, transparent, and competitive requests
for proposals to private sector entities for the purposes of building, operating, and maintaining the network that use …”

How competitive and how fair will the issue of the requests for proposals be? Will larger, publicly-owned companies such as AT&T, Verizon, and Sprint get a fair shake at these contracts? Or will investors be denied the revenues, rates of return on assets, and dividends these contracts could bring?

The National Telecommunications and Information Administration in a discussion on public safety waiver applications and terminating existing leases in public safety broadband spectrum noted that “[f]or FirstNet to be successful, it must avoid the balkanization that has plagued earlier efforts at interoperable public safety communications and must find ways to lower costs by the economies of scale that ensue from consolidated procurement.”

Seems to me if you want to avoid balkanization, ensure the best carriers are awarded for their proposals to provide the public safety network. Larger carriers have the economies of scale to provide nationwide service.

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FCC & unleashing technology

Posted February 29th, 2012 in Broadband, employment, entrepreneurship, first responders and tagged , by Alton Drew

“At the FCC, our mission is to unleash the potential of communications technology –
including mobile broadband – to benefit our economy and our society. We believe in the
power of dynamic free markets to drive these benefits, and that government has an
important but limited role to play in enabling innovation and investment in
communications technologies and services, promoting competition, and empowering
consumers.”

These words were shared by Federal Communications Commission Chairman Julius Genachowski during a speech delivered in Barcelona a couple days ago. While I appreciate the Chairman’s intention to make broadband access available to every American household, we shouldn’t give Spain the impression that there is another European country with a capital west of Portugal.

Chairman Genachowski’s statement gives the impression that the FCC controls private capital namely communications technology. Yes, to a certain degree, the FCC regulates or creates a framework for access to the telecommunications, broadcast, and cable television markets. It also sets the framework for accessing public rights-of-way, poles, and that great and limited national resource; spectrum.

The agency, along with the rules it promulgates, and the statutes that give it authority, do not best promote a flexible and dynamic market. Free markets unleash communications technology and the innovation and dynamism that come along with it when incented by consumers that are willing and able to not only purchase communications goods and services and producers willing and able to develop and sell these goods and services.

It is the FCC’s attitude, as captured by the statement from Mr. Genachowski’s speech, which has it frequently on the precipice of picking winners and losers. Leave the technology development to the markets, FCC. The industry, its investors, and consumers will leave the FCC to regulate market entry on a minimal basis and ensure the acquisition of spectrum necessary for keeping consumers connected.

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White House support for deploying first responder network is first step

Posted October 4th, 2011 in D-block spectrum, first responders and tagged , , , by Alton Drew

Vice-President Joe Biden recently touted one of the highlights of the American Jobs Act: the deployment a broadband network for first responders. Mr. Biden stated that the D-block of spectrum, the airwaves necessary for providing a seamless network of connectivity for public safety agencies, would be allocated to them.

The problem with the Act is that it makes mention of voluntary auctions, where broadcast stations would voluntarily give up spectrum (for a price of course) in order to free up spectrum for wireless use.

The administration should persuade the FCC to allocate D-block spectrum directly to first responders, and not make the allocation contingent on voluntary broadcast station auctions, or place any non-profit clearinghouses between first responders and sources of spectrum.