http://www.telecomweb.com/tnd/24041.html
A trio of auction experts says Frontline Wireless' proposed E Block not only will increase social welfare, but will enhance revenue for the upcoming 700 MHz auction (/TelecomWeb news break/, June 5).
Peter Cramton, Andrzej Skrzypacz and Robert Wilson authored the analysis, sent by Frontline Wireless earlier today to the Federal Communications Commission, that says in part that the high "foreclosure value" of the 700 MHz spectrum to the nation's two largest wireless carriers, Verizon <http://www.telecomweb.com/search/?query=Verizon> and AT&T, both of which inherited 800 MHz cellular licenses from an era in which licenses, were awarded for free rather than sold at auction.
"The reason that limiting participation can increase revenues and social welfare is simple: incumbents have profits to protect and entrants realize this, so rationally the potential entrants stay away from the auction because the high costs of participating outweigh the low odds that they will win," the analysis states. "Thus the incumbents win in two ways: they protect their profits and they get the new licenses for scarce spectrum at low prices."
The report also notes the E Block proposal increases social welfare and likely auction revenues:
Verizon <http://www.telecomweb.com/search/?query=Verizon> and AT&T earn substantial "scarcity rents" from holding nearly all of the original low frequency cellular licenses, which gives them operational and quality advantages reflected in their prices and profits.
The 700 MHz spectrum has high "foreclosure value" to Verizon and AT&T, separate from the true "economic value" of building and operating a network. Market entry by new 700 MHz bidders threatens their incumbent position, which they will defend and which they have the capital to do.
The high foreclosure value to Verizon and AT&T deters new entrants from participating in the auction, reducing bidder competition and driving down auction revenues. New entrants rationally stay away from an auction when the costs of participating outweigh expected profits.
An open access, wholesale E Block, combined with bidding credits, will increase auction revenues. These rules draw new entrants into the auction to compete with the incumbent bidders, creating greater bidder competition and causing winning bids to reflect the economic value of the spectrum.
Secondary use of the public safety <http://www.telecomweb.com/search/?query=public%20safety> spectrum during non-emergency times effectively increases the quantity of spectrum auctioned, increasing the value for the E Block winner.
Guaranteed access to nationwide coverage increases value of other blocks to small and regional carriers.
According to Frontline, its proposed E Block - encompassing a limited slice of spectrum at 700 MHz - would require the construction of a nationwide, interoperable wireless broadband network for public safety <http://www.telecomweb.com/search/?query=public%20safety>, at no cost to taxpayers but at the willing expense of the license-holder as a condition of the license. The E Block proposal also requires that this wireless broadband network be open to competition and innovation, including open to any kind of customer and all handsets and devices that do not harm the network.
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