REVIEW & OUTLOOK
Purblind Auction
February 7, 2008; Page A18
The Federal Communications Commission is bragging about its latest wireless
auction, with total bids of more than $19 billion after two weeks. But dig
beneath those numbers and the picture is less rosy.
This wireless "spectrum" is on the market because of the transition to
digital television broadcast. As of February 17, 2009, TVs without digital
tuners or cable or satellite hook-ups will go dark, and a big swath of the
airwaves will be free for other uses. This spectrum can transmit data over
long distances and penetrates walls much better than most current wireless
phone spectrum.
[Kevin Martin]
But FCC Chairman Kevin Martin wasn't content to sell this real estate to the
highest bidder. Instead, he embarked on a central-planning experiment,
setting aside the two biggest blocks for special uses. The FCC's procedures
require blind, confidential bidding, so there is much about the auction that
we won't know until it wraps up. But it already seems clear that Mr.
Martin's rules have damaged the value of otherwise choice spectrum and are
harming the overall auction.
For example, the FCC restricted the single biggest spectrum license for a
public-private "public safety" partnership. The idea was that someone would
buy it to create a nationwide network for "first responders" -- fire and
police departments and the like -- with secondary use as a commercial
wireless network. But the main lobbyist for that spectrum, former FCC
Chairman Reed Hundt's Frontline Wireless, closed up shop before the auction
began. So far, this so-called "D block" of spectrum has attracted exactly
one bid in 40 rounds, and that bid is less than $500 million -- well below
the FCC's $1.3 billion reserve price.
The FCC designated the next-biggest block -- the "C block" -- for "open
access" at the urging of Google, among others. The C block is not only
large, but it divides the country into eight large regional groups, with the
possibility of bidding on all eight as a package. It should be a top prize.
But it only passed its $4.6 billion reserve price late last week, and the
reason is almost certainly the FCC's "open access" rule. That rule requires
whoever wins to open the network to all compatible phones or software. If
you're spending billions on spectrum and billions more building the network,
the fact that the feds might force you to share your network means greater
investment risk.
The bidding bears this out. Of the $19 billion bid so far, nearly
three-quarters has gone toward the smaller bits of spectrum in the A, B and
E blocks. Building a national network by cobbling together hundreds of these
bits is inefficient and risky, and it doesn't serve consumers, who would get
faster service and more flexibility from the larger blocks.
But there's more. The FCC made these small blocks to encourage start-ups and
new entrants to bid for a piece of the next-generation wireless pie. If the
conditions placed on the C and D blocks are driving the big established
players into the smaller auctions, then the new, little guys may well be
playing in the same sandbox with the big, bad incumbents.
The FCC's previous experiments with rigging auctions also flopped; witness
the NextWave bankruptcy, which tied up billions of dollars of spectrum for
years. Mr. Martin will claim victory in the auction no matter what happens.
But what we'll never know is how much would have been bid -- and thus how
much more the Treasury would have received -- if Mr. Martin had auctioned
this spectrum without his favors for special interests attached.
Jeff Broadwick
Sales Manager, ImageStream
800-813-5123 x106 (US/Can)
+1 574-935-8484 x106 (Int'l)
+1 574-935-8488 (Fax)
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