spectrum auction

Sprint’s Decision To Skip Wireless Auction “Highlights The Folly” Of Federal Hubris

Posted by | Regulatory State, Wireless | No Comments

Few industry analysts seemed surprised when Sprint’s new CEO announced “after thorough analysis” that the company won’t participate in next year’s auction of TV broadcast spectrum (known as the “incentive auction”). Analysts already knew that Sprint “has the spectrum it needs to deploy its network architecture of the future.” As a senior telecommunications analyst for Bloomberg Intelligence said in response to the news, “Sprint really has a lot more spectrum than its rivals, so they don’t have that pressing need to get more.”

The announcement is an embarrassment to the Department of Justice (DOJ), which apparently didn’t know (or didn’t care) that Sprint was flush with spectrum for the foreseeable future. When the Federal Communications Commission (FCC) was developing its auction rules, the DOJ urged it to “ensure” that both Sprint and T-Mobile would “win” spectrum in the auction. The DOJ believed Sprint and T-Mobile had to win “low-frequency” spectrum in the auction in order to compete against Verizon and AT&T in the mobile marketplace. The FCC agreed with the DOJ’s expert opinion and decided to “reserve” the auction’s best spectrum for bidders other than AT&T and Verizon.

Though it’s no surprise, it’s now obvious the country’s federal experts on competition and antitrust matters were wrong in their analysis of Sprint’s alleged need for low-frequency spectrum in order to compete. The agencies were blind to Sprint’s effort to leverage Washington to its business advantage even though Sprint used the same tactics just a few years ago in the last major spectrum auction. As FCC Commissioner Ajit Pai recently noted, “Sprint’s decision not to participate in the incentive auction highlights the folly of the FCC’s attempt to pick winners and losers before the auction begins.” It’s been less than a year since Sprint told the FCC that it would be “unable to make up much, if any, ground” competing against Verizon and AT&T if the FCC didn’t expand its existing spectrum reserve so that Sprint could acquire additional spectrum. It was only after the FCC completed its spectrum reserve proceeding that Sprint announced it doesn’t need the spectrum after all. Read More

T-Mobile Spectrum Song Is A Broken Record At The FCC

Posted by | Wireless | No Comments

This week the Federal Communications Commission (FCC) is voting on procedures for an upcoming auction of spectrum (or airwaves) that will expand wireless broadband services to Apple and Android devices. Like bidders on eBay, it’s natural that spectrum bidders want to win big while paying as little as possible. It’s not natural for eBay or any other auctioneer to help some bidders win big by discriminating against other bidders, yet that’s what the FCC decided to do last year when it ruled that Verizon and AT&T can’t bid against T-Mobile or other bidders for nearly half of the spectrum expected at auction.

The FCC’s decision to shelter T-Mobile from competition for such a large portion of the spectrum for sale counts as a big win for T-Mobile before the auction even starts. But a bidding preference for nearly half of the spectrum still isn’t big enough to satisfy T-Mobile, who’s demanding an even bigger handout. The company claims it can’t buy the spectrum it needs unless the FCC gives it an additional unfair bidding advantage for more than half of the spectrum. Read More

FCC Incentive Auction Plan Won’t Benefit Rural America

Posted by | Regulatory State, Wireless | 3 Comments

The FCC is set to vote later this month on rules for the incentive auction of spectrum licenses in the broadcast television band. These licenses would ordinarily be won by the highest bidders, but not in this auction. The FCC plans to ensure that Sprint and T-Mobile win licenses in the incentive auction even if they aren’t willing to pay the highest price, because it believes that Sprint and T-Mobile will expand their networks to cover rural areas if it sells them licenses at a substantial discount.

This theory is fundamentally flawed. Sprint and T-Mobile won’t substantially expand their footprints into rural areas even if the FCC were to give them spectrum licenses for free. There simply isn’t enough additional revenue potential in rural areas to justify covering them with four or more networks no matter what spectrum is used or how much it costs. It is far more likely that Sprint and T-Mobile will focus their efforts on more profitable urban areas while continuing to rely on FCC roaming rights to use networks built by other carriers in rural areas. Read More

CBIT White Paper: The Mission to Kill Broadcast Television Stations

Posted by | Video | One Comment

Click HERE to download the complete white paper in PDF.

THE MISSION TO KILL BROADCAST TELEVISION STATIONS

Analyzing Pay-TV’s Bid to Control the Video Marketplace

EXECUTIVE SUMMARY

Cable and satellite TV distributors (MVPDs) have secretly declared a regulatory war on TV stations. MVPDs have marched into battles over the obscure regulatory territories of “retransmission consent”, “compulsory copyright licenses”, “broadcast exclusivity agreements”, and “basic tier” using a free market flag as their standard. But that flag is merely a cynical smoke screen for their real mission: To kill broadcast television stations altogether.

It is no coincidence that the “reforms” MVPDs seek are entirely one-sided. MVPDs want to repeal regulations that make free over-the-air television possible without repealing regulations that require TV stations to provide local programming to consumers for free. Eliminating only the regulations that benefit broadcasters while retaining their regulatory burdens is not a free market approach — it is a video marketplace firing squad aimed squarely at the heart of broadcast television.

Advertising revenue is the primary motive for this war. The compulsory copyright license prevents MVPDs from inserting their own ads into broadcast programming streams, and retransmission consent prevents them from negotiating directly with the broadcast networks for available advertising time. If these provisions were eliminated, MVPDs could negotiate directly with broadcast networks for access to their television programming and appropriate a substantial portion of TV station advertising revenue, which was approximately $19.6 billion in 2013.

Adopting the MVPD version of video regulation “reform” would not kill broadcast programming networks. They always have the option of becoming cable networks and selling their programming and advertising time directly to MVPDs or distributing their content themselves directly over the Internet.

The casualty of this so-called “reform” effort would be local TV stations, who are required by law to rely on advertising and retransmission consent fees derived largely from national broadcast network programming for their survival. Policymakers should recognize that killing local TV stations is the ultimate goal of current video “reform” efforts before they make piecemeal changes to the law. If policymakers intend to kill TV stations, they should not attribute the resulting execution to the “friendly fire” of unintended consequences. They should recognize the legitimate consumer and investment-backed expectations created by the current statutory framework and consider appropriate transition mechanisms after a comprehensive review. Read More

CBIT White Paper: The Broken Promise of the 2.5 GHz Band

Posted by | Wireless | One Comment

Click here to download the white paper in PDF.

Repurposing Educational Spectrum Resources to Connect America’s Schools and Libraries to Next Generation Internet Services

Executive Summary

A 2010 survey commissioned by the Federal Communications Commission (FCC) found that nearly 80% of schools and libraries in the United States lack Internet connectivity that fully meets their current needs. In response, President Obama proposed the ConnectED initiative to provide 99% of American schools and libraries with Internet connectivity at speeds no less than 100 Mbps within the next five years. Most of the funding for this initiative is expected to come from universal service funds administered by the FCC through it E-rate program.

The current level of E-rate funding is far too limited to meet the President’s goal, however, and a substantial increase in universal service funding would threaten the affordability of broadband services in rural areas and to low-income communities. These public interest constraints have prompted the FCC to ask the public for help in identifying additional sources of funding for educational broadband.

Strangely, the FCC has ignored an obvious source of at least $11 billion in educational funding for which the FCC already has ultimate authority: The 117.5 MHz of spectrum allocated for the Educational Broadband Service (EBS) in the 2.5 GHz band. This spectrum was allocated for education over 50 years ago, but has never been fully utilized for its intended purpose. During the last two decades, the FCC permitted Sprint to lease nearly all of this educational spectrum from our schools and use it almost exclusively for Sprint’s commercial purposes. Though Sprint has a legal obligation to provide 5% of the spectrum’s broadband capacity for use by schools holding 2.5 GHz spectrum licenses, a recent study indicates that Sprint is not meeting even this minimal obligation in good faith. Read More

H Block Auction Shows Need for Clearer Limits on FCC Spectrum Authority

Posted by | Wireless | No Comments

This post was originally published by FierceWireless here.

The Federal Communications Commission declared the auction of spectrum in the H block “successful” because (1) it licensed spectrum that could be used to provide mobile wireless service to the public, and (2) it “raised $1.564 billion from spectrum that used to be viewed as almost worthless.” In truth, however, the H block auction was a failure.

Though the auction did license spectrum in exchange for payment, that is not the criteria for a successful spectrum auction — virtually all spectrum auctions would meet this criteria, including the obviously failed C block auction in the PCS band.

To be truly successful, an auction must fulfill the fundamental purpose auctions are intended to serve. Congress authorized the use of “competitive bidding” to assign spectrum to the applicant who values it most highly, who is presumed to be the applicant most likely to provide quality service to the public in a timely manner, while minimizing rent seeking and transaction costs. An auction can serve this purpose only if it actually results in competitive bidding, which is why Congress prohibited the FCC from selling spectrum in the absence of competing applicants.

Based on bidding data and the unusual circumstances surrounding the adoption of its reserve price, the H block auction bears more resemblance to an impermissible “retail sale” of spectrum at a pre-determined price negotiated by the FCC than a “system of competitive bidding” designed to determine which applicant values the H block most highly. As I’ve previously explained in detail, the FCC illegally established an artificially high reserve price of $1.564 billion for the H block as part of a pre-auction bargain with DISH Network, who had committed to pay this price only if the FCC increased the value of DISH’s spectrum holdings in other bands. The FCC granted DISH’s wish, and a result, DISH “won” all of the H block licenses. Read More

Maximizing the Success of the Incentive Auction

Posted by | Public Safety, Wireless | 2 Comments

I prepared a report for the Expanding Opportunities for Broadcasters Coalition and Consumer Electronics Association entitled Maximizing the Success of the Incentive Auction, which was filed at the Federal Communications Commission on November 4, 2013. The executive summary is reprinted below and the full paper can be viewed here. Read More

H Block Spectrum Highlights Risk of No Shows at FCC Incentive Auction

Posted by | Regulatory State, Wireless | No Comments

I recently prepared a paper for the Expanding Opportunities for Broadcasters Coalition and Consumer Electronics Association that provides empirical data regarding the costs of restricting the eligibility of large firms to participate in FCC spectrum auctions (available in PDF here). The paper demonstrates that there is no significant likelihood that an open incentive auction would substantially harm the competitive positions of Sprint and T-Mobile. It also demonstrates that Sprint and T-Mobile have incentives to constrain the ability of Verizon and AT&T to expand their network capacity, and that Sprint and T-Mobile could consider FCC restraints on their primary rivals a “win” even if Sprint and T-Mobile don’t place a single bid in the incentive auction. (Winning regulatory battles is a lot cheaper than winning spectrum in a competitive auction.)

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Why Did the FCC Adopt an Unusually High Reserve Price for the H Block Spectrum Auction?

Posted by | Wireless | 2 Comments

“It could be argued that the exact match between the DISH bid commitment and the H block reserve price is purely coincidental. To actually believe this was a coincidence would require the same willing suspension of disbelief indulged by summer moviegoers who enjoy the physics-defying stunts enabled by computer-generated special effects. When moviegoers leave the theater after watching the latest Superman flick, they don’t actually believe they can fly home.”

The FCC’s Wireless Bureau recently adopted an unusually high $1.564 billion reserve price for the auction of the H block spectrum. Though the FCC has authorized the Bureau to adopt reserve prices based on its consideration of “relevant factors that could reasonably have an impact on valuation of the spectrum being auctioned,” it appears the Bureau exceeded its delegated authority in this proceeding by considering factors unrelated to the value of the H block spectrum that have the effect of giving a particular firm an advantage in the auction. Specifically, the Bureau considered the value to DISH Network Corporation of amendments to FCC rules governing other spectrum bands already licensed to DISH (e.g., the 700 MHz E block) in exchange for DISH’s commitment to meet the $1.564 billion reserve price in the H block auction – a commitment that is contingent on the FCC Commissioners amending rules governing multiple spectrum bands no later than Friday, December 13, 2013.

No matter what the FCC Commissioners decide, if the reserve price stands, the only sure winner would be DISH. If the FCC Commissioners don’t endorse the DISH deal, DISH need not honor its commitment to meet the artificially inflated reserve price, which could result in the spectrum auction’s total failure. If the Commissioners do endorse the DISH deal, the artificially inflated reserve price could deter the participation of other bidders and lower auction revenues that are expected to fund the national public safety network. Neither option would result in an open and transparent auction designed to provide all potential bidders with a fair opportunity to participate.

The FCC would be the only sure loser. The appearance of impropriety in the H block proceeding could compromise public trust in the integrity of FCC spectrum auctions. To ensure the public trust is maintained, the FCC Commissioners should thoroughly review the processes and procedures implemented by the Wireless Bureau in this proceeding before auctioning the H block spectrum.

The following discussion provides background information on the purposes of spectrum auctions and reserve prices. This background information is followed by a more detailed analysis of the terms of the DISH deal and the advantages it would bestow on DISH, the lack of analysis in the Wireless Bureau’s order, the role of the Commissioners, and the potential damage to the integrity of FCC auctions. Read More

Dick Thornburgh Is Mistaken: The New DOJ Spectrum Recommendation Is Inconsistent with Its Prior Approach to Mobile Competition

Posted by | Wireless | No Comments

The Department of Justice has suddenly reversed course from its previous findings that mobile providers who lack spectrum below 1 GHz can become “strong competitors” in rural markets and are “well-positioned” to drive competition locally and nationally. Those supporting government intervention as a means of avoiding competition in the upcoming incentive auction attempt to avoid these findings by highlighting misleading FCC statistics, including the assertion that Verizon owns “approximately 45 percent of the licensed MHz-POPs of the combined [800 MHz] Cellular and 700 MHz band spectrum, while AT&T holds approximately 39 percent.”

Sprint Nextel Corporation (Sprint Nextel) recently sent a letter to the Federal Communications Commission (FCC) signed by Dick Thornburgh, a former US Attorney General who is currently of counsel at K&L Gates, expressing his support for the ex parte submission of the Department of Justice (DOJ) that was recently filed in the FCC’s spectrum aggregation proceeding. The DOJ ex parte recommends that the FCC “ensure” Sprint Nextel and T-Mobile obtain a nationwide block of mobile spectrum in the upcoming broadcast incentive auction. In his letter of support on behalf of Sprint Nextel, Mr. Thornburgh states he believes the DOJ ex parte “is fully consistent with its longstanding approach to competition policy under Republican and Democratic administrations alike.”

Mr. Thornburgh is mistaken. The principle finding on which the DOJ’s new recommendation is based – that the FCC should adopt an inflexible, nationwide restriction on spectrum holdings below 1 GHz – is clearly inconsistent with the DOJ’s previous approach to competition policy in the mobile marketplace. Both the FCC and the DOJ have traditionally found that there is no factual basis for making competitive distinctions among mobile spectrum bands in urban markets, and the DOJ has distinguished among mobile spectrum bands only in rural markets. Read More