2013 October

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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