Spectrum Auctions and “the Free Market”

BY CCIA Staff
February 12, 2013

As the FCC develops ground rules for Incentive Auctions, in which spectrum relinquished voluntarily by TV broadcasters will “go on the market” and be auctioned, the two prospective bidders already holding the largest amount of spectrum, including what’s considered the “best” spectrum below 1 GHz, naturally argue for a “free market” approach with no restrictions on the amount of spectrum that can be licensed to any one corporation.   But is that approach truly a “free market” one?   Not if you consider the marketplace headstart  and continuing advantages enjoyed by these two dominant carriers,  AT&T and Verizon, both legacies of monopoly Ma Bell.   CCIA detailed this phenomenon in an FCC filing at the end of November.  For example, AT&T and Verizon today control 86% of mobile spectrum below 1 GHz in the top 10 U.S. markets and 80% in the top 50 markets.

At the dawn of cellphones in the 1980s, various predecessors of these two corporate conglomerates, as the wireline telephone carriers in their respective geographic regions, were given cellular network spectrum for the mere cost of preparing FCC applications.  This system of giveaways for one of only two licenses in each geographic market created government-sanctioned duopolies in cellular phone business.  The second licenses were awarded by lottery to non-wireline applicants.

More competition in commercial mobile wireless or CMRS was introduced through the first spectrum auctions in the 1990s, but soon after that, industry consolidation began and has intensified over the past 10 years.   So the two dominant carriers alone are left with substantial advantages of size and scale and superior spectrum resources.   This means they do not need to pay for roaming on any networks other than their own or each other’s within the U.S.  They alone are also integrated with ubiquitous legacy monopoly wireline network infrastructure upon which all competing smaller mobile carriers must depend for backhaul transmission to and from towers.

While it’s possible to imagine other companies as large as AT&T and Verizon who might have an interest in bidding for wireless spectrum, none enjoys any of the other legacy advantages just described.   That makes this particular market environment, even if it could be labeled “competitive,” fundamentally unsusceptible to truly “free market” bidding on spectrum.   The playing field is sharply tilted.

Government agencies in Canada, Mexico, Europe and Japan have encountered their own asymmetrical market conditions in the context of auctioning and/or licensing of additional mobile wireless spectrum, and have acknowledged and addressed the problem in a straightforward manner.   The FCC too can and should set rules of general applicability regarding maximum allowable spectrum holdings for any one company, and then require those who participate in competitive bidding for additional spectrum to come into compliance with those limitations, for example by secondary sales/divestitures of other frequency blocks.   Last year, Congress terminated the FCC’s authority to exclude specific companies from auction eligibility, but not its authority to set rules of general applicability regarding spectrum holdings.  To increase certainty for all stakeholders, and support the further development of competitive choices for consumers, the FCC should adopt rules in its Mobile Spectrum Holdings proceeding before completing its more comprehensive incentive auction rules.

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