600-MHz Spectrum Set Aside Would Imperil the Whole Auction, Study Suggests

After studying data from the 2006 AWS-1 spectrum auction, researchers at the Phoenix Center for Advanced Legal & Economic Public Policy Studies conclude that Federal Communications Commission plans to restrict bidding by AT&T and Verizon, to ensure that small service providers get a significant portion of the awarded spectrum, might imperil the whole auction process.

The reason is the complicated structuring of the two auctions needed to clear former broadcast TV spectrum, and then to auction that spectrum to mobile service providers. One important facet of the auction process is that unless license holders agree to sell their spectrum, there will be no spectrum to auction for mobile service providers.

In other words, the FCC must first convince broadcasters to part with their spectrum, either going out of business, sharing spectrum with other broadcasters or moving to different frequencies. And the surest way to entice license holders to give up their spectrum is to promise high payments for the spectrum.

Restrictive bidding rules might conflict directly with that requirement, the study argues.

In a new study, Will Bidder Exclusion Rules Lead to Higher Auction Revenue? A Review of the Evidence, Phoenix Center for Advanced Legal & Economic Public Policy Studies scholars analyzed data from the 2006 AWS-1 spectrum auction and found that AT&T alone accounted for nearly half of all auction proceeds, even though its winning bids were only about 10 percent of the total.

AT&T and Verizon, directly and indirectly, were responsible for about 70 percent of total auction revenues.

AT&T's efforts--whether it won or not--added a 21 percent premium to final auction prices above and beyond the revenue effects of the typical bidder, the study says.

Verizon's impact was consistent with that of the average bidder, though. In other words, the bidding activity of one buyer--AT&T--drove most of the auction proceeds.

The Phoenix Center study “finds no evidence that AT&T and Verizon reduced the number of bidders for licenses and no evidence to support the claim that lower revenues resulted from these two firms participating in the auction.”

Given these results, the Phoenix Center's study contradicts almost every key aspect of the arguments for restricting the participation of large carriers from the upcoming voluntary incentive auction -- not only did AT&T's and Verizon's participation not deter smaller firms from entering the auction, but AT&T's participation substantially raised total auction proceeds above and beyond the effect of a typical bidder.

Empirical evidence supporting bidder exclusions or restrictions in the forthcoming voluntary incentive spectrum auctions therefore remains weak.

"In order for the voluntary incentive auction to be a success, the FCC must structure its rules to maximize revenue in order to incent broadcasters to participate, pay for FirstNet, and to provide significant funds to help pay off our national debt," said study co-author Phoenix Center President Lawrence J. Spiwak. "Restricting the participation of bidders who provided the lion's share of total auction proceeds in the AWS-1 auction would appear to be counterproductive towards achieving these goals."
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