Delay of FCC 'Incentive Auction': A Good Thing?

Perhaps the primary reason new FCC Chairman Tom Wheeler delayed the planned Incentive Auction is that he recognizes that it might not be a good time to roll out another first-time government plan that expects a large number of participants.

It’s tough being a competitive carrier. You ask the average person about alternatives and they answer “let’s see …Verizon, AT&T, Sprint” and then their voice drifts off. Of course, this is hardly surprising considering that only one-third of U.S. rural areas actually have available coverage from as many as three carriers. In a lot of ways, the situation is not much different in Washington, where representatives know who the big lobbyists are, and smaller associations (e.g., CCA, RICA) have to rely on a local guy to go and speak to them. Thus, Wheeler’s delaying of the Incentive Auction was tallied in the ‘Win’ column by our friends at the CCA and other Shared Spectrum advocates.

While we talk about spectrum scarcity, there is also an imbalance problem between the major carriers and the availability of spectrum for competitors.

The recently published “Right-Sizing Spectrum Auction Licenses” white paper by Bill Lehr and J. Armand Musey offers a good explanation as to what must be considered in the rolling out of the Spectrum Act’s auction plan. In the Act, the declared goals are innovation and competition. However it has long been stated that the larger the block the higher the value, and in the Lehr-Musey paper that premise is challenged on a number of fronts.

First, if the block is too large, the smaller carriers have less hope of utilizing the full block and there is a general perspective that the block will go to larger carriers. Second, if the larger carriers already have coverage in areas held within the geographic market, they have a tendency to discount their bids, which results in suppressed demand and depressed price. Economic Areas were the larger blocks used by the FCC recently and they represent less than 200 geographic mappings, whereas the Cellular Market Areas represent over 700 market areas.

Lehr and Musey’s analysis goes on to indicate that larger sizes have a tendency to create requests for subsidies. The Broadband Opportunities Technology Program (BTOP) stimulus currently has an allocation of over $40 million for wireline technologies, because the larger companies are claiming the cost of delivering newer technologies is cost-prohibitive. Clearly, that is not the road to innovation.

In some cases the markets are going to have to find alternative solutions based on local mixed-use requirements, and it may be that agriculture M2M solutions warrant equal deployment more than the population of the area.

So what is the bottom line? The way I see it, Chairman Wheeler’s delay of the incentive auction provides opportunity to consider both the buy-side and the sell-side of the spectrum.