600-MHz Auction Rules Will Be Difficult

You might think it would be an easy call for the Federal Communications Commission to design auction rules for the upcoming 600-MHz auctions of former TV broadcast spectrum. Intended to support mobile services, the future auctions, assuming broadcasters can be induced to give up the spectrum, have to support the goals both of maintaining competition and spurring investment in capacity.

And it just isn’t clear whether “set aside” policies advocated by T-Mobile US and Sprint are the best way to promote the twin goals, as logical as it might seem to reserve some of the spectrum for smaller carriers (Sprint and T-Mobile US).

To be sure, the logic of reserving assets for smaller competitors is simple to understand. That has been a policy pursued in the past by regulators seeking to encourage new competitors to enter a market.

What is not so clear is whether such policies ultimately are successful. What tends to happen is that spectrum acquired by entrepreneurs has, in the past, simply been acquired by the dominant service providers.

In the case of the 600-MHz auctions, a somewhat parallel line of reasoning is that allowing Sprint and T-Mobile US to acquire some of the spectrum will help them compete against the larger Verizon Wireless and AT&T Mobility. Initially, that likely would happen.

Longer term, it isn’t clear that even allowing Sprint and T-Mobile US to get access to such spectrum will make a difference. Many would argue a stable U.S. mobile market requires three big service providers, and no more. But regulators want four carriers in the market, both in the United States and elsewhere.

AT&T and Verizon executives might also reasonably argue that restricting the amount of spectrum the two carriers can bid on will lead to higher spectrum prices paid by them, costs that will be passed along to consumers.

Conversely, some argue that limiting bidding might also lead to lower overall revenue being raised in the auction, something that will affect the spectrum clearing process, since broadcasters must first vacate their spectrum, something they are likely less willing to do if the money received for giving up spectrum are not high.

Some might also argue that the awarded spectrum will be more efficiently used, resulting in higher amounts of usable bandwidth, if no restrictions are placed on any bidders. That would be the case since bidders could amalgamate new spectrum in larger blocks, leading to more efficiency.

The FCC has a tough decision to make.