Back to The Future: How a 2005 CBO Report Will Tell Us The Future
Fool me once, shame on you, fool me twice you’re the FCC. The FCC seems to have been fooled quite a few times in attempts to make spectrum auctions ‘fair’ for smaller businesses according to a 2005 CBO report. With the 2015 600MHz auction and its bidding restrictions looming over the mobile telecom industry it’s important to look at the past to predict the future.
The CBO report clearly shows that reserved spectrum for small businesses, or as the FCC classifies them “entrepreneurs,“ has a negative effect on auction proceeds and spectrum development.
The auctions discussed in the CBO report are auctions 5, 10, 11, and 22. Auction 5 was one of the first large FCC spectrum auctions and was poorly designed. It was so poor that Auction 10, was comprised entirely of returned spectrum from Auction 5.
Large amounts of spectrum was returned by entrepreneurs, classified as companies that make less than $125 million each year over the preceding two years, in Auction 5 because they could not pay for the spectrum they bought in C block auctions. While much of spectrum available in Auction 5 was open to bidding, C block spectrum was reserved for small business only. Of the 658 licenses in this block 411 licenses remained unused as of fall 2004.
You would think the FCC would learn, but again in Auction 11 the FCC reserved auctioning in F block to entrepreneurs only. History repeated itself and 20 percent of the reserved F Block lay dormant. Note that the Auction 11 was in 1997, meaning that as of the 2005 CBO report, that spectrum was dormant for at least seven years.
However in Auction 22 the majority of licenses for this auction were from unused licenses returned to the FCC from auctions 5 and 10. Auction 22 did not have any bidding restrictions and never had spectrum returned to be auctioned again. While all C block in Auction 5 and F block spectrum in Auction 11 was returned to the FCC, Auction 22 was a success, with only 3 percent of spectrum returned.
These bidding restrictions affect spectrum rollout and in the end you, the customer, does not get a lightning fast or reliable network that larger companies, that can actually pay for spectrum, could provide.
Fortunately, in addition to the spectrum returned to the FCC because it couldn’t be paid for, 38.2 percent of spectrum purchased by entrepreneurs was sold to larger companies on the secondary market. These larger companies could then effectively use the spectrum by developing new technologies and rolling out the new spectrum on their networks, something the smaller companies could not do.
Additionally, income from these auctions is dramatically reduced by auction restrictions. Taking a look at Auction 11 entrepreneurs paid an average of 31 to 61 percent less for spectrum than what was paid for in the open auction blocks. Additionally, a later auction, auction 35, also contained incentives for entrepreneurs and saw a reduction in income from 14-15 percent in reserved auctions.
Still, the FCC hasn’t learned. In 2015 they will be auctioning off a large amount of valuable sub-600hmz spectrum with huge auction restrictions for some companies and incentives for other companies. These restrictions include reserving up to 30 MHz of spectrum that Verizon or AT&T cannot purchase, and a moratorium on the selling in the secondary market for six years.The decision to restrict bidding will result in reduced auction proceeds, and most importantly, reduce the development of spectrum and injure the consumer the most.
To read the CBO click: Here