Imagine someone handing you, and only you, the winning Powerball numbers before the jackpot sequence was ever revealed. Sounds great if you're the person holding the ticket, but not exactly fair to everyone else.
The Federal Communications Commission (FCC) could hand its equivalent of a winning Powerball ticket to select communications companies in the upcoming spectrum auctions. As the FCC creates rules for the incentive auctions, it has the ability to stack the odds, restricting participation in the auctions by some mobile providers and essentially picking winners and losers among our nation's carriers.
Today, the wireless industry's future is in the hands of policy makers. The federal government expects to hold spectrum auctions in 2014 in which air frequencies currently used by broadcast television stations, but well suited for mobile broadband, will be put up for sale. Much is at stake in the way that the auction is structured and in its ultimate success.
Beyond the urgent need to supply carriers with the spectrum sufficient to serve consumer demand, the auction is expected to produce revenues for other key national priorities:
- Up to $7 billion from the auction proceeds will be set aside for the creation of a national broadband network for local police, fire, and emergency services. "First Net," as it is known, will create a fully interoperable broadband service connecting local first-responders nationwide.
- Broadcasters must be paid from the auction revenues as an incentive for their donation of spectrum to the auction.
- Broadcasters that choose not to donate spectrum but to continue over-the-air broadcasting may be required to relocate to another channel so that a continuous band of spectrum attractive to commercial bidders can be created for the auction. Broadcasters who are part of this "repacking" have been promised reimbursement of their relocation costs from the auction proceeds.
- And federal policy makers are expecting that after the foregoing needs have been met, there will be ample auction proceeds available for budget deficit reduction.
In order to meet these multiple needs simultaneously, it's essential that the auction be open to all financially qualified bidders. Some have suggested that the largest mobile carriers be restricted in their ability to participate fully in the auction in order to favor smaller carriers. Limiting the ability of the largest carriers to purchase the spectrum their customers are demanding will mean fewer services for consumers and lower auction proceeds, rendering very difficult the challenge of meeting all of the competing and urgent demands for the auction revenues.
Moreover, it is not at all clear that spectrum acquisition restrictions on the largest carriers would actually promote competition.
For example, FCC data shows that the third-largest carrier, Sprint Corp. (NYSE: S) (including Clearwire), controls over one third of the mobile wireless spectrum held by US carriers -- far more than any other provider.
The fourth-largest carrier, T-Mobile US Inc. , recently acquired Metro PCS with its significant spectrum holdings, and the merged company can now rely for spectrum acquisition financing on the deep pockets of Deutsche Telekom AG (NYSE: DT), which has controlling ownership of T-Mobile.
Neither of these two providers requires special treatment in the auction. They either have sufficient spectrum or the resources to acquire it without tampering with the auction rules.
These realities were recognized by Congress when it passed the 2012 legislation authorizing the incentive auction of broadcaster-held spectrum to the mobile carriers. In the authorizing statute the FCC is prohibited from excluding from the auction financially qualified bidders. That provision underscores Congressional intent that the auctions be open to all and argues strongly for a process that enables every carrier to bid for spectrum sufficient to meet its needs in every market that it serves.
Creating rules for the incentive auction is now in the hands of the FCC and will provide an early test of the leadership of the agency's new chairman. The wireless industry is one of America's economic bright spots, highly successful and highly competitive, with 80 percent of Americans having a choice of five or more wireless carriers.
The FCC should choose to sustain the industry's success by creating a level playing field fair to all as the incentive auction is launched. The ambitious goals of the incentive auction can only be achieved if all qualified bidders are welcomed into the process.
Let's allow carriers to acquire the spectrum they need to meet consumer demand. Competition in a truly open auction should determine the winners and losers, not the FCC.
Disclaimer: Boucher advises AT&T in his role as head of the Government Strategies Practice at Sidley Austin. AT&T is also a leading funder of the Internet Innovation Alliance.
— Rick Boucher, Honorary Chairman, Internet Innovation Alliance