WASHINGTON-The Federal Communications Commission picked up support from the Justice Department and Federal Trade Commission to employ blind bidding at June’s advanced wireless services auction. But outside of government the proposal has set off a storm of controversy that has wireless carriers largely opposed and gaming theorists divided on the issue.
Though the auction of 90 megahertz in the 1710-1755 MHz and 2110-2155 GHz bands is still several months away, gamesmanship has begun in earnest as wireless companies, federal agencies, lawmakers and academics weigh in with arguments at the FCC in hopes of shaping AWS auction rules to their liking.
The AWS auction is one of the most significant auctions in a decade, especially for spectrum-challenged T-Mobile USA Inc. But the auction also is a major entry opportunity for new entrants in the wireless space, including those from the Internet and cable TV sectors. More than 1,110 wireless licenses are set to be auctioned by the FCC.
Up until now, spectrum-those frequencies taken from military and private sector fixed- wireless licensees for AWS-has constituted the biggest flash point on the road to third-generation wireless deployment in the United States.
Now the rules of the game proposed by the FCC are creating the biggest stir. Indeed, CTIA, the national cellular industry trade group, has chosen to not take an official position on the FCC blind bidding plan.
“Our members have differing opinions on the substance of the blind bidding proposal and how it might impact their bidding strategies, and they also have differing levels of concerns over new auction procedures with the auction scheduled to occur in just a few months,” said John Walls, a CTIA spokesman.
The association previously raised concerns about a related FCC proposal to permit bidding on packages of licenses, and gently cautioned telecom regulators about injecting unnecessary complexity into a wireless auction of this magnitude.
The Justice Department, however, said it “agrees with the FCC that revealing bidder identity can encourage tacit agreements among bidders not to bid against each other for certain licenses in an auction. … The department believes that competition would be enhanced, and thus the public interest would be best served, by not revealing bidder identities at the end of each bidding round during the upcoming AWS spectrum auction.”
The FTC largely agrees.
“There are both advantages and disadvantages to withholding bidder information detailed in the FCC public notice. We believe the balance of evidence suggests that in today’s relatively mature wireless markets, the positives outweigh the negatives,” the FTC stated.
The potential for collusion among major telecom players in the first major mobile-phone auction-which generated more than $7 billion when it ended in early March 1995-was reduced because government antitrust lawyers allowed regional Bell telephone companies, long-distance carriers and cable TV operators to create partnerships to bid. Today, Bell companies and long-distance giant Sprint Nextel Corp. dominate the U.S. mobile-phone market.
Paul Milgrom and Gregory Rosston, two economists at the Stanford Institute for Economic Policy Research who helped the FCC design the original spectrum auctions in the mid-1990s, support both blind bidding and package bidding. The two men favored disclosure of bidder identities a decade ago, but they say changed circumstances no longer support full transparency in auctions.
“The benefits of revealing bidder identities in terms of allowing more accurate value assessments by bidders during the auction are now outweighed by the disadvantage they bring of enabling retaliation strategies and related bid signaling strategies,” Milgrom and Rosston told the FCC. “There is little evidence or logical argument to support the idea that retaliation and related signaling strategies can be controlled by the auction rules or by antitrust enforcement.”
Economists at Duke University and the University of Chicago came to much the same conclusion in comments filed at the FCC.
Verizon Wireless, which shored up its spectrum position with the purchase of wireless licenses from NextWave Telecom Inc. a couple years back, may not mind watching competitors-current and prospective-shooting in the dark for additional frequencies. Verizon Wireless said it generally backs limiting bidder information so long as the FCC does impose a total blackout.
Peter Cramton, an auction expert and economist at the University of Maryland, asserts his colleagues are misguided.
“I have yet to find any evidence that the bidding strategies enabled by full transparency have undermined efficiency,” Cramton said.
Cramton said the FCC’s experiment with bidding secrecy in the nationwide narrowband PCS auction in July 1994 was a huge failure. Leaks will happen, Cramton predicted.
“I am quite concerned about the ability of the FCC, the bidders and the investment community to maintain secrecy in an extremely high-stake auction over a period of many weeks, if not months,” said Cramton. “Indeed, I would be shocked if secrecy were sustained. A much more likely outcome is that there are many leaks, especially through the investment community, which enables at least large bidders to have a sufficiently clear picture so that retaliatory strategies in major markets will still be adopted with about the same frequency as we see in the FCC’s fully transparent auctions-that is to say, extremely rarely.”
And what about smaller wireless players? The issue got an airing on Capitol Hill last week.
The Rural Cellular Association voiced opposition to keeping bidder identities and other bid data secret in testimony before the Senate Commerce Committee.
“A `blind bidding’ process would deter participation by RCA members who want to know, round by round in the bidding, what other entities are bidding for the same licenses, and for licenses in the region that surrounds a market of interest,” said Thomas Walsh, general manager of Illinois Valley Cellular and president of the RCA board.
The only information about bids the FCC plans to publicly disclose during the auction is the gross amount of winning bids, the FCC said. The FCC said after each auction round bidders would be able to find out whether they had winning bids.
RCA said in-auction bidding information is essential to rural carriers that need to know that compatible technologies are available in surrounding communities so their customers can roam.
“In a blind bidding scenario, RCA members would not know if they should bid on licenses because they would lack confidence that their networks would be compatible with the networks of bidders for surrounding markets in the region,” said Walsh.
Meantime, the Congressional Black Caucus urged FCC Chairman Kevin Martin to prohibit bidding discounts to small-business applicants affiliated with the five largest wireless carriers.
“We are concerned that the commission’s current auction rules, well-intended though they may have been, allow large national carriers to extend their already-considerable influence in the industry through material partnerships with [designated entities],” stated 10 caucus members in a March 3 letter. “It is important that DEs have sources of capital and industry experience on which to rely, but allowing national wireless carriers to perform these functions is no longer good policy in light of their overwhelming dominance in the industry. The result is that DEs-small businesses, new entrants and minority-owed businesses-are hampered in their ability to compete effectively in the auctions and in post-auction markets against the large national carriers and their partners.”
The cellular industry argues the FCC DE plan discriminates against incumbent wireless carriers.
The Congressional Budget Office estimates the AWS auction could generate $15 billion for the U.S. Treasury. A portion of AWS auction receipts are expected to fund a variety of communications-related programs approved by Congress.
Washington reporter Heather Forsgren Weaver contributed to this report.
