WASHINGTON-The Federal Communications Commission voted to restrict bidder information during the advanced wireless services auction set to begin June 29, but agreed to revert to full disclosure if the agency determines before the auction that bidding is likely to be competitive.
Many mobile-phone carriers-large and small-opposed a blind-bidding approach embraced unevenly by the FCC as a safeguard against collusive and retaliatory bidding behavior. No. 2 carrier Verizon Wireless, which has a strong spectrum position relative to some of its national competitors, was the exception. The FCC’s anonymous bidding scheme was backed by the Justice Department, Federal Trade Commission and several university gaming theory experts.
While largely departing from precedent on bidding procedures, the FCC decided against moving to a new auction format that would have included package bidding. Instead, the commission will use the simultaneous multiple round approach employed in many past wireless auctions.
The FCC plans to put 1,122 AWS licenses-representing 90 megahertz in the 1710-1755 MHz and 2110-2155 MHz bands-on the auction block. The auction is particularly critical for T-Mobile USA Inc., the smallest national cellular operator, insofar as shoring up spectrum holdings needed to support high-speed multimedia content delivery to consumers. The FCC ruling was based in part on a compromise offered by T-Mobile USA.
Under the largely secret bidding plan, the FCC will disclose identities of bidders after short-form applications are filed. The commission also will reveal the level of upfront payments of individual bidders after those payments are submitted. During the AWS auction, with regard to individual bids, the FCC will disclose at the end of each bidding round the gross amount of every bid placed in each round. However, identities of individual bidders and their bids in each round will not be made public.
The agency said it would abandon anonymous bidding before the auction starts if it determines bidding likely will be competitive. If, for example, three bidders indicate they plan to bid on every AWS license-or even if six bidders declare they each plan to compete for half of the 1,122 wireless licensees-the FCC would make round-by-round information available on par with past auctions.
“Although our auctions have generally functioned well, allegations of collusive behavior have been raised in regard to past auctions. Despite various attempts to address these concerns, the commission’s auction processes continue to provide opportunities for various types of collusion and other anti-competitive bidding behavior,” said FCC Chairman Kevin Martin. “Unfortunately, the ongoing susceptibility of our auctions to these practices is no secret; methods for exploiting our auctions have been described in detail in articles directed specifically at the commission’s current auction format. In light of this evidence, I believe it is essential that we make an effort to foreclose anti-competitive bidding behavior in this auction.”
FCC members Michael Copps and Jonathan Adelstein voiced less enthusiasm about making such a major change in bidding procedures for the AWS auction. Copps warned anonymous bidding could lead to unintended consequences, namely fewer bidders and less revenue for the U.S. Treasury. The Congressional Budget Office projects the AWS auction and several smaller auctions could raise $15 billion for the government. As such, the FCC should have little problem collecting the minimum $2.06 billion necessary to cover costs of relocating military users from one of the two AWS bands-1710-1755 MHz-to other frequencies. Under law, the AWS auction could be cancelled if net winning bids do not reach that level.
Another potential downside of anonymous bidding is the impact on small companies, according to both Democratic FCC members.
“I was originally told that small companies would benefit from our blind-bidding proposal because it would protect them from becoming victims of large carrier bidding strategies. In an interesting twist, it is the smallest carriers who have spoken the loudest against the proposal,” Adelstein said.
Copps agreed. “I am very troubled by the impact of this decision on small companies,” he said. “They have raised legitimate concerns about access to real-time auction information that significantly informs their auction bidding strategy. They have pointed out to us that this is a completely new spectrum block with uncertain business models and equipment opportunities. Who is bidding and how much they are bidding plays a significant part in a smaller carrier’s auction strategy.”
Copps and Adelstein expressed frustration with the rushed and largely closed process in which major bidding changes were developed. Indeed, the FCC Wireless Telecommunications Bureau crafted the plan without input from the full commission. The two commissioners also questioned whether the FCC was trying to fix a potential problem that perhaps is not as grave or as inevitable as advertised by proponents.
“While we have identified and fixed harms in the past related to auctions-such as trailing digits, time stamping, or bid withdrawal signaling-it is unclear to me what specific harms this proposal is intended to address. Indeed, our effort to develop a full record on this proposal has been hindered by the truncated process and timeframe that has been followed with respect to this item,” said Adelstein.
In contrast, Copps and Adelstein remain irritated about the FCC’s slow pace in deciding whether to reform small business, or “designated entity,” rules in a way that prevents large mobile-phone carriers from partnering with DEs in certain markets.
“When we revised the AWS band plan and service rules last August, I expressed concern about misuse of our designated-entity program-calling for action to fix it in advance of the AWS auction. As I explained then, I believe the DE program plays a critical role in ensuring that smaller carriers have a fighting chance to obtain spectrum resources,” Copps said. “But at the same time, we have a solemn obligation to take a strong stand against abuses of the program. We must not allow deep-pocketed companies or individuals to erode the integrity of our auctions by masquerading as small carriers. It is critically important that we act to ensure reforms that protect against fraud in time for the upcoming AWS auction.”
Copps’ remarks last week may have been aimed at what some believe is a new proposal by Martin to refuse 25-percent bidding discounts and other benefits to DEs with investment from any company having revenues exceeding $125 million. In February, the FCC sought comment on a proposal that would deny DE benefits to any DE partnership with a large, in-region mobile-phone carrier averaging $5 billion or more in gross revenues during the past three years.
Talking to reporters after last Wednesday’s meeting, Martin said he is not the cause of DE reform delays. “The other commissioners talked about the importance of getting that done, and I think so, too, as a matter of fact. It was several weeks ago that we sent an item,” Martin said.
