New study ups ante for open incentive auction process

Most filings at the FCC on how to conduct the incentive auctions for broadcasters’ spectrum claim that their proposal will result in a successful auction. But few, if any, rely on empirical analyses and data to support their positions, particularly those that ask the FCC to structure the auctions in a way that benefits individual companies rather than consumers and taxpayers. This is why a new study commissioned by Verizon by Duke economics professor and former FCC Chief Economist Leslie Marx is so important.

It is critical that the upcoming FCC broadcast spectrum incentive auction succeed. First, consumer use of mobile devices – whether via smartphones, tablets or machine to machine – is growing exponentially. The mobile marketplace is going to require more spectrum to meet consumer demand, and this auction was intended by Congress to transfer a large swath of spectrum for mobile broadband use. Second, this auction was set up, in part, to generate revenue for the U.S. Treasury. Finally, Congress mandated that a portion of the revenue from this auction go toward funding a national mobile broadband network for first responders. Given all of these requirements, it’s important that this auction be a success, both in the amount of spectrum that is made available and the revenue that is generated from the bidding process. 

Yet some players claim that the best way to achieve these goals is to hinder the role some players in the wireless marketplace – namely Verizon and AT&T – might be able to play in the auction, whether by limiting their ability to bid on spectrum or simply not letting them bid at all. Dr. Marx’s study demonstrates there is no evidence to support the popular claims that allowing Verizon and AT&T to participate in the upcoming incentive auction for spectrum would hinder others carriers’ access to spectrum.

Unlike other filings with speculative claims that the FCC can impose restrictions on Verizon and AT&T without reducing auction revenues, Dr. Marx’s study, “Economic Analysis of Proposals that Would Restrict Participation in the Incentive Auction,” [PDF] provides empirical evidence and state-of-the-art economic analysis that shows the upcoming incentive auction will be severely impacted by limiting the nation’s largest wireless providers’ ability to participate. Instead, Dr. Marx’s findings suggest that restrictions could significantly reduce auction revenues. The key takeaways:

• In modeling both the 2006 AWS and the 2008 700 MHz auctions without Verizon and AT&T in the mix, Dr. Marx's study shows revenue in the 700 MHz auction would have been 45 percent lower, and revenue in the AWS auction would have been 16 percent lower.
• Dr. Marx shows that bidding restrictions in a two-sided auction reduce both the maximum possible revenue and the maximum possible quantity of repurposed spectrum that can be achieved, thus jeopardizing both goals of the incentive auction legislation.
• An economic analysis of Sprint’s and T-Mobile’s pricing plans adds to the extensive evidence already in the record showing that neither of those carriers is spectrum-constrained to the point where it would be unable to compete effectively if the FCC doesn’t guarantee its ability to get spectrum in the Incentive Auction.   
• The notion that bidding restrictions could increase revenue by encouraging small firms to participate in the auction is undermined by the historical fact that smaller firms routinely compete successfully at auction despite the unrestricted presence of larger bidders. 

Read the full report.