Editorial Note on Economists' Letter on Auction 35

Economists' Letter on Auction 35

On August 15, 2002, noted economists and telecommunications scholars called for Michael K. Powell, Chairman of the Federal Communications Commission, to allow winning bidders in Auction 35 to opt out of the auction. In a letter to Chairman Powell, the 14 signatories wrote, " . . . we all agree that the costs of the Commission's current policy concerning Auction 35 outweigh the benefits. Our conclusion rests solely on considerations of economic efficiency, and not on the merits of any legal arguments made by the Commission or private parties."

The economists point out that the overhang of Auction 35, the reauction of the so-called "NextWave licenses," has already had severe consequences for the entire wireless sector. "The winning bidders from Auction 35 must treat their obligations as contingent liabilities without deriving any benefit from the underlying asset. Those contingent liabilities have raised the carriers' costs of capital, impaired credit ratings, and prompted investment bankers to conclude that Auction 35 has increased uncertainty in the wireless industry. These developments are of particular concern at a time when, as you noted to Congress late last month, 'capital markets are retrenching and telecommunication companies in need of financing to support their capital-intensive enterprises are suffering.'"

The 14 signatories to the letter include those with ties to the Brookings Institution, University of Maryland, Massachusetts Institute of Technology, University of California Berkeley, the AEI-Brookings Joint Center for Regulatory Studies, Manhattan Institute, University of Chicago, Yale University, American Enterprise Institute, Criterion Economics, L.L.C., George Mason University and National Economic Research Associates.

Separately, noted economist Daniel R. Fischel and President and CEO of the Cellular Telecommunications Industry Association, Thomas Wheeler, each sent a letter to FCC Chairman Powell. Wheeler, on behalf of the wireless industry, urged the FCC to " act post haste, consistent with its own precedent, to grant relief to the wireless industry by offering Auction 35 applicants the option of having their applications returned, and relieving them of their obligation to pay for these encumbered licenses."

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