Crafting a fact-based spectrum auction structure that benefits consumers

The FCC is charged with achieving several objectives with the auctions, including raising money to fund a nationwide public safety network, raising money to reimburse broadcasters impacted by the reallocation, and maximizing the amount of spectrum being allocated for commercial mobile use. The lodestar for the FCC in structuring its auction should be distributing the spectrum so that it will benefit all consumers.

Into the maelstrom of spectrum policy, competitors have suggested that the largest carriers be prevented from fully bidding on the reallocated spectrum.  In plain English, carriers with fewer customers and less congestion on their networks are asking the government to give them access to more spectrum at lower prices than they might otherwise have to pay, meanwhile preventing companies with more consumers and more serious congestion problems from getting access to the resource.  In April, the Department of Justice (DOJ) weighed in by advocating “rules that ensure the smaller nationwide networks… have an opportunity to acquire such spectrum.” These comments, while seemingly looking out for the smaller guy, do nothing to further the public benefits for consumers writ large.

{mosads}There is no evidence that without access to low-frequency spectrum, the smaller carriers’ costs would rise or that their networks would deteriorate. In fact, smaller carriers, including T-Mobile and Sprint, have been competing effectively for years on both price and network quality without huge swaths of low-band spectrum. Sprint’s net additions for contract customers were up 18 percent in 2012. In the first quarter of 2013, T-Mobile increased its customer base and expanded its network using its existing store of high-frequency spectrum. In the second quarter, T-Mobile had its biggest growth in four years when it added 1.1 million new subscribers, more than AT&T or Verizon. In the final week of July, T-Mobile was gaining two customers from AT&T and Verizon for every one it lost to them. All of these gains were made without swaths of low-frequency spectrum.  Sprint’s CEO in fact has said his company will achieve network parity with its largest rival, Verizon, by 2014, and will have a superior network to all carriers by 2015.  Given that the low-band spectrum auctions probably won’t happen until 2015, Sprint is confirming that it does not need the low-band spectrum to vigorously compete.

This simple reality makes it crystal clear that government stepping in to direct a vital asset – spectrum – into the hands of some companies and keeping it away from others has nothing to do with actually enhancing the number or quality of competitive offerings for consumers in the wireless industry.

But why should consumers be worried about government intervention here?  Consider that in 2012, hundreds of thousands of Americans cancelled their home Internet service in favor of using Wi-Fi hotspots and 4G wireless networks. This burgeoning inter-modal competition can only succeed if wireless broadband is allowed to reach its fullest potential for high-quality, mobile service.  This puts a premium on getting more spectrum into the country’s wireless broadband networks so they can scale and compete against their wired brethren.  Implementing a thought experiment on auction design into the midst of a very real and looming capacity crunch on wireless networks will only restrict consumers’ access to more and faster wireless broadband options.

Instead of applying restrictions on what companies can and cannot bid for in the upcoming spectrum incentive auctions, the FCC should instead let a robust auction occur and then, if there are concerns about post-auction spectrum aggregation, apply a competitive analysis to each instance of concern, as the agency has done in the past.

Going forward, the agency should be loathe to apply ex ante arbitrary limits on how much spectrum a wireless company can acquire and instead consider concerns about spectrum aggregation in the way that it has for years – on a case-by-case basis that takes into account that wireless broadband competes with all other forms of broadband, not just mobile. 

Balto is an antitrust attorney in Washington, D.C., and was formerly a policy director of the Federal Trade Commission, attorney adviser to Chairman Robert Pitofsky, and trial attorney at the U.S. Department of Justice.