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Perspectives from FSF Scholars            September 25, 2013        
Vol. 8, No. 24              

  


 

No Picking Favorites:

The Proper Approach to the Upcoming Incentive Auction

 

by

 

Sarah K. Leggin *

 

[Below is the Introduction to this latest FSF Perspectives. A PDF version of the complete

Perspectives is here.]

 

FCC Commissioner Jessica Rosenworcel recently appeared on C-SPAN's weekly series, "The Communicators." She spoke at length about the substantial progress and growth the digital economy has experienced in recent years. She also weighed in on the issues she predicts will be most central to the Commission's agenda through the fall. 

 

One issue that Commissioner Rosenworcel discussed was the execution of the upcoming spectrum incentive auctions, which the Commission must complete in 2014.

 

C-SPAN host Peter Slen asked Commissioner Rosenworcel whether the upcoming auctions will have set-asides for smaller competitors or whether it will be a wide-open auction.

Communications Daily Executive Senior Editor Howard Buskirk followed up by asking whether she foresees the FCC imposing bidding restrictions that would keep the two largest carriers, AT&T and Verizon Wireless, "from buying most of the spectrum."

   

Commissioner Rosenworcel responded:

 

It is my hope in the auctions that we will first and foremost follow the law. The Communications Act requires us to make sure we think about economic opportunity and competition when we develop our auctions. The Middle Class Tax Relief and Job Creation Act tells us that when we develop those auctions we need to make sure that everyone can participate, and that we can have rules of general applicability. So we should balance all of those things and it is my hope that we will have opportunities both for incumbents and new entrants alike. In the end though I don't think a single carrier . . . can walk away with all the spectrum we auction.

 

Commissioner Rosenworcel did not explicitly say that the FCC will impose restrictions or practice preferential treatment in the upcoming spectrum auctions. However, her statement that a single carrier should not be granted all licenses auctioned hints at her view that the Commission should, somehow, take steps that favor certain carriers or that otherwise condition the auction process.

 

While I don't doubt that Commissioner Rosenworcel's concern regarding the need to promote market competition is made in good faith, the regulatory approach she seems to propose to achieve this goal is nevertheless problematic. The best way to ensure a successful incentive auction is to allow it to proceed free from discriminatory participation rules.

 

This Perspectives discusses how imposing restrictive conditions on spectrum auctions tends to cause many harmful, unintended consequences. First, past spectrum auctions in the U.S., Europe, and Canada have demonstrated the negative impact of discriminatory participation conditions. Those auctions resulted in only short-term new entry in certain markets, delay of spectrum deployment, and vast loss of auction revenue. Second, imposing restrictive conditions on the upcoming incentive auction will likely have the same harmful effects as past auctions, given current market conditions and the unlikelihood of anticompetitive foreclosure. In order to avoid the mistakes of past spectrum auctions, to ensure continued growth and investment in the telecommunications marketplace, and to best serve consumer demands for wireless services, the FCC should not impose restrictive conditions on the upcoming incentive auction.

By refraining from imposing discriminatory participation rules, the Commission will enable the proper functioning of the auction process and encourage participation by all willing bidders.  Allowing the auction to run without regulatory interference will enable providers to most efficiently acquire spectrum, and in turn, better meet the constantly increasing consumer demand for spectrum.

 

* Sarah K. Leggin is a Legal Fellow of the Free State Foundation, an independent, nonpartisan free market-oriented think tank located in Rockville, Maryland.

 

A PDF of the complete Perspectives may be accessed here.
 

   

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