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Restricting incentive auction bidders could limit revenue

A new study by a former FCC economist states that limiting bidders in the upcoming incentive auctions could risk raising significant revenue and relocating a substantial amount of spectrum from broadcast and mobile wireless services.

The study, commissioned and submitted to the FCC by Verizon, is by Duke Economics Professor and former FCC Chief Economist Leslie Marx.

“The Incentive Auction represents a unique opportunity to reallocate underutilized spectrum to higher valued uses,” Marx wrote. “It would be particularly unwise to artificially reduce demand in the Incentive Auction through restrictions on the bidding of Verizon and AT&T.

“Bidding restrictions conflict with the goals of the Incentive Auction by reducing both the amount of spectrum reallocated and the revenue potential of the auction. Such restrictions risk a complete failure of the auction by making the achievement of minimum revenue and spectrum reallocation thresholds impossible to achieve,” she wrote.

Marx said if the FCC believes that foreclosure by Verizon and AT&T of smaller rivals is a real problem, the commission should consider other less distortionary policies to address the potential problem, such as build-out requirements and anonymous bidding.

“Complicated bidding procedures and bidding restrictions on top of an already complicated two-sided auction put at risk the goals of the Incentive Auction,” she said. “I find such proposals both unnecessary and counterproductive.”

If Verizon and AT&T had been excluded from past auctions, the study found that revenue would have been 45 percent lower from the 700MHz auction in 2008 and 16 percent lower in the AWS-1 auction in 2006.

Marx said there is no basis for assertions that neither Sprint nor T-Mobile has been foreclosed from acquiring low-frequency spectrum. Instead, she said, the evidence points to a choice by Sprint and T-Mobile not to compete for low-frequency spectrum, rather than foreclosure from access to it.

“These carriers have not purchased it in the secondary market, where there were 2153 licenses available since 2007: Sprint bought none and T-Mobile bought only one,” she wrote.

FCC acting chairwoman Mignon Clyburn has pledged a vote on the auction rules and broadcaster repacking process by the end of the year.