Tales of the Sausage Factory

DISH DE Debacle Part 3: What Happens Now?

In Part 1, I explained at considerable length what happened with the whole DISH DE Debacle and Why DISH owes the FCC $3.3 billion despite not having actually violated any rules. In Part 2, I explained how the FCC came to the conclusions it came to in the Order denying SNR and Northstar their DE credits but granting them their licenses.

 

Here, I will explain why (as readers have no doubt noticed) I have sympathy for DISH and why I would have done things differently – although I can’t say Wheeler was wrong. Heck, as I’ve noted many times before, I have the luxury of being neither a Commissioner nor a party with skin in the game. So take my Monday morning quarterbacking for what it’s worth.

 

More below . . .

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Tales of the Sausage Factory

AT&T, Anger Management and Spectrum Legislation

Based on recent statements, it’s hard to tell whose angrier at the Federal Communications Commission (FCC) and its Chair, Julius Genachowski: AT&T’s Upper Management or the House Commerce Committee Republicans. Mere mention of Genachowski’s name converts House Commerce Committee Republicans, such as Telecom Subcommittee Chair Greg Walden (R-OR), from urbane sophisticated legislators into sputtering mad parodies of Elmer Fudd.  “Oooh that wascally Chaiwman! Always wegulating the fwee market! I’ll fix his wagon!” Meanwhile, AT&T CEO Randal Stephenson devoted the main part of his recent earnings call to repeating variations on “Juliuth, you’re desthpicable.”

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Tales of the Sausage Factory

700 MHz Update: FCC Severs D Block, Refers Cyren Call Allegations To Inspector General.

The FCC can certainly move fast when it wants to — and when it has had a few weeks to get used to the idea. The FCC just released a public notice that it will “de-link” the D Block from Auction 73, and will release the names of the winners as soon as the Commission collects the payments (ten days after it issues the official notice that the auction is over and that parties now need to file “long forms” and pay up).

Also of importance, Chairman Martin has referred the question of whether Cyren Call made all manner of demands of Frontline, and did this break any rules to the Office of the Inspector General. This extremely important detail was buried in this somewhat less than stellar Washington Post article about our letter to the FCC calling for an investigation. I say “less than stellar” because, in addition to “burying the lead” big time, the reporters did not trouble themselves to contact me despite that fact that (a) I broke this story in the first place (only narrowly beating out Dow Jones’ Cory Boles); (b) I drafted the friggin’ letter. I therefore recommend this far superior article in eWeek (i.e., it mentions me and links to the relevant blog entry — a clear mark of superior journalistic skills).

A bit more analysis below . . .

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Econoklastic

700 MHz: When Will it End

E Block reached its reserve price in round 44 on Thursday and the FCC announced that it was going to six bidding rounds per day beginning on Friday, Feb. 8.

However, while D Block is probably permanently stalled below its reserve price for Auction 73 and will likely have to be reauctioned, there is still sufficient activity in the auction to expect that it will continue for as much as two more weeks, depending on whether the FCC decides to further accelerate the number of rounds per day. The following table shows the rates of convergence to full clearance over the past six and the past three rounds. These rates are consistent with an auction conclusion in the last week of February or the first week of March if previous auctions are a reasonable guide. However, there have been sufficient anomalies in auction performance in Auction 73, notably high amounts by which A and B Blocks have exceeded their reserve prices and the speed with which these prices have been obtained, which caution us not to rely too much on previous auction behaviour. The FCC has been gradually upping the number of bidding rounds per day and I expect further increases, as the agency seems inclined to press the auction to conclusion.

On the basis of these facts I would estimate at least two, perhaps three more weeks of bidding, primarily in E Block, before we see the end of Auction 73.

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Econoklastic

700 MHz: More Evidence for Success of Anonymous Bidding Rules

I’d like to reiterate what fellow Wetmachiner Harold Feld wrote yesterday: the telecoms incumbents’ claims of problems arising from anonymous bidding are nonsense, part of a campaign to sow disinformation lest Auction 73 (700 MHz) and its success persuade the FCC to permanently adopt anonymous bidding rules for its auctions.

I call your attention to this table, which compares the number of bids on each license in B Block in rounds 1-26 of Auction 73 to the number of bids on each comparable CMA in Auction 66 (AWS-1) in rounds 1-26 of that auction. Note that in general the smaller the CMA number, the larger the population of the CMA (e.g., CMA001 is New York City and its immediate environs, CMA002 is the Los Angeles area, etc.).

What is striking about the data presented in this table is threefold. First, significantly more bids are being placed in general in rounds 1-26 in Auction 73 than in Auction 66. Second, extraordinarily more bids are being placed on the smaller and intermediate-size CMAs in Auction 73 than in Auction 66. Third, a much smaller percentage of licenses are receiving no bids in the first 26 rounds in Auction 73 than in Auction 66.

I am hard put to find an explanation of this extraordinary increase in competition, particularly for the smaller and intermediate-size licenses, which does not involve the effects of anonymous bidding. I suggest that the data, even though they do not disclose bidder identities, are entirely consistent with a more vigorous presence of new entrant and non-incumbent bidders who are protected from retaliatory and blocking bidding by large incumbents by anonymous bidding and are, therefore, more willing to engage in strong competition.

The telcos and cablecos can wail and moan to Communications Daily about the “risks” of anonymous bidding to the FCC, but the principal risk of anonymous bidding seems thus far to be the risk that fat-cat telecoms incumbents won’t be able to get all the spectrum in this auction by their usual bullying and exclusionary tactics. There’s no risk at all to the treasury — revenue from the auction is already wildly exceeding pre-auction projections — and there’s no risk that competition will be wan, as the data presented here amply demonstrate.

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Tales of the Sausage Factory

Chutzpah, Thy Name Is Wireless Incumbent.

So here we are in the middle of the most intensely competitive auction ever. As you can tell looking at the recent postings by fellow Wetmachiner Greg Rose this auction has dramatically pushed up the amount of money paid by bidders for licenses and has created more intense competition for a broader group of licenses than previous auctions, strongly suggesting that — as Greg and I predicted when we first started pushing anonymous bidding in March 2006 — anonymous bidding eliminates all kinds of targeting, collusion and retaliation that typically held back smaller bidders and allowed larger bidders to pick up licenses for a song. An utter smashing success (at least from the perspective of those who favor using auctions for distribution of licenses), right? Who could have a bad word to say about it?

Answer: All the people who hate anonymous bidding BECAUSE it eliminates the ability to signal, retaliate, and collude and thus makes the auction more competitive. i.e. The incumbent wireless licensees (other than Verizon, which wanted anonymous bidding to avoid being targeted).

More below . . . .

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Tales of the Sausage Factory

I Go Delphic, Snort Oak Leaves, And Give Four Reasons Why Google Will Bid To Win in the 700 MHz Auction (despite what the smart money says)

Analysts who watch Google and watch the wireless world really, really, really don’t want to think of Google as getting into the wireless biz. This spring, I heard an awful lot of “Google won’t bid” or “Google can’t win” or, my personal favorite, “you think Google is going to bid? Are you on crack?”

As regular readers know, while I have occasionally been a shade grumpy about how Google worshipers have attributed all things in the auction to our Great Google Overlords, I have been surprised at the reluctance of most analysts to accept that Google really does want to win licenses. For example, when Verizon announced it would open its network to third party devices, analysts suggested this would take the pressure off Google to win licenses itself. When Google announced it definitely would participate in the auction, a number of analysts again questioned whether Google was really serious about winning or whether it just wanted to insure the $4.6 billion C Block reserve got met. Although as shown in this article here, some analysts expect Google to press hard to win, the conventional wisdom among analysts has jelled into “Google is only bidding to make sure the C Block conditions stay in place.”

These analysts have sound reasons for thinking Google would be mad to bid. Google never wanted to be a network provider. Sure, they’ve dabbled a bit by investing in broadband over power line (BPL) and dipping a toe in muniwireless (neither of which has amounted to very much). But Google never took the potentially ruinous plunge from being an applications provider (its realm of dominance) to becoming a network provider. Worse, the estimated $5-$6 billion price tag for the C Block licenses is only the beginning of the cost to actually build a network. According to one widely reported estimate by Google itself, it would cost another $12 billion to build the network once Google has the licenses.

Nor is the wireless industry considered ripe for expansion. If anything, analysts expect further consolidation as smaller carriers find it tough sledding against the vertically integrated giants AT&T and Verizon (which jointly control the bulk of residential subscribers, can offer a nice set of wireless and wireline bundles, and enjoy other advantages that make them tough to beat). Even with Google’s genius for creating new capital opportunities, the conventional wisdom goes, how on Earth can Google ever recoup this mammoth investment as yet-another-wireless carrier in the highly-commoditized world of wireless telephony. And the one thing that might have worked, creating its own compelling “walled garden” that encourages users to go with Google wireless to enjoy access to features they routinely access in the wireline world, is the one thing Google has sworn up and down it won’t do. To put icing on the cake, the formation of Android and the inclusion of national carriers T-Mobile and Sprint make it impossible for Google to create its own walled garden if it changes its mind after winning.

With all this to consider, small wonder analysts by and large don’t see much chance of Google making a serious run to win. They believe that Google wants someone else to win, but offer an open network Google can ride on. So while bidding to make sure the spectrum gets bought makes sense, actually wanting to win the licenses doesn’t. Hence the convergence of the conventional wisdom that Google will leave it to Verizon or someone else rather than tie a multi-billion dollar albatros around its neck and potentially crash its stock valuation (especially if you hold Google stock).

For the reasons given below, I will play the contrarian. I think Google will bid and fight hard to win licenses. Indeed, while I expect Google to target C Block, it may well go after D Block or some of the other licenses as well, if that’s what it takes to build a national footprint. Google might still get outb id by Verizon and other carriers, but I don’t think that’s Google’s plan. I think they are in to win.

Why? See below . . . . .

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Tales of the Sausage Factory

Satellite Radio Has Good Political Sense, NOT

Normally I like XM and Sirius just fine. But this rather sad attempt to claim they complied with the terms of their license by designing interoperable radios, but not producing them, makes me laugh.

Normally, I wouldn’t care (much) if XM and Sirius want to go all anticompetitive against each other or if the FCC lets them. But with a Senate bill pending to cut off satellite radio’s traffic and weather service, I’m not sure I’d pick this moment to look like I’m flouting the law. But hey, what do I know?

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