Tales of the Sausage Factory

700 MHz Aftermath: Assessing A Rather Complicated Result — But Not A Disaster As Some Maintain.

The intervention of the Jewish holiday of Purim, which is celebrated by getting drunk until you cannot tell the difference between Verizon winning the C Block and Google winning the C Block, kept me from posting sooner. I would have held off until I could give more details, but there are so many people rushing to call it a disaster that a few words need to be said here.

O.K., Google didn’t win, but Echostar did, giving me a .500 batting average in prophecy against the conventional wisdom. I’m not covinced that Echostar winning gives us a third pipe (Martin’s suggestions about combining this with other spectrum assets to the contrary). But even if not, it is important for keeping Echostar competitive with cable and with DIRECTV (which will have an advantage in programming assests). I shall try to do a more detailed analysis of Echostar and what the E Block does for them in a future post.

It is also interesting to note that some non-incumbents like Cavtel picked up licenses, although I am not as enthusaistic about this for competition as Martin was at the press release.

That said, I do not see how the rules could have been structured any better without barring Verizon and AT&T from playing. While we might have done better for new entrants after all with smalled licenses rather than REAGs, as demonstrted by Echostar doing an end run to assemble a near national footprint after they begged and pleaded to have the FCC offer a national license, I can’t say for sure (I’ll have a longer discussion on this later, and I expect Greg Rose will have some things to say on his blog once he has crunched the numbers). My preliminary conclusion is that Verizon (and to a lesser degree AT&T) was simply determined to get the spectrum it wanted and did not let anything stand in its why. The fact that Verizon paid $9 MHz/Pop for a B block license for Chicago, and that Verizon and AT&T spent over $16 billion of the approximately $19 billion raised should tell anyone who cares about the reality all they need to know. Verizon and AT&T were not “bargain hunting.” They were at each other’s throats and cutting out anyone who dared to get in their way. The only way to stop them was to keep them out entirely, and there was not a heck of a lot of support for that from the Hill or at the FCC beyond the Dems.

I think Commissioner Adelstein gives a fair assesment when he says we won on revenue and openness and lost on diversity and competition. But again, the only way we could have done any better was by adopting auction rules that banned Verizon and AT&T from playing and by using aggressive means to address minority and women ownership (as MAP requested as early as March 2006). Perhaps now Congressional Democrats will add their voices to those of Commissioners Adelstein and Copps on restoring the minority bidding credit and supporting incumbent exclusions or — at a minimum — restoring the spectrum cap.

As it was, thanks to anonymous bidding, Echostar was able to do an end run and acquire a national footprint — something previously denied to it in the AWS Auction in 2006. And, while AT&T and Verizon got most of the licenses, they had to pay through the nose to get them — rather than sopping them up dirt cheap as happened in the AWS auction (where licenses equivalent to the A & B block licenses went for 45 cents MHZ/pop not $9 MHZ/pop). This auction attracted more new bidders and more minority bidders than previous auctions, so the field was ripe for a success on these fronts. But they were simply outspent by Verizon and AT&T.

To conclude, unlike the utter failure of the AWS auction (which everyone else hailed as a success — despite the incumbents winning more licenses for less money), this auction produced some very positive results. But it also shows us the limit of what purely competitive auctions will do. Neither this auction nor freeing more spectrum for future auctions, on their own, will provide us with a third pipe or introduce new competitiors in wireless. The advanatges enjoyed by incumbents in a relatively mature industry (as opposed to back in the early/mid-1990s when the first auctions were conducted) are simply too great to overcome just by “leveling the playing field.”

Finally, one last question remains: Why didn’t Qualcom drop their bid on D Block? Why did they tie up all that eligibility, instead of using it to go after more E Block licenses? For us spectrum geeks, this is the equivalent of asking Why did the Minbari surrender at the Battle of the Line (best answer from a friend of mine: “turns out Echostar bidders have Qualcom souls”). Did Qualcom hope they could keep the D Block for such a low price? Did they wish to avoid a penalty for dropped bids by the time they realized no one would bid on D Block? Hopefully, we will find out.

Stay tuned . . . .

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Tales of the Sausage Factory

700 MHz Auction Pre-Game: Just A Bit More Unseemly (and perhaps untimely) Gloating . . . .

So last summer, as we debated the rules for the upcoming 700 MHz Auction, one of the big questions we at PISC repeatedly kept getting asked was “so who is really going to show up to bid?” Especially on controversial issues like open access (and even its wussier cousin, device open access), block size (have big blocks and combinatorial bidding, or maximize smaller blocks), and anonymous bidding, the incumbents all kept repeating over and over again how any deviation from previous rules would keep people from bidding and the auction would be a failure and everyone would hate us forever. Commissioner McDowell reiterated these criticisms (at least with regard to the open device conditions on C Block) in his dissenting statement:

Curiously, however, in an effort to favor a specific business plan, the majority has fashioned a highly-tailored garment that may fit no one. It’s not what Silicon Valley wants; it’s not what smaller players have told me they want; and it’s not what rural companies want. To date, the Commission has received no assurances that any company is actually interested in bidding on the encumbered spectrum. Not one.

Because, of course, everyone knew Google wasn’t going to bid, the DBS companies weren’t going to be real players, and if anyone new was planning to show up, there was no sign of it. Even those most eager to see new competitors emerge (and who ultimately supported the PISC proposals) had their doubts and looked for as much reassurance as possible before taking a leap of faith that we were right.

Well, the FCC just released the list of applicants to bid in the upcoming 700 MHz auction. A total of 266 potential bidders filed (the bulk of the forms are “incomplete” due to procedural defects that will be corrected, but this is pretty standard). That’s more than the 252 potential applicants that showed up at this stage for the “wildly competitive” and “highly successful” AWS auction in August ’06. The list includes Google, Frontline, Echostar, and — as I kept insisting — a number of companies that could not possibly be predicted as bidders until bidding rules were actually determined and potential bidders got to assess whether they had a chance or not.

Towerstream is an excellent example of this last type of bidder. No one could possibly predict that they would show up, and many folks still can’t believe it. But Towerstream CEO Jeff Thompson cites the FCC “embracing the open access model supported by Google” as making the spectrum a “natural fit” for his entreprenurial wireless broadband company, and credits the FCC for making the auction amenable to new bidders. Nor is Thompson alone. A host of newcommers apears to have found the rules attractive enough to make it worthwhile to ante up for a chance to play.

We must still see what happens, of course. I can recall all the pre-game prediction for the AWS auction, where the most valuable licenses ended up in the hands of the usual suspects. In many ways, this is working out like my waiting to see if the Patriots complete a perfect season or if the Red Sox would win the World Series. There is lots of room still for things to go badly. But I can’t help but feel a happy, warm contented glow (and breathe a quiet sigh of relief) that I don’t have to answer the age old question “what if we throw a party and no one shows up?”

Stay tuned . . . .

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Tales of the Sausage Factory

Adelstein Publicly Calls for Open Access

Two important updates from my most recent post. First, Commissioner Adelstein publicly supported some kind of open access requirement for the 700 MHz auction licenses. Wooo Hoooo! For us policy geeks, it’s kind of like the moment when the Millenium Falcon comes out of nowhere and blasts the Imperial tie fighters targeting Luke as he barrels down toward the access port. Not that I had any doubt where Adelstein’s heart was, but it’s always reassuring to see him commit himself.

The second update is that DIRECTV and Echostar got out bid by some Brits for Intelsat. This makes it more likely that they will want to bid aggressively in the auction, assuming they think they can win.

Stay tuned . . . .

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Tales of the Sausage Factory

Enforcement Staff Respond to Application of Clue By Four to Head

After the very public tongue-lashing from FCC Commissioner McDowell as part of deciding the Comcast/TW/Adelphia transaction, the “lazy and indolent bureaucracy” charged with processing cable complaints has finally issued an Order designating for hearing MASN’s complaint that Comcast refuses to air the DC Nationals games violates the law. Sort of. There are a few interesting little oddities, as well as a big, heapin’ WHAT THE HECK TOOK SO LONG!

We’ll have to see if they now move to the other proceedings — such as the leased access rulemaking — promised in the Adelphia Order, or if this is just a one shot because Washington Nationals coverage (or lack thereof) has become such a sore point for folks here in DC. But it gives some modest hope that (at least for the moment) the FCC has some genuine interest in actually enforcing the laws already on the books that limit the ability of cable operators to abuse their market power.

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