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 . . . .

Posted in Spectrum, Tales of the Sausage Factory | Also tagged , , , , , , , , , , , | 5 Comments (Comments closed)

My Thoughts Exactly

The FCC holds a hearing on Net Neutrality, and YOU! ARE! THERE!

So yesterday morning over coffee I was doing what most people do over their first daily cup o’ joe, which is bring up technorati and see if anybody’s talking about me. That process took me to Joho’s page, from which I learned that the FCC was to be holding an hearing on why Comcast sucks, I mean Net Neutrality broadband network management practices only hours thence. Now although to my surprise & delight, Wetmachine, thanks to the work of my fellow wetmechanics Harold Feld and Greg Rose has become quite the FCC policy site with a side-order of net neutrality, I had never been to an FCC hearing. A quick check of the boat and bus schedules showed that I could probably make it to Hahvahd in time for most of the festivities. I decided to go. So, after securing the blessings of Dear Wife and throwing a few things in a bag, off I set to lose my FCC-hearing virginity.

Below the fold, some totally subjective impressions of the day, told in that winsome wetmachine way that you’ve come to treasure, or if you haven’t yet, which you soon will. More sober-styled reports have surely appeared by now, and I’ll dig up some links & post them at the end for those of you who like a little conventional reportage to ballast what you get from me.

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Posted in "A Republic, if you can keep it", My Thoughts Exactly | Also tagged , , , , | 7 Comments (Comments closed)

Tales of the Sausage Factory

Hot Bi-Partisan Action On Cable Part II — All Eyes On Adelstein As Cable Vote Nears

So I spent a good deal of time in Part I explaining why 70/70, leased access, and the rest of it are necessary steps to curb cable market power. You can also see the back and forth between MAP and the cable guys on whether the 70/70 threshold is met (for those of us that actually care about the substance) either by going to the FCC’s Electronic Comment search page and pluging in the docket number 06-189. Or you can check out what my friend Greg Rose has written on his blog. Because regardless of what you think the policy is, there is an actual empirical question here that — if we required cable companies to submit real subscriber numbers to the FCC rather than letting them file whatever the heck they want without any kind of verification or standard system of reporting — we would be able to answer.

And, as we head to a vote on Tuesday, Democratic Commissioner Jonathan Adelstein remains the swing vote. As regular readers know, I defended Commissioner Adelstein during the 700 MHz Auction fights when some of my friends in the movement wondered whether Adelstein was taking up the cause of the wireless companies against the consumer. Then, my faith was rewarded when Adelstein came out in favor of wholesale. Even though we ultimately lost that fight, there was no doubt that Jonathon Adelstein was on the side of the people not the special interests.

But now we come to cable. Where Commissioner Copps has always been a clear and unambiguous foe of cable market power, Adelstein has always been more … nuanced. For example, when Comcast and Time Warner divided up bankrupt Adelphia cable, Copps voted against the merger while Adelstein concurred in part and dissented in part. Adelstein used his concurrence to extract a promise from Chairman Martin to reform the cable leased access process. So was this going along with big cable or shrewd realpolitik? At the time, and still, I argued the later, trusting that Commissioner Adelstein’s longstanding support for diversity and strong stand against media consolidation belied the rumors that he was “soft” on cable consolidation.

More troubling was Adelstein’s recent concurring statement with Republican Commissioner Robert McDowell on denying Comcast’s request for a waiver of the 1996 law requiring cable operators to create an open, standard interface for cable set-top boxes. But OK, Adelstein did vote to deny the waiver and was apparently chiefly honked off that Martin was cutting Verizon a break but not Comcast. While I might disagree (giving Verizon two years to develop compliance for a non-cable system when Comcast and the rest of the cable industry got ten years on the same excuse doesn’t seem that outrageous to me — given that there are real honest-to-God technical differences between FIOS and cable systems and CableLabs, which developed the cable card standard, is a cable industry operation), I can at least understand where folks might get peeved at Martin’s apparent favoritism between the telcos and the cable cos (more on that in Part III). And, after all, Adelstein did vote to actually enforce the law against the cable industry.

But still the same ugly rumors persist — Adelstein is soft on cable. Adelstein is looking for an excuse to avoid the vote. Adelstein wouldn’t vote against cable on Comcast’s fight with The America Channel except that Copps voted with Martin and ADelstein didn’t want to look bad. etc., etc., etc.

Washington is a cynical town. It’s always easier to believe that people are acting because they are owned by this special interest or owe favors to that industry than to believe that people are trying to do their best in a complicated world. I am an oddball in starting from a position that I give those on the same side as me and those on the opposite side the benefit of the doubt until I see something that puts it beyond doubt that a person is favoring a private interest or industry over the public interest no matter what.

So we come down to the wire on cable. I’ve fought the cable industry on these issues for the last 8 years, and I am a newbie compared to some of the folks in the movement that lived to see the vote on Tuesday. I believe that, as an objective matter, the 70/70 cable penetration benchmark has been met — and was met at least as early as 2005. I continue to believe that cable exercises market power over programming and subscription rates and that the FCC needs to address these problems.

And I believe that Commissioner Adelstein, like Commissioner Copps, cares about diversity of programming and protecting consumers from cable market power. At least, I believe it now. And I hope I’ll still believe it after Tuesday.

Stay tuned . . . .

Posted in Cable, Tales of the Sausage Factory | Also tagged , , , , , , , , , , | Comments closed

Tales of the Sausage Factory

Appears that Rose and Lloyd (and me) were right . . .

A month or so back, I reported that Greg Rose and Mark Lloyd had written a study for the Center for American Progress concluding that incumbent wireless providers used spectrum auctions to block the mergence of new competitors. Then came the AWS auction, with its legion of bidders. “A ha!” Declared the Wall St. Journal and others in the anti-net neutrality, anti-regulatory, pro-spectrum property camp. “Look at how the market-based policies create competition! No need for regulation here!”

Turns out, not so much . . . . Either for new spectrum entrants or for broadband competition.

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Posted in General, Spectrum, Tales of the Sausage Factory | Also tagged , , , , , , , , , , | 2 Comments (Comments closed)
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