Tales of the Sausage Factory

So What’s This “Designated Entity” Thing, and Why Does DISH Owe The FCC $3 bn When They Didn’t Break The Rules?

Generally, I loath the cliche “be careful what you wish for.” But I can think of no better way to describe the vast consternation in the spectrum world over the licenses won by SNR and Northstar in the AWS-3 Auction. If you don’t recognize the names off-hand, that’s because most of the time people just refer to them as the “DISH Designated Entities” or the “DISH DEs.” As detailed in many articles and petitions to deny SNR and Northstar their DE credits (totaling $3.3 billion), most people regard SNR and Northstar as “sham” or “fake” DEs, owned and controlled by DISH.

But here’s the funny thing. As far as anyone can tell from the filings, DISH, SNR and Northstar followed the precise letter of the law. And, what’s even more surprising, if you look at the results, this was the most successful auction ever for DEs. Both SNR and Northstar are minority owned (as defined by the FCC’s rules). All the “loopholes” DISH used with regard to ownership interest and bidding coordination were designed to make it easier for DE’s to get capital, win licenses, and benefit from partnering with a larger telecommunications company — which SNR and Northstar certainly did.

As a result, as noted by my usual frenemies at Phoenix Center, as measured by every traditional metric, the AWS-3 auction was the single most successful auction in awarding licenses not merely to small businesses, but to minority owned firms specifically. By every past criteria ever used, the AWS-3 auction results ought to be celebrated as a ginormous success for the DE program. Every aspect worked exactly as intended, and the result was exactly what people claimed to want. Indeed, as noted by Phoenix Center, even the $3.3 bn in bidding credits was in line with other spectrum auctions as a percentage of revenue.

Except, in classic “be careful what you wish for” fashion, when you scaled these results up to their logical outcome, no one was really happy with the result (except for DISH). Which has now prompted FCC Chairman Tom Wheeler to circulate an order denying SNR and Northstar their designated entity credits. As a result, SNR and Northstar (meaning their financial backer DISH) must cough up $3.3 bn within 30 days of issuance of the Order or — unless granted a stay or extension — the licenses will revert back to the FCC. Oh yes, and the FCC might need to deduct an additional $10 bn from the auction revenue. And there might be default charges (the FCC charges a penalty for defaulting on payments so people don’t bid and hope they find the money later). Or it might get more complicated, since there has never been a clawback of this magnitude before.

 

In Part 1, I will explain what exactly happened, why DISH did not violate the rules as written and why SNR and Northstar are technically “minority owned.” Along the way, we will consider some delightful ironies about the whole business.

In Part 2, I’ll tackle why the FCC decided that it could yank the DE discount anyway, and try to figure out what happens next.

More below . . . .

Read More »

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

Tales of the Sausage Factory

Why you can't split D Block and PSST

Unsurprisingly, folks are now proposing to split the D Block from the public safety spectrum, auction the commercial spectrum, and use the money to build a separate public safety network. This got a bunch of attention at today’s House Subcommittee hearing. Despite my frantic attempts to subtly signal I had something relevant to say, no one wanted to hear my opinion on the matter (or anything else either, apparently my opening statement was sufficiently overwhelming that the Republicans did not dare challenge me and the Dems felt nothing further was required). Too bad, because I could have spared everyone about an hour of yacking by explaining why it won’t work.

Or, more technically, to make this work requires such drastic changes in the band plan that it is impossible to predict how much money such an auction would make, if anything. I’m aware Dr. Bazelon gives an estimate of $5 billion or so in his testimony, but I think his use of the A Block demand as a proxy is overly optimistic. Trying to predict spectrum auction results is always perilous, because there are so many factors and every spectrum auction is different from every other in significant ways. But in this case, the difference between the A Block issues and the possible D block issues are of significant magnitude that I anticipate major problems.

Bottom line: I think it would take months to resolve the engineering issues, and that an auction based on necessary rules would fetch very little money.

More below . . . .

Read More »

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

Tales of the Sausage Factory

“The Spring Spectrum Shotgun Wedding Fling” or “Sprint WiMax, the Wily Temptress!”

Was it really only last August that Sprint threw over its cable allies by filing for a messy divorce with Spectrm Co. and ran off giggling with Clearwire and Google for a happy WiMax menage? Ah, what a tempestuous summer of spectrum love was 2007! So full of bright promises and prospects for a wireless third pipe that could genuinely compete with cable or DSL speeds. But with the autumn frost, passions cooled. Like Fantine from Les Miserables, Sprint soon found itself abandoned by its spectrum partners and out on the street on its own — desperately trying to make its way in the cold and uncaring world while posting a loss of $30 Billion, and reduced to chanting the old Israeli spectrum folksong Xhom golly, golly, golly, Xhom golly, golly.

But a possible happy ending for Sprint awaits below . . . .

Read More »

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

Econoklastic

700 MHz: Oops

The last round of the day for Auction 73, Round 31, was postponed until tomorrow by the FCC late today. The announcement on the Integrated Spectrum Auction System read:

“2/4/2008 04:11:42 PM
Round 31 Postponed
Due to a delay in the availability of complete downloadable reports, Round 31 will be postponed until 9:30 a.m. ET tomorrow, February 5, 2008.

”We will continue with the previously announced five round bidding schedule until further notice. Bidders are reminded to monitor auction announcements for further changes in the bidding schedule.”

Sources at the FCC indicate that the system glitched on producing the end-of-round reports from Round 30 and there was insufficient time to locate and correct the bug before Round 31 was scheduled to commence at 4:30 p.m. EST. Round 30 still hasn’t been posted on the Integrated Spectrum Auction System as of 4:40 p.m. EST, and it was due at 3:40, which suggests that the bug hunt is a bit more complicated than the FCC initially anticipated, but there’s no reason to think the auction won’t recommence tomorrow as scheduled.

Posted in Econoklastic, General | Also tagged , , , , | Comments closed

Econoklastic

Definitely Not Smarter Than the Average Bear

Much of the press surrounding the first two days of the FCC’s 700 MHz auction has been like this Information Week story. I confess to being both amazed at the shallowness of the reporting and amused at its gloom and doom tone. To hear the press tell it, it’s time to be very bearish on this auction.

A look at historical precedent is salutory. The FCC’s Integrated Spectrum Auction System files for Auction 66 and Auction 73 are the places to start.

At the end of round four in Auction 66 (AWS-1), the high bids for the EAs, CMAs, and REAGs were, respectively, 4.15%, 7.09%, and 12.03% of the final net PWB prices with 47.84% of licenses receiving at least one bid. At the end of round 4 in Auction 73 (700 MHz Band) the high bids for EAs (A and E Blocks), CMAs (B Block), REAGs (C Block), and the nationwide D Block license were, respectively, 31.87%, 43.03%, 39.06%, and 26.99% of reserve price with 83.80% of licenses receiving at least one bid.

Auction 66 netted $13.7 billion. Auction 73 has a reserve price threshold of $10,386,011,520. By any objective criteria Auction 73 is off to a much better start generally than Auction 66 was. The fact that the D block has had only one bid in the first four rounds isn’t terribly unusual; several licenses which eventually went in Auction 66 for very substantial sums had very little early-round action. It’s important to point out that auctions with relatively high reserve prices tend to exhibit slow convergence bidding on reserve price and provide significant incentive to try to obtain the license for as little over reserve price as possible. When this tendency is coupled with the FCC’s bidding increment rules, it is rather obvious that the auction is going to take some serious time and that it’s rather impressive how close to reserve price the bidding is at so early a stage.

Auction 66 ran 161 rounds. I expect Auction 73 to run at least 100 rounds, and probably significantly longer. It is much too early to announce that the results of Auction 73 are disappointing… unless you appear to know as little about how FCC spectrum auctions actually work as much of the press does.

Posted in Econoklastic, General | Also tagged , , , , , , , | 8 Comments (Comments closed)

Tales of the Sausage Factory

Full text of statment from Jim Ciconni on Martin’s Plan for the 700 MHz Auction

For my analysis, see here. Text reproduced below . . . .

Read More »

Posted in Spectrum, Tales of the Sausage Factory | Also tagged , , , , | 1 Comment (Comments closed)

My Thoughts Exactly

Greg Rose and the evolution of a wet machine

Sometime right soon, Dr. Gregory Rose, he of the brilliant fisking of the spectrum auction scam, will be making his inaugural post at his new Wetmachine blog Econoklastic. So may I be the first to welcome him: Welcome, Greg! Welcome to Wetmachine! I have no idea what he’ll write about, but his background leads me to expect good things. Greg describes himself thusly:

I’ve been an academic economist for more than 20 years. My
dissertation was on developing mathematical techniques for aggregating
affective variables in utility functions. I left OSU Tulsa to come to
DC in 2004 to set up a consulting company. I’ve been doing consulting
for the public interest community on telecoms ever since. And I’m a
very unconventional economist: I’m probably the only socialist member
of the Public Choice Society.

Adding another name to the Wetmachine masthead seems as good an occasion as any to launch into some meditative malarky I’ve been cogitating on for some while about where Wetmachine came from, has been, and is tending. Especially since the one-two combination punch of Harold Feld and Greg Rose should pretty much establish Wetmachine as a premiere telecommunication/first amendment/innaleckshul property policy wonk “destination shopping” blog. Which is kind of cool, especially since it’s nothing like what I set out to create when I launched Wetmachine seven years ago. At that time I was mostly trying to pimp my books (still am), and I also was pretty irritated by the technological utopianism of blogs like Slashdot and Boing Boing & I wanted to do something in the same basic zip code as those blogs but much more curmudgeonly and technoskeptical. Sort of a blend of Slashdot and Boing Boing on a bad acid trip by way of the Unabomber Manifesto was what I had in mind. I also imagined that that the now-atrophied Bonehead Computer Museum would evolve into the central attraction of the site. Guess I missed that guess. I had no idea when I invited Harold Feld to blog with me that I was snagging a world-class policy expert with a major talent for snark, nor did I know that Howard Stearns would emerge up to his eyeballs in Croquet at the head of the Web 3.0 movement. Much to my astonishment, and with little help from me, Wetmachine has become of blog of substance (by some definition of “substance”.) Who woulda thunk it? Any of y’all as may be interested in some more of my navel-gazing, feel free to follow me below the fold.

Read More »

Posted in My Thoughts Exactly, Wetmachine site news | Also tagged , , , , | Comments closed

Tales of the Sausage Factory

Open Access Included in Spectrum Notice! Fish In Trees! Rivers Running Uphill!

Yesterday, I wrote, with regard to whether the FCC’s Further Notice on the 700 MHz Spectrum Auction would include questions on our open access proposal:

I think our chances of moving forward to the next round are pretty close to zero. OTOH, I live from day-to-day in the hope of pleasant surprises.

Apparently, I live another day. And so does the open access proposal. As explained by Gigi Sohn, we live to fight another day.

It was a wild meeting. Pushed back from 9:30 to 10:30, then pushed off again until 6:45 p.m. The contentious issue was, as predicted, license size. Apparently, McDowell teamed with the Ds to make sure the Further Notice requested comment on a mix of licenses and not just the large licenses that Martin wanted.

The Order is not yet out, so I can’t really assess yet what the results are. Heck, they don’t even have all the seperate statements up yet. Here are links to the news release, Chairman Martin’s statement (expressing disappointment over the license size issue), Commissioner Adestein’s statement (with a shout out to the public interest coalition!), and Commissioner McDowell’s statement (which basically says “I know I’m the swing vote, but I need to catch up on the comments because I’ve been out with my new kid”).

But whatever happens, I gotta give a shout out to Martin for being willing to put the open access question out there and have it debated. Yes, all credit to the Ds. But I don’t believe we would be positioned to have the discussion about wireless open access if Martin had been dead set against it.

Off to bed. It’s been a day.

Stay tuned . . . .

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

Tales of the Sausage Factory

But Do Spectrum Auctions *Really* Suck? According to Center for American Progress Report, You bet!

In all the hustle and bustle, it rather blew by that my friends Dr. Gregory Rose and Mark Lloyd have written this analysis of ten years of FCC spectrum auction data.

Summary — FCC auctions turn out to be great ways for incumbents to exclude new entrants and to bilk the government. They do not yield the promised efficiencies of distribution or even maximize revenue to the government. There are ways to improve the process, but the FCC open ascending auction systems just about ensures that a collection of incumbents can keep out any genuinely disruptive competitors and collude to minimize revenue to the government and maintain the status quo.

 

Read More »

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

Tales of the Sausage Factory

Anonymous bidding and not so anonymous shakedowns at the FCC

Say what you like about Martin in other areas, but he is (so far) sticking to his guns on whether to require anonymous bidding for the upcomming AWS spectrum auction. MAP has actively supported this proposal, because it will make the auctions work better and facilitate entry by minority owned businesses and new, disruptive competitors (I’m stuck with them by statute, so I may as well try to get them to work right).

In perhaps the most telling evidence that anonymous/blind/sealed bidding (in which the identity of the bidder is not disclosed during the action) is a good idea, every incumbent (except VZ Wireless, which has been “targeted” in certain auctions) is lobbying fiercly against it. My favorite little tidbits of when the Sausage Factory turns nasty below.

Read More »

Posted in Tales of the Sausage Factory | Also tagged , , , , , , | Comments closed
  • Connect With Us

    Follow Wetmachine on Twitter!

Username
Password

If you do not have an account: Register