Report Argues For Limits On Spectrum Auction Participants

WASHINGTON -(Dow Jones)- Lobbying over how the Federal Communications Commission should frame rules governing the forthcoming auction of radio spectrum has intensified ahead of a Wednesday deadline for the consultation period.

A flurry of last minute arguments to the agency is likely over the next 24 hours as the shortened consultation period draws to an end.

On Tuesday a report by two Californian economists that was commissioned by Frontline Wireless, concluded that large incumbent telecom operators such as Verizon Communications and AT&T's wireless units, should be partially restricted from taking part in the auction.

Speaking on a conference call hosted by a law firm representing Frontline, economists Robert Wilson and Andrzej Skrzypacz of Stanford University Business School, argued that the same partial ban should be extended to the large cable companies too.

Their comments concern the 10 megahertz of spectrum that Frontline has been trying to convince the FCC to attach additional guidelines to.

It wants these additional rules in place so its proposal for a national wireless broadband network for use by both commercial operators and public safety could get off the ground.

The economists said that only wholesale operators should be allowed to bid for the 10 megahertz of powerful and lucrative radio spectrum.

The successful wholesale operator would in turn lease the use of that spectrum to both commercial and public safety operators wireless broadband operators.

This business model is unlikely to be attractive to the big wireless broadband operators like Verizon or AT&T, but if they were still minded to participate, the economists recommended further steps be taken by the FCC to keep them out.

They said rules should be in place to prevent the eventual licensee of the spectrum from either leasing its use to a subsidiary or keeping the lease rates so high that potential operators couldn't afford to lease time on the airwaves.

"I don't know why Verizon Wireless or AT&T, which already have national licenses, would want to participate in this proceeding," said Wilson. "What good business reason could they have to buy another license in the low frequency other than to foreclose on potential competition."

Wilson said the incumbent carriers had track records of participating in spectrum auctions simply to drive up the price for others, and even of not using spectrum once they acquired licenses, to effectively lock out rivals.

"The incumbents have an enormous motivation to deter entry by competitors into their markets," said Wilson. "They should be banned from bidding for this kind of specially-designated license."

Wilson said that if the report's recommendations were followed, there would still be 50 megahertz of spectrum for the incumbent companies to bid for. However, while it recommended the 10 megahertz band should be awarded to a single national licensee, it said the remaining spectrum should be awarded in smaller chunks to encourage smaller regional players to provide wireless broadband service.

Frontline's plan depends on convincing at least three FCC commissioners to vote for the addition of these rules as it's unlikely it could compete with the likes of Verizon in an open auction.

Frontline has argued that without such safeguards, the dominant carriers will use their financial muscle to carve up the spectrum between themselves and keep out potential new competitors.

Verizon has been among the most active in aggressively lobbying against Frontline's proposal, arguing that all the spectrum should be sold in the open market.

FCC Chairman Kevin Martin has expressed interest in the Frontline proposals, but has said he has doubts about limiting the bidders in any auction.

He has also said he has concerns about the wholesale aspect of the Frontline proposals, as it would limit potential participants.

Joe Farren, a spokesman for the CTIA, the wireless industry's lobby group, said: "You devalue this precious public resource when you fail to put it to its highest and best use. And you fail to put it at its highest and best use when you place all sorts of conditions on the auction."

Reed Hundt, former FCC Chairman and now Frontline Vice Chairman, said that Frontline didn't necessarily support the economists' conclusions about the participation of the large wireless telephone companies.

But he refused to say whether Frontline's submission to the FCC consultation, which will be made public Wednesday, would reach similar conclusions.

It is common for companies involved in FCC proceedings to hire economists to make their arguments for them.

-By Corey Boles, Dow Jones Newswires; 202-862-6637; corey.boles@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 23rd May 2007