600MHz Market Auction or FCC Three-Ring-Circus?

600MHz Market Auction or FCC Three-Ring-Circus?
April 16, 2014

Scott Cleland

Scott Cleland is a precursor: a proven thought leader with a long track record of industry firsts.... (read full bio)

It appears the FCC may be betting again that it is smarter than everyone else in the marketplace. Time will tell.

From the various reports of briefings about the FCC’s planned rules for the 600 MHz incentive auction, two things appear clear. First, the FCC doesn’t trust market forces. And second, the FCC doesn’t want the highest bidders to win the spectrum.

Apparently, the FCC is trying to produce something for everyone in this now circus-like auction process – a proverbial, dazzling three-ring-circus of political compromises that catch and keep different people’s attention.

At core, the FCC reportedly is adding a third ring to the already-complex, unprecedented, two-ring circus of the incentive auction. The first ring is the incentive reverse auction of broadcasters bidding for what they must earn in order to sell their spectrum, and the second ring is what wireless companies will then pay to own the broadcasters’ spectrum.

The FCC wants to add a third ring to this growing auction spectacle. Reportedly the FCC is going to effectively create yet a third auction process that would commence when certain, not-yet-known auction revenue targets are met in the auction. Below those FCC-determined-revenue-targets anyone can bid. Above those targets, the largest potential bidders’ opportunities to bid further would be dramatically restricted.

This will create big auction dichotomy; some spectrum could garner a very high competitive market price and the rest could go to anyone willing to pay at least the FCC’s reserve price.

The made-up-revenue-number, to be determined by the FCC, sometime in the future, has now become the tent-pole assumption of this now elaborate, and increasingly complex three-ring circus. This FCC expected revenue number will signal how much the FCC wants the auction to collect, regardless of what the market could bear.

This auction rulemaking sounds like it is shaping up to be a complex amalgamation of multiple inherently-conflicted, political compromises to get three votes. It does not sound like an auction award of spectrum to the highest bidder.

The big risk here is that auction politics is not auction economics, and public auction prices are all about economics.

In other words, the FCC imagines political and economic outcomes are the same when they are very different.

Rule-makings may be judged by politics, but auctions are judged by real-life bids based on market economics.

Bottom-line, this auction process is on track to be the most confusing FCC auction ever. Confusion breeds uncertainty.

And uncertainty lower bids.

 

[Originally published at Precursor Blog]

Scott Cleland

Scott Cleland is a precursor: a proven thought leader with a long track record of industry firsts.... (read full bio)