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Limiting bidding on spectrum auctions could be costly, study says

Georgetown paper makes the case that Verizon and AT&T should be allowed to bid in upcoming auctions

If the U.S. Federal Communications Commission limits the participation of the largest mobile carriers in upcoming spectrum auctions, it could cost the U.S. treasury billions of dollars, according to a study released Tuesday.

The U.S. Department of Justice's Antitrust Division and some digital rights groups have called on the FCC to ensure that small carriers can compete in spectrum auctions scheduled for 2014.

But a policy to restrict the ability of Verizon Wireless and AT&T to bid on the spectrum would drive down the bidding during the auction and leave less money for a nationwide public safety network and the U.S. treasury, said the new paper, from the business-friendly Georgetown Center for Business and Public Policy. The center has received funding in the past from both Verizon and AT&T, although the two large carriers did not commission this study, said center director John Mayo.

The upcoming spectrum auction would sell spectrum that is voluntarily turned over by U.S. television stations, and the FCC's spectrum rules "have the potential either to significantly boost or significantly hinder the ability of the auction to move spectrum to its most highly valued use," Mayo said.

The auction could raise up to US $31 billion, according to the paper's authors. Using bidding results from past auctions, the authors estimated that completely barring Verizon and AT&T from the so-called incentive auctions could cost $12 billion.

"Those revenues matter," said Douglas Holtz-Eakin, a co-author of the Georgetown study. "That has implications for public policy."

Even a partial restriction of bids by Verizon and AT&T could have a significant impact on auction revenues, he said.

The study considers scenarios that won't happen, countered Matt Wood, policy director at digital rights group Free Press.

"No one is talking about completely barring AT&T and Verizon from the incentive auction," Wood said in an email. "Sensible people are talking about making sure that more than two companies have a chance at obtaining spectrum. The fact that these duopolists hired economists to parrot the companies' own talking points isn't really that newsworthy."

Restricting the bids of the two largest carriers could also mean a price hike for mobile service because it would mean that carriers who make less efficient use of the spectrum would control it, said Robert Shapiro, a co-author of the Georgetown study. Shapiro estimated that mobile service prices would rise by 9 percent if Verizon and AT&T were excluded from bidding.

This, in turn, would lead to fewer U.S. residents adopting 4G service, costing the U.S. tens of thousands of jobs in the coming years, he said.

The calls to limit the participation of AT&T and Verizon are misplaced, he said. "There is no evidence of any lack of competition in this market," he said.

The study's authors don't believe Verizon and AT&T will be barred from the auction, but the study's "thought experiment" looking at that possibility shows the outer bounds of the economic impact of bidding limits, Shapiro said.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is [email protected]


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