[WISPA] Frontline Enlists Auctions Experts To Back E-Block Plan

[Peter R.]

http://www.telecomweb.com/tnd/24041.html

A trio of auction experts says Frontline Wireless' proposed E Block not 
only will increase social welfare, but will enhance revenue for the 
upcoming 700 MHz auction (/TelecomWeb news break/, June 5).

Peter Cramton, Andrzej Skrzypacz and Robert Wilson authored the 
analysis, sent by Frontline Wireless earlier today to the Federal 
Communications Commission, that says in part that the high "foreclosure 
value" of the 700 MHz spectrum to the nation's two largest wireless 
carriers, Verizon <http://www.telecomweb.com/search/?query=Verizon> and 
AT&T, both of which inherited 800 MHz cellular licenses from an era in 
which licenses, were awarded for free rather than sold at auction.

"The reason that limiting participation can increase revenues and social 
welfare is simple: incumbents have profits to protect and entrants 
realize this, so rationally the potential entrants stay away from the 
auction because the high costs of participating outweigh the low odds 
that they will win," the analysis states. "Thus the incumbents win in 
two ways: they protect their profits and they get the new licenses for 
scarce spectrum at low prices."

The report also notes the E Block proposal increases social welfare and 
likely auction revenues:

Verizon <http://www.telecomweb.com/search/?query=Verizon> and AT&T earn 
substantial "scarcity rents" from holding nearly all of the original low 
frequency cellular licenses, which gives them operational and quality 
advantages reflected in their prices and profits.

The 700 MHz spectrum has high "foreclosure value" to Verizon and AT&T, 
separate from the true "economic value" of building and operating a 
network. Market entry by new 700 MHz bidders threatens their incumbent 
position, which they will defend and which they have the capital to do.

The high foreclosure value to Verizon and AT&T deters new entrants from 
participating in the auction, reducing bidder competition and driving 
down auction revenues. New entrants rationally stay away from an auction 
when the costs of participating outweigh expected profits.

An open access, wholesale E Block, combined with bidding credits, will 
increase auction revenues. These rules draw new entrants into the 
auction to compete with the incumbent bidders, creating greater bidder 
competition and causing winning bids to reflect the economic value of 
the spectrum.

Secondary use of the public safety 
<http://www.telecomweb.com/search/?query=public%20safety> spectrum 
during non-emergency times effectively increases the quantity of 
spectrum auctioned, increasing the value for the E Block winner.

Guaranteed access to nationwide coverage increases value of other blocks 
to small and regional carriers.

According to Frontline, its proposed E Block - encompassing a limited 
slice of spectrum at 700 MHz - would require the construction of a 
nationwide, interoperable wireless broadband network for public safety 
<http://www.telecomweb.com/search/?query=public%20safety>, at no cost to 
taxpayers but at the willing expense of the license-holder as a 
condition of the license. The E Block proposal also requires that this 
wireless broadband network be open to competition and innovation, 
including open to any kind of customer and all handsets and devices that 
do not harm the network.