Mobile Future

International Spectrum Auction Analysis Shows Economic Harm of Preferentially Designed Spectrum Auctions

(Washington, DC) – Today, the Analysis Group’s Robert Earle and David Sosa, in conjunction with Mobile Future, released a new paper “Spectrum Auctions Around the World: An Assessment of International Experiences with Auction Restrictions” reviewing both U.S. and international experience in past spectrum auctions. In anticipation of the FCC’s upcoming 600 MHz broadcast incentive auction, the report identifies serious risks to both consumers and innovation posed by auctions designed with preferential rules that would give certain auction participants an advantage over others in bidding.

Assessing data from past spectrum auctions in Europe, Canada and the United States, the analysis shows that use of spectrum caps and other bidder participation restrictions actually have been harmful to wireless consumers, as well as competition, and innovation.  “While policymakers often enter into these arrangements with the best of intentions, the record shows that these discriminatory rules are very harmful to consumers and innovation,” Sosa said.  “Not only have these restrictions failed to advance competition, they also have caused years-long delays in the availability of spectrum and squandered billions of dollars in consumer welfare.  Spectrum repurposing and a well-functioning secondary market have proven much more effective tools in expanding competition, encouraging innovation and investment, and improving consumer welfare.”

For example:

  • Restrictive and preferential participation rules in place for the 1994 U.S. PCS spectrum auctions resulted in lost consumer welfare of as much as $70 billion. Underfunded and unfunded business plans developed by new entrants acquiring set-aside licenses resulted in substantial amounts of spectrum sitting idle for many years.
  • Following the PCS auctions in the mid-1990s, all significant new entry into the US wireless market has been through spectrum re-purposing or the secondary market.
  • In the German 3G auctions in 2000, policies intended to encourage market entry were unsuccessful and resulted in a 10-year delay in the assignment of one-third of the 3G spectrum, delaying its development and the benefits consumers would have otherwise enjoyed.
  • In Canada and several European countries, restrictive and preferential policies intended to encourage market entry distorted the auction process and were unsuccessful in expanding the number of sustainable competitors in the marketplace. Initial changes in the competitive landscape, attributable to restrictive auction rules, proved fleeting as market forces pushed the industry structure back to a pre-auction market structure with the same number of, or fewer, national competitors.

“The United States leads the world in LTE deployment and the mobile economy has grown at breakneck speed as a result of more than $30 billion in private sector investment last year alone,” Mobile Future Chair Jonathan Spalter said. “The FCC has a huge opportunity to help keep our nation securely on this path by heeding the lessons of the past, and designing an inclusive and open incentive auction.  This auction is simply too important for any other possibility, for as the data we present today clearly shows, preferential treatment and restrictive auction rules tailored at specific companies can undermine competition, stifle innovation, and ultimately harm consumers’ mobile experience.

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