I recently prepared a paper for the Expanding Opportunities for Broadcasters Coalition and Consumer Electronics Association that provides empirical data regarding the costs of restricting the eligibility of large firms to participate in FCC spectrum auctions (available in PDF here). The paper demonstrates that there is no significant likelihood that an open incentive auction would substantially harm the competitive positions of Sprint and T-Mobile. It also demonstrates that Sprint and T-Mobile have incentives to constrain the ability of Verizon and AT&T to expand their network capacity, and that Sprint and T-Mobile could consider FCC restraints on their primary rivals a “win” even if Sprint and T-Mobile don’t place a single bid in the incentive auction. (Winning regulatory battles is a lot cheaper than winning spectrum in a competitive auction.)
Some might think it is implausible that Sprint or T-Mobile would decide to forgo participation in the incentive auction. However, the recent announcement by Sprint that it won’t compete in the H block auction highlights the difficulty in predicting accurately whether any particular company will participate in a particular auction. Sprint’s announcement stunned market analysts, who had considered Sprint a key contender for the H block spectrum. Until recently, Sprint had given every indication it was keen to acquire this spectrum, which is located directly adjacent to the nationwide G block that Sprint already owns. It participated heavily in the FCC’s service rules proceeding for the H block (WT Docket No. 12-357) and even conducted its own testing to assist the FCC in assessing the technical issues. But, by the time the H Block auction was actually announced, Sprint decided its business would be better served by focusing its efforts on the deployment of its trove of spectrum in the 2.5 GHz band. Continue reading →
Adam, Eli, and I are very happy to announce that Brent Skorup joined us this week as a research fellow at Mercatus. He will focus on telecommunications, radio spectrum, and media issues, which will help round out our existing portfolio of work on privacy, cybersecurity, intellectual property, Internet governance, and innovation policy.
Brent has written Mercatus research papers on federal spectrum policy, cronyism in the technology sector, and antitrust standards in the tech economy. Brent also has a forthcoming paper co-authored with Thomas Hazlett on the lessons of LightSquared. His work has appeared in several law reviews, The Hill, US News & World Report, The Washington Post, Bloomberg Businessweek, and San Francisco Chronicle. He also blogs here at Tech Liberation.
With the ongoing debate at the federal level over how to efficiently use radio spectrum, Brent has proposed establishing a congressional commission to determine spectrum allocation for federal users and put up newly available spectrum for auction. He has also called for having an agency similar to the General Services Administration take ownership of federal spectrum and “rent” it to agencies at a fair market value.
Brent previously served as director of operations and research for the Information Economy Project at the George Mason University School of Law, applying law and economics to telecommunications policy. He has a BA in economics from Wheaton College and received his JD at Mason.
It could be argued that the exact match between the DISH bid commitment and the H block reserve price is purely coincidental. To actually believe this was a coincidence would require the same willing suspension of disbelief indulged by summer moviegoers who enjoy the physics-defying stunts enabled by computer-generated special effects. When moviegoers leave the theater after watching the latest Superman flick, they don’t actually believe they can fly home.
The FCC’s Wireless Bureau recently adopted an unusually high $1.564 billion reserve price for the auction of the H block spectrum. Though the FCC has authorized the Bureau to adopt reserve prices based on its consideration of “relevant factors that could reasonably have an impact on valuation of the spectrum being auctioned,” it appears the Bureau exceeded its delegated authority in this proceeding by considering factors unrelated to the value of the H block spectrum that have the effect of giving a particular firm an advantage in the auction. Specifically, the Bureau considered the value to DISH Network Corporation of amendments to FCC rules governing other spectrum bands already licensed to DISH (e.g., the 700 MHz E block) in exchange for DISH’s commitment to meet the $1.564 billion reserve price in the H block auction – a commitment that is contingent on the FCC Commissioners amending rules governing multiple spectrum bands no later than Friday, December 13, 2013.
No matter what the FCC Commissioners decide, if the reserve price stands, the only sure winner would be DISH. If the FCC Commissioners don’t endorse the DISH deal, DISH need not honor its commitment to meet the artificially inflated reserve price, which could result in the spectrum auction’s total failure. If the Commissioners do endorse the DISH deal, the artificially inflated reserve price could deter the participation of other bidders and lower auction revenues that are expected to fund the national public safety network. Neither option would result in an open and transparent auction designed to provide all potential bidders with a fair opportunity to participate.
The FCC would be the only sure loser. The appearance of impropriety in the H block proceeding could compromise public trust in the integrity of FCC spectrum auctions. To ensure the public trust is maintained, the FCC Commissioners should thoroughly review the processes and procedures implemented by the Wireless Bureau in this proceeding before auctioning the H block spectrum.
The following discussion provides background information on the purposes of spectrum auctions and reserve prices. This background information is followed by a more detailed analysis of the terms of the DISH deal and the advantages it would bestow on DISH, the lack of analysis in the Wireless Bureau’s order, the role of the Commissioners, and the potential damage to the integrity of FCC auctions. Continue reading →
There are few things more likely to get constituents to call their representative than TV programming blackouts, and the increase in broadcasting disruptions arising from licensing disputes in recent years means Congress may be forced to once again fix television and copyright laws. As Jerry Brito explains at Reason, the current standoff between CBS and Time Warner Cable is the result of bad regulations, which contribute to more frequent broadcaster blackouts. While each type of TV distributor (cable, satellite, broadcasters, telcos) is both disadvantaged and advantaged through regulation, broadcasters are particularly favored. As the US Copyright Office has said, the rule at issue in CBS-TWC is “part of a thicket of communications law requirements aimed at protecting and supporting the broadcast industry.”
But as we approach a damaging tipping point of rising programming costs and blackouts, Congress’ potential rescuer–Aereo–appears on the horizon, possibly buying more time before a major regulatory rewrite. Aereo, for the uninitiated, is a small online company that sets up tiny antennas in certain cities to capture broadcast television station signals–like CBS, NBC, ABC, Fox, the CW, and Univision–and streams those signals online to paying customers, who can watch live or record the local signals captured by their own “rented” Aereo antenna. Broadcasters hate this because the service deprives them of lucrative retransmission fees and unsuccessfully sued to get Aereo to cease operations. Continue reading →
Over at The Switch, the Washington Post’s excellent new technology policy blog, Brian Fung has an interesting post about tethering and Google Glass, but I think he perpetuates a common misconception:
Carriers have all sorts of rules about tethering, and sorting through them can be like feeling your way down a dark alley. Verizon used to charge $20 a month for tethering before the FCC ruled it had to allow tethering for free. Now, any data you use comes out of your cellular plan’s overall data allowance. AT&T gives you a separate pool of data for tethering plans, but charges up to $50 a month for the right, much as Verizon once did.
Fung claims that due to the likely increase in tethering as devices like Google Glass come to market, “assuming the FCC didn’t require all wireless carriers to make tethering free, it’d be a huge source of potential revenue for companies like AT&T.”
In fact, the cost of tethering on AT&T is not very different from the cost of doing so on Verizon, which means by definition that AT&T is not likely to get a windfall from increased use of tethering. It’s also evidence that the FCC tethering rule for Verizon doesn’t matter very much.
Continue reading →
Jerry Ellig, senior research fellow at the Mercatus Center at George Mason University, discusses the the FCC’s lifeline assistance benefit funded through the Universal Service Fund (USF). The program, created in 1997, subsidizes phone services for low-income households. The USF is not funded through the federal budget, rather via a fee from monthly phone bills — reaching an all-time high of 17% of telecomm companies’ revenues last year. Ellig discusses the similarities between the USF fee and a tax, how the fee fluctuates, how subsidies to the telecomm industry have boomed in recent years, and how to curb the waste, fraud and abuse that comes as a result of the lifeline assistance benefit.
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The 600 MHz spectrum auction “represents the last best chance to promote competition” among mobile wireless service providers, according to the written testimony of T-Mobile executive who appeared before a congressional subcommittee Jul. 23 and testified in rhetoric that is reminiscent of a bygone era.
The idea that an activist Federal Communications Commission is necessary to preserve and promote competition is a throwback to the government-sanctioned Ma Bell monopoly era. Sprint still uses the term “Twin Bells” in its FCC pleadings to refer to AT&T and Verizon Wireless in the hope that, for those who can remember the Bell System, the incantation will elicit a visceral response. The fact is most of the FCC’s efforts to preserve and promote competition have failed, entailed serious collateral damage, or both.
Unless Congress and the FCC get the details right, the implementation of an innovative auction that will free up spectrum that is currently underutilized for broadcasting and make it available for mobile communications could fail to raise in excess of $7 billion for building a nationwide public safety network and making a down payment on the national debt. Aside from ensuring that broadcasting is not disrupted in the process, one important detail concerns whether the auctioning will be open to every qualified bidder, or whether government officials will, in effect, pick winners and losers before the auctioning begins. Continue reading →
The Mercatus Center at George Mason University has just released a new paper by Brent Skorup and me entitled, “A History of Cronyism and Capture in the Information Technology Sector.” In this 73-page working paper, which we hope to place in a law review or political science journal shortly, we document the evolution of government-granted privileges, or “cronyism,” in the information and communications technology marketplace and in the media-producing sectors. Specifically, we offer detailed histories of rent-seeking and regulatory capture in: the early history of the telephony and spectrum licensing in the United States; local cable TV franchising; the universal service system; the digital TV transition in the 1990s; and modern video marketplace regulation (i.e., must-carry and retransmission consent rules, among others.
Our paper also shows how cronyism is slowly creeping into new high-technology sectors.We document how Internet companies and other high-tech giants are among the fastest-growing lobbying shops in Washington these days. According to the Center for Responsive Politics, lobbying spending by information technology sectors has almost doubled since the turn of the century, from roughly $200 million in 2000 to $390 million in 2012. The computing and Internet sector has been responsible for most of that growth in recent years. Worse yet, we document how many of these high-tech firms are increasingly seeking and receiving government favors, mostly in the form of targeted tax breaks or incentives. Continue reading →
“Permitting voluntary spectrum transactions between federal and commercial users would harness the power of market forces to put both commercial and federal spectrum to its highest and best uses.”
The House Energy and Commerce Committee’s Subcommittee on Communications and Technology is holding a hearing today to ask, “How can Congress meet the needs of Federal agencies while addressing carriers’ spiraling demand for spectrum in the age of the data-intensive smartphone?” In my view, the answer requires a flexible approach that permits experimentation among multiple approaches.
There are challenges and opportunities for both (1) clearing and reallocating federal spectrum for commercial use and (2) sharing spectrum among federal and commercial users. Economic and technical issues may require different strategies for different spectrum bands and different uses. Experience indicates that voluntary negotiations among interested parties – not bureaucratic fiat – are likely to produce the most efficient strategy in any particular instance. Unfortunately, current law does not provide market incentives or mechanisms for the relevant parties (federal and commercial spectrum users and spectrum regulators) to achieve efficient outcomes.
Congressional action creating markets for spectrum transactions between federal and commercial users would provide the relevant parties with an opportunity to maximize their spectrum use through voluntary negotiation. A market-oriented approach would permit experimentation, encourage innovation, and promote investment while increasing the efficiency of spectrum use. The result would benefit consumers, federal agencies, and the economy.
Continue reading →
Richard Brandt, technology journalist and author, discusses his new book, One Click: Jeff Bezos and the Rise of Amazon.Com. Brandt discusses Bezos’ entrepreneurial drive, his business philosophy, and how he’s grown Amazon to become the biggest retailer in the world. This episode also covers the biggest mistake Bezos ever made, how Amazon uses patent laws to its advantage, whether Amazon will soon become a publishing house, Bezos’ idea for privately-funded space exploration and his plan to revolutionize technology with quantum computing.
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The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.