See Greg Rose and I Utterly Revolutionize Federal Spectrum Management Through The Power of Our MINDS!!!!

Ummmm……OK, maybe that overstates things a tad. Still, fellow Wetmachiner Greg Rose and yr hmbl obdn’t blogger will be unveiling two new White Papers on how we can break past the stale debates on federal spectrum and figure out how to make some wireless magic happen.

The event happens Thursday, June 3, from 8 a.m. to 12:30 p.m. at the Washington Court Hotel, 525 New Jersey Ave, NW, Washington DC 20001. NTIA Administrator Asst Secretary of Commerce Larry Strickling will give the Keynote Address, “Averting the Spectrum Crisis.”

Here’s the event web page, which will also allow you to RSVP. Now go below the fold to see an amusing event description and hilarious video advertisement for the conference.
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I Join Public Knowledge As Legal Director

You can read the release here.

Regular readers will know I have worked closely with PK in the past and that it is an exciting opportunity for me to do more on intellectual property as well as continuing work on the spectrum and network neutrality issues. At the same time, I am continuing my consulting work with Strength To Strength Develop-Ed, LLC — albeit in a reduced role.

Stay tuned . . . .

Commission Meeting Happens! Begins With Gifts To Verizon and AT&T . . . .

O.K., we finally started at 3:50 p.m. Three items left, VZ/Alltel, New Clearwire, and White Spaces. I’ll split tdo my happy dance on his in two, so I can gripe about the suckiness of the mergers while doing my happy dance on white spaces unsullied by this market consolidation.

Details of merger suckiness below . . .

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This Week I Get My Wonk On, Next Week I Am A Free Man.

Passover comes late this year. It doesn’t start until Saturday night, April 19. Getting ready for Passover is a phenomenal pain in the rear end, because it involves all sort of complicated cleaning things. So this time of year is really busy for us true believer types.

Which is why the Good Lord has made it such a plentiful season for critical hearings. This week on Tuesday morning, I will testify before the House Telecom Subcommittee at the incredibly crowded second panel on the 700 MHz Auction aftermath. Then it’s out to California to catch the FCC Hearing on Network Management (official witness list still not posted, but my name turned up in Comm Daily on the short list).

Mind you, I am extremely happy to have the opportunity to testify before the House and all that. Indeed, given how much I’ve lived these things (especially the spectrum stuff), I’d be really miffed if I didn’t get a chance to speak my piece. I just wish it could be a little, y’know, less hectic.

At least I will be able to say with conviction at my Passover celebration “Now I am a free man.”

Stay tuned . . .

700 MHz Aftermath: Assessing A Rather Complicated Result — But Not A Disaster As Some Maintain.

The intervention of the Jewish holiday of Purim, which is celebrated by getting drunk until you cannot tell the difference between Verizon winning the C Block and Google winning the C Block, kept me from posting sooner. I would have held off until I could give more details, but there are so many people rushing to call it a disaster that a few words need to be said here.

O.K., Google didn’t win, but Echostar did, giving me a .500 batting average in prophecy against the conventional wisdom. I’m not covinced that Echostar winning gives us a third pipe (Martin’s suggestions about combining this with other spectrum assets to the contrary). But even if not, it is important for keeping Echostar competitive with cable and with DIRECTV (which will have an advantage in programming assests). I shall try to do a more detailed analysis of Echostar and what the E Block does for them in a future post.

It is also interesting to note that some non-incumbents like Cavtel picked up licenses, although I am not as enthusaistic about this for competition as Martin was at the press release.

That said, I do not see how the rules could have been structured any better without barring Verizon and AT&T from playing. While we might have done better for new entrants after all with smalled licenses rather than REAGs, as demonstrted by Echostar doing an end run to assemble a near national footprint after they begged and pleaded to have the FCC offer a national license, I can’t say for sure (I’ll have a longer discussion on this later, and I expect Greg Rose will have some things to say on his blog once he has crunched the numbers). My preliminary conclusion is that Verizon (and to a lesser degree AT&T) was simply determined to get the spectrum it wanted and did not let anything stand in its why. The fact that Verizon paid $9 MHz/Pop for a B block license for Chicago, and that Verizon and AT&T spent over $16 billion of the approximately $19 billion raised should tell anyone who cares about the reality all they need to know. Verizon and AT&T were not “bargain hunting.” They were at each other’s throats and cutting out anyone who dared to get in their way. The only way to stop them was to keep them out entirely, and there was not a heck of a lot of support for that from the Hill or at the FCC beyond the Dems.

I think Commissioner Adelstein gives a fair assesment when he says we won on revenue and openness and lost on diversity and competition. But again, the only way we could have done any better was by adopting auction rules that banned Verizon and AT&T from playing and by using aggressive means to address minority and women ownership (as MAP requested as early as March 2006). Perhaps now Congressional Democrats will add their voices to those of Commissioners Adelstein and Copps on restoring the minority bidding credit and supporting incumbent exclusions or — at a minimum — restoring the spectrum cap.

As it was, thanks to anonymous bidding, Echostar was able to do an end run and acquire a national footprint — something previously denied to it in the AWS Auction in 2006. And, while AT&T and Verizon got most of the licenses, they had to pay through the nose to get them — rather than sopping them up dirt cheap as happened in the AWS auction (where licenses equivalent to the A & B block licenses went for 45 cents MHZ/pop not $9 MHZ/pop). This auction attracted more new bidders and more minority bidders than previous auctions, so the field was ripe for a success on these fronts. But they were simply outspent by Verizon and AT&T.

To conclude, unlike the utter failure of the AWS auction (which everyone else hailed as a success — despite the incumbents winning more licenses for less money), this auction produced some very positive results. But it also shows us the limit of what purely competitive auctions will do. Neither this auction nor freeing more spectrum for future auctions, on their own, will provide us with a third pipe or introduce new competitiors in wireless. The advanatges enjoyed by incumbents in a relatively mature industry (as opposed to back in the early/mid-1990s when the first auctions were conducted) are simply too great to overcome just by “leveling the playing field.”

Finally, one last question remains: Why didn’t Qualcom drop their bid on D Block? Why did they tie up all that eligibility, instead of using it to go after more E Block licenses? For us spectrum geeks, this is the equivalent of asking Why did the Minbari surrender at the Battle of the Line (best answer from a friend of mine: “turns out Echostar bidders have Qualcom souls”). Did Qualcom hope they could keep the D Block for such a low price? Did they wish to avoid a penalty for dropped bids by the time they realized no one would bid on D Block? Hopefully, we will find out.

Stay tuned . . . .

700 MHz: More Evidence for Success of Anonymous Bidding Rules

I’d like to reiterate what fellow Wetmachiner Harold Feld wrote yesterday: the telecoms incumbents’ claims of problems arising from anonymous bidding are nonsense, part of a campaign to sow disinformation lest Auction 73 (700 MHz) and its success persuade the FCC to permanently adopt anonymous bidding rules for its auctions.

I call your attention to this table, which compares the number of bids on each license in B Block in rounds 1-26 of Auction 73 to the number of bids on each comparable CMA in Auction 66 (AWS-1) in rounds 1-26 of that auction. Note that in general the smaller the CMA number, the larger the population of the CMA (e.g., CMA001 is New York City and its immediate environs, CMA002 is the Los Angeles area, etc.).

What is striking about the data presented in this table is threefold. First, significantly more bids are being placed in general in rounds 1-26 in Auction 73 than in Auction 66. Second, extraordinarily more bids are being placed on the smaller and intermediate-size CMAs in Auction 73 than in Auction 66. Third, a much smaller percentage of licenses are receiving no bids in the first 26 rounds in Auction 73 than in Auction 66.

I am hard put to find an explanation of this extraordinary increase in competition, particularly for the smaller and intermediate-size licenses, which does not involve the effects of anonymous bidding. I suggest that the data, even though they do not disclose bidder identities, are entirely consistent with a more vigorous presence of new entrant and non-incumbent bidders who are protected from retaliatory and blocking bidding by large incumbents by anonymous bidding and are, therefore, more willing to engage in strong competition.

The telcos and cablecos can wail and moan to Communications Daily about the “risks” of anonymous bidding to the FCC, but the principal risk of anonymous bidding seems thus far to be the risk that fat-cat telecoms incumbents won’t be able to get all the spectrum in this auction by their usual bullying and exclusionary tactics. There’s no risk at all to the treasury — revenue from the auction is already wildly exceeding pre-auction projections — and there’s no risk that competition will be wan, as the data presented here amply demonstrate.

700 MHz: Beating the AWS-1 $/MHz/Pop

A, B, and C Blocks have exceeded their reserve prices as of round 17 in Auction 73, and E Block has reached 83.73% of its reserve price, while D Block has languished at 26.99% of reserve price since the first round. Unless a great deal of the activity in A and B Blocks is intended to preserve eligibility for later round intervention in C Block, the probable C Block winner has likely made its winning bid in round 17.

The rate at which A and B Blocks have exceeded their reserve prices by the end of round 21 today — 190.51% and 462.50%, respectively — seems unlikely to abate, which may push revenue from Auction 73 to $16-17 billion, perhaps as much as $20 billion, despite the fact that D Block will almost certainly have to be reauctioned if the current pattern holds.

How much better A, B, and C Blocks are doing at this point than even at the end of Auction 66 (AWS-1) is shown in this table, which compares the dollar per MHz per population price each license in those three blocks obtained with the provisionally winning bid as of the end of round 21 to the final dollar per MHz per population price comparable licenses received by the final round of Auction 66. Since the bandwidth is different in each auction, $/MHz/Pop standardises the data for comparison.

Clearly the majority of 700 MHz spectrum on offer in Auction 73 is much more highly valued than the spectrum on offer in Auction 66: the average $/MHz/Pop price of an A Block license at the end of round 21 in Auction 73 is 193.53% of the final $/MHz/Pop price of comparable spectrum in Auction 66; the average $/MHz/Pop price of a C Block license at the end of round 21 in Auction 73 is 623.06% of the final $/MHz/Pop price of comparable spectrum in Auction 66. For C Block, the 50-state package (REAGs 1-8) is reaching 102.65% of the final price of comparable spectrum in REAGs 1-8 in Auction 66, while REAGs 9-11 are averaging 134.10% of what they finally obtained in AWS-1.

From the point of view of the U.S. Treasury Auction 73 is already a hell of a success. What remains to be seen is how well new entrants and smaller competitors did, whether the incumbents ran the table again, and whether we got a national third broadband pipe. But we won’t know that until the FCC releases bidder identities and bids at the end of the auction.

700 MHz: Notes From The Spectrum New Hampshire Primary, C Block Not Dead Yet

Everyone remember how Clinton was dead after Iowa? Now who remembers two weeks ago, or even last week, when analysts wrote off the 700 MHz auction as doomed due to credit crunch? But, other than D Block’s utter failure to move (and regular readers will know my opinion of why that happened), the auction has proven a success by every measure we can obtain so far. Sadly, however, the key measures are not yet in, and won’t be until after the auction is over. Which is why, despite C Block exceeding it’s reserve price, I caution folks that we are still at the equivalent of just after the New Hampshire primaries and that any speculation about the important points of the outcome remain unresolved.

Here’s what we know for sure now:

1) The current take now stands at over $14 b. This not only exceeds the $10 b that the Congressional Budget Office (CBO) estimated, it will exceed the “wildly successful” 2006 AWS auction (which grossed about 13.9 b). A, B, and C blocks have all met their reserve prices, with the most contentious fighting in certain high value markets B block.

2) Because C Block has met its reserve price, it will not be reauctioned and the open device conditions will go into effect.

So the auction is clearly a success from Kevin Martin’s perspective (again, with the exception of D Block, which is a special case). While those like Commissioner McDowell can argue that C block might have fetched more without conditions, $4.7 billion is nothing to sneeze at. And it is clear that the aggressive build out conditions did not scare bidders away from A and B block, so (assuming the FCC is serious about enforcement) we should see increased deployment of services into rural regions.

What we still don’t know is whether the new auction rules gave new entrants a real chance to win spectrum, or (as the conventional wisdom had it) will incumbents Verizon and AT&T end up capturing the lion’s share of the spectrum (albeit at higher prices, owing to the introduction of anonymous bidding). That we cannot know until after the anonymity lifts when the auction ends (which, if the FCC chooses to reauction D Block under the rules proposed for reauctioning the other blocks, might not be for several months yet). Much depends on the identity of the current C Block holder. Is it Google? Verizon? Some other deep pockets like AT&T or Echostar, or perhaps the mysterious Vavasi NexGen Inc.? And is C Block settled? If the package bidder in round 17 knocked off the previous high bidder, then the previous high bidder will need to respond fairly soon or it will start losing its eligibility (bidding chips) and no longer be able to challenge.

If it turns out the incumbents capture most of the spectrum, I will need to eat a huge plate of crow and tip my hat to Commissioner Adelstein and Publius at Obsidian Wings, both of whom fretted that only Verizon could win a huge block like C Block and that we would get more new entrants by slitting the spectrum up. OTOH, if the Great Google Prophecy comes true, I will become insufferably pleased with myself for at least a month.

But, rather than pull a Tweety Bird and start treating my own speculation in the absence of data as fact, I will simply say —

Stay tuned . . . .

700 MHz: The C Block Minuet

The fact that the C Block has dangled on the precipice of reaching its reserve price from round 13 to the close of today’s bidding action in round 16 has led to speculation that Google never intended to go seriously for the spectrum, but was merely trying to goad Verizon or ATT into committing on the Block. I grant that we have almost no intelligence on who the C Block bidders are, and it is very, very early to speculate on the auction’s ultimate outcome. However, I have a theory, grounded in an understanding of game theory and the auction rules, which calls this latest conventional wisdom into question.

There are at least two, and possibly three, current bidders for the bulk of C Block. Two have been trading off the lead for the 50 state package (REAGs 1-8), let’s call them A and B: A in the first round (1 new bid), B in the second (1 new bid), A in the third (1 new bid), B in the fourth (1 new bid), A in the fifth (1 new bid), B in the seventh (1 new bid), A in the eighth (1 new bid), B in the tenth (1 new bid), A in the twelfth (1 new bid), B in the thirteenth (1 new bid). B has been the high bidder since the thirteen round with no need to raise its bid. In the sixth round there were also mid-range bids placed individually on REAGs 1-8. Either the individual bids on REAGs 1-8 in round six were B’s response to A’s bid on the package in round 5 or another bidder, C, forayed at that point.

B can sit indefinitely on its current bid, waiting for the minimum acceptable bid (MAB) to converge on the reserve price of the Block without requiring activity waivers (the FCC historically reduces MABs in the presence of bidding inactivity). That would allow B to obtain the package for almost $122 million less than the current MAB for round 17. A must bid on REAGs 1-8 either on the package or individually in round 17 or lose eligibility, since it has had to expend three activity waivers to avoid bidding in rounds 14, 15, and 16. That is what we know.

I hypothesize that B is Google, that it is sitting just below the reserve price, and will continue to do so unless another actor bids, until just before the close of the auction, when it will bid the reserve price and save roughly $122 million. I grant that it is also possible that B is Verizon or ATT or some other bidder which I don’t know and haven’t mentioned. But game theory and the auction rules explain why B is sitting pat. A has to bid in round 17 (the MAB for the 50 state package in round 17 is over the reserve price of the Block, and the sum of MABs for REAGs 1-8 individually in round 17 is equal to the MAB for the 50 state package), or B’s strategy is likely to win.