Appears that Rose and Lloyd (and me) were right . . .

A month or so back, I reported that Greg Rose and Mark Lloyd had written a study for the Center for American Progress concluding that incumbent wireless providers used spectrum auctions to block the mergence of new competitors. Then came the AWS auction, with its legion of bidders. “A ha!” Declared the Wall St. Journal and others in the anti-net neutrality, anti-regulatory, pro-spectrum property camp. “Look at how the market-based policies create competition! No need for regulation here!”

Turns out, not so much . . . . Either for new spectrum entrants or for broadband competition.

Alas, as the bidding on FCC Auction 66 winds down, it appears that Rose & Lloyd were right. The big winners appear to be the the incumbent wireless companies, with incumbent cable providers Comcast and Time Warner (teamed with incumbent Sprint/Nextel as “Spectrum Co., LLC”) along for the ride.

An examination of the strategy employed bears out the Rose & Lloyd conclusions about spectrum auctions (and open ascending auctions in particular). The incumbents waited while the potentially disruptive new entrants staked out positions, then they bid hard and drove them out. Mind you, the DBS guys do not appear to have engaged in sophisticated counter-strategy. Indeed, their behavior (a direct active bid for the most desirable licenses) jibes with what you would expect in a sealed (aka anaonymous, aka blind) bid auction of the kind I pushed for back in the spring.

Of course, I would no more expect cheerleaders of the free market deregulation dogma to change their minds on the basis of this latest real world evidence than I expect supporters of the Discovery Institute to change their mind about intelligent design on the basis of the latest fossil or DNA discovery. So, now that the auction is winding down, the same folks who happily predicted squindoodles of new competition are explaining that competition wasn’t economically efficient anyway, and the poor DBS guys never really had a chance. Because, after all, it couldn’t be anything in the actual structure of the auction itself that gave incumbents the edge, could it? We couldn’t have set the rules up differently to maximize entry by a new competitor, could we?

So the winners of the AWS licenses in the biggest markets have no incentive to build any kind of disruptive network for delivery of either mobile telphony or broadband (mobile or otherwise). Whether you think we need net neutrality or not, the AWS auction has not changed the calculus one iota. The same potential providers (cable, telcos, and the incumbent wireless players) are what remain.

As for whether I think that is enough, consider this little tid bit reporting on a panel held at the PFF Aspen Summit last week:

[Tod] Cohen [deputy general counsel for Ebay] said the wireless Internet in the U.S. is already
operating in a non-net neutrality environment when it comes to EBay, an online auction service.

He said Cingular customers are not able to use text messages to make a payment through eBay’s
online subsidiary, PayPal, because Cingular won’t agree to give PayPal access to necessary wireless
codes on its network. PayPal is available to customers of other wireless services.

Carolyn Brandon, vice president of policy for industry trade group Cellular Telecommunications &
Internet Association, responded that under a capitalistic market Cingular has the right to strike a
contract with another online payment company and shouldn’t be required to a cut a deal with PayPal.

“What’s the market failure?” she asked.

Indeed. It’s not “market failure,” its a market feature. Left to themselves, the cell phone companies will strike the most profitable deals for access to their captive customers. Unlike the cable and telco providers, they have no history of being required to do otherwise, and therefore are not used to justifying such things with bullsh#@ arguments like lack of capacity. They’re still in the “it’s our network and we’ll do what we want with it” phase.

Whether you think that is good public policy or not depends on what outcomes you want. If you want a world where you need permission from Cingular or some other network provider to reach a website or use an application, then great. That’s what we’ll get absent regulation, because that’s how markets work. As Ms. Brandon observed, ‘where’s the market failure?’ Not here, if the object is to maximize profit.

If you like the current version of the (non-cellular) internet, however, you have more to worry about. Because absent net neutrality regulation, Cingular’s approach is the wave of the future. Ed Whitacre’s recent remarks show that the Bells have not given up their hopes of cutting such deals themselves. And, for all the protestations by Comcast Government Affairs David Cohen that they oppose network neutrality regulation because it would frustrate the attempt to create “child friendly” content and otherwise corrupt our youth, I can’t imagine that Comcast and other cable incumbents have given up hope of getting their piece of the “premium access” pie — whether through their traditional wiress or new AWS spectrum licenses.

Stay tuned . . . .


  1. I wanted to know if there is any parity in price of 2.5 ghtz spectrum and the spectrum prices in the AWS spectrum now. Although the valuation of 2.5 was significantly less before the aws auction, can an argument be made for increased valuation now?

  2. On the 2.5 GHz side, are you talking about on the secondary market? OR are you talking about as somehow factored into acquisitions such as Sprint/Nextel?

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