Spectrum Auction

fcc auction

A spectrum auction is a process whereby a government uses an auction system to sell the rights (licences) to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources. Depending on the specific auction format used, a spectrum auction can last from a single day to several months from the opening bid to the final winning bid.

With a well-designed auction, resources are allocated efficiently to the parties that value them the most, the government securing revenue in the process. Spectrum auctions are a step toward market-based spectrum management, and are a way for governments to allocate scarce resources. Alternatives to auctions include administrative licensing, such as the comparative hearings conducted historically (sometimes referred to as ‘beauty contests’), or lotteries.

In past decade, telecommunications has turned into a highly competitive industry where companies are competing to buy valuable spectrum. This competition has been triggered by technological advancements, privatization, and liberalization. Mobile communication in particular has made many transitions since 2000, moving from second generation (2G), to third generation (3G), to fourth generation (4G) technology. However, the transition to fourth generation and what is truly considered ‘4G’ has been a hot topic in the telecommunications because mobile companies use different technology for 4G. Some mobile networks use WiMAX (Worldwide Interoperability for Microwave Access) and other networks use LTE or Long Term Evolution.

With more providers in the mobile industry, the competition during spectrum auctions has increased due to more demand from consumers. When the United States made the transition in 2009 from analog to digital broadcast television signals, the valuable 700 MHz spectrum became available because it was no longer being used by analog TV signals. In 2007, search giant, Google announced that they would be entering the mobile business with their highly popular Android operating system and plans for a mobile broadband system. Google said that they planned to bid for the ‘C’ block of the spectrum auction which correspond to channels 54,55,and 59 of the lower 700 MHz spectrum and channels 60,61,65,and 66 of the upper spectrum 700 MHz which are normally used to construct nationwide broadband services. Around the time of Google’s announcement, AT&T and Verizon also announced plans to enter the spectrum auction in order to purchase ‘C’ block spectrum to launch their U-verse and FiOs broadband services.

Despite the apparent success of spectrum auctions, an important disadvantage limiting both efficiency and revenues is demand reduction and collusive bidding. The information and flexibility in the process of auction can be used to reduce auction prices by tacit collusion. When bidder competition is weak and one bidder holds an apparent advantage to win the auction for specific licenses, other bidders will often choose not to the bid for higher prices, hence reducing the final revenue generated by the auction. In this case, the auction is best thought of as a negotiation among the bidders, who agree on who should win the auction for each discrete bit of spectrum.

In order to prevent network congestion, FCC chairman Julius Genachowski is looking for companies who will voluntarily surrender their unused spectrum in exchange for a share of the money made from the spectrum auction. With the growing demands for wireless services, the Obama Administration approved a plan, called the National Broadband Plan of making 500 MHz of spectrum, below 3 GHz, available over the next 10 years. The majority of the spectrum being examined by the FCC are federally owned or federally shared bands. In addition, regulators and carriers have been considering blocks of the 300 MHz spectrum which is normally used for television broadcasters. If a company agrees to volunteer their spectrum, the FCC will ask for 120 MHz of it. Also, the FCC has been thinking about spectrum sharing which would allow wireless ISPs to purchase DTV licenses In 2011, Clearwire agreed to sell off its unused spectrum in order to raise money for company spectrum and to seemingly allow other companies to pick up on some unused space.

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