A spectrum auction is
|“||[a] public sale of spectrum space in which the price is increased by bids until the highest bidder becomes the purchaser.||”|
Spectrum auctions are regarded as a market-based mechanism for assigning spectrum. The FCC was authorized to organize auctions to award spectrum licenses for certain wireless communications services in the Omnibus Budget Reconciliation Act of 1993. The Act amended the Communications Act of 1934 with a number of important provisions affecting the availability of spectrum. The Licensing Improvement section of the act laid out the general requirements for the FCC to establish a competitive bidding methodology and consider, in the process, objectives such as the development and rapid deployment of new technologies. The law prohibited the FCC from making spectrum allocation decisions based “solely or predominately on the expectation of Federal revenues. . . .”
The Emerging Telecommunications Technologies section directed the NTIA to identify not less than 200 MHz of radio frequencies used by the federal government that could be transferred to the commercial sector through auctions. The FCC was directed to allocate and assign these released frequencies over a period of at least ten years, and to reserve a significant portion of the frequencies for allocation after the ten-year time span.
Similar to the requirements for competitive bidding, the FCC was instructed to ensure the availability of frequencies for new technologies and services, and also the availability of frequencies to stimulate the development of wireless technologies. The FCC was further required to address “the feasibility of reallocating portions of the spectrum from current commercial and other non-federal uses to provide for more efficient use of spectrum” and for “innovation and marketplace developments that may affect the relative efficiencies of different spectrum allocations.” Over time, auction rules have been modified in accordance with the changing policy goals of the FCC and Congress but subsequent amendments to the Communications Act of 1934 have not substantively changed the above-noted provisions regarding spectrum allocation.
Following passage of the Omnibus Budget Reconciliation Act of 1993, subsequent laws that dealt with spectrum policy and auctions included the Balanced Budget Act of 1997, the Auction Reform Act of 2002, the Commercial Spectrum Enhancement Act of 2004, and the Deficit Reduction Act of 2005. The Balanced Budget Act of 1997 contained several spectrum management provisions. For example, whereas previous statutes gave the FCC the authority to conduct auctions, the Act required the FCC to use auctions to award ownership for most types of spectrum licenses. The Act also gave the FCC auction authority until September 30, 2007 (extended to September 30, 2011, by Deficit Reduction Act of 2005). Furthermore, the Act directed the FCC to allocate spectrum for “flexible use,” which means defining new services broadly so that services can change as telecommunications technology evolves.
A spectrum auction will usually last several weeks from the opening bid to the final winning bid.
As part of its preparations for the first spectrum license auctions, the FCC decided to set caps on the amount of spectrum any one company could control in any geographically designated market. The theory behind spectrum capping is that each license has an economic value and a foreclosure value. The economic value is derived from the return on investment in spectrum licenses and network infrastructure. The foreclosure value is the value to a wireless company that already has substantial market share and wants to keep its dominant position by precluding competition. Spectrum caps were chosen as the method to prevent foreclosure bidding. The intent was to ensure multiple competitors in each market and to restrict bidding to only the licenses that could be used in the near term.
Beginning in 2001, spectrum policy placed increased emphasis on promoting spectrum and market efficiency through consolidation. The FCC ruled to end spectrum caps, citing greater spectral efficiency from larger networks as one benefit of the ruling. Spectrum caps were seen as barriers to mergers within the wireless industry, to the growth of existing wireless companies, and to the benefits of scale economies. The spectrum caps were eliminated on January 1, 2003. Auction rules requiring the timely build-out of networks became a key policy tool to deter hoarding. The FCC instituted a policy for evaluating spectrum holdings on a market-by-market, case-by-case basis — a practice referred to as spectrum screening — as a measure of competitiveness.
Opponents to the spectrum cap cited data to support their claims that the wireless communications market is competitive. They argued that additional amounts of spectrum are needed to support the growth in mobile broadband and that a spectrum cap could cut off growth and innovation. Implementing spectrum caps as a tool for regulating competition would represent a significant shift in policy for the FCC, were it to take that course.
With the introduction of auctions for spectrum licenses in 1994, the United States began to shift away from assigning spectrum licenses based on regulatory decisions and toward competitive market mechanisms. One objective of the Telecommunications Act of 1996 was to open up the communications industry to greater competition among different sectors. One outcome of the growth of competition was the establishment of different regulatory regimes for information networks and for telecommunications.
As a consequence of these and other legislative and regulatory changes, the wireless industry has areas of competition, e.g. for spectrum licenses, within a regulatory shell, such as the rules governing the Public Switched Telephone Network (PSTN). Competitive wireless business plans therefore rely to some extent on the existence of regulated infrastructure. For example, most wireless calls that are voice communications pass through the PSTN, which is closely regulated. Access to the Internet, however, is through networks that use packet switching and may bypass the PSTN (and its rules about access and use).
Economy of scale in wireless communications has become an important determinant in the outcome of these auctions. Companies that have already made substantial investments in infrastructure have been well placed to maximize the value of new spectrum acquisitions. Corporate mergers and acquisitions represent another way to improve scale economies. Efficiencies through economy of scale have contributed to creating a market for wireless services where four companies — Verizon Wireless LLC, AT&T Inc., Sprint Nextel Corporation, and T- Mobile USA Inc. — had approximately 90% of the customer base of subscribers at the end of 2008. These companies also own significant numbers of spectrum licenses covering major markets nationwide.
As the bulk of wireless communications traffic moves from voice to data, the necessary infrastructure is less regulated and companies will likely modify their business plans in order to remain competitive in the new environment. The shift in infrastructure technology and regulatory environment could open wireless competition to companies with business plans that are not modeled on telecommunications industry formulae. Future providers of wireless broadband might include any company with a robust network for carrying data and a business case for serving broadband consumers. Potential new entrants, however, may lack access to radio frequency spectrum — the essential resource for wireless broadband.
- FCC, Glossary of Frequently Used Telecommunications Terms (full-text).
- Pub. L. No. 103-66.
- Pub. L. No. 103-66. Tit. III, Subtitle C, Ch. 1.
- 47 U.S.C. §309(j), especially (1), (3) and (4).
- Id. §309(j)(7)(A).
- Pub. L. No. 103-66, Tit. III, Subtitle C, Ch. 2.
- 47 U.S.C. §923(b)(1).
- Id. §925(b)(1).
- Id. §925(b)(2).
- Id. §925(b)(3).
- Pub. L. No 105-33.
- Pub. L. No. 107-195.
- Pub. L. No. 108-494, Tit. II.
- Pub. L. No. 109-171.
- Id. §309(j)(1).
- Pub. L. No. 109-171, Tit. III, §3003 (b).
- Licenses are designated for a specific geographic area, such as rural areas, metropolitan areas, regions, or the entire nation.
- "FCC Announces Wireless Spectrum Cap to Sunset Effective January 1, 2003," FCC News, Nov. 8, 2001. Report and Order FCC-01-328, Docket No. 01-14, Notice of Proposed Rulemaking, released Jan. 23, 2001 (full-text).