Obama’s FCC chief may have cost taxpayers billions

President Obama’s last chairman at the Federal Communications Commission, Tom Wheeler, believed he could accurately predict future developments in the wireless marketplace and, based on those predictions, adopt interventionist policies that could produce better results than competitive market forces. With the conclusion of the 600 MHz auction last week, the results of Wheeler’s spectrum auctions show that his wireless predictions and policies were wrong. 

Wheeler’s first mistake was giving T-Mobile a huge discount in the 600 MHz auction (at taxpayers’ expense) based on his prediction that T-Mobile and Sprint wouldn’t be able to compete in the wireless market without more spectrum below 1 GHz due to its propagation characteristics. According to Wheeler, ensuring T-Mobile and Sprint have access to 600 MHz spectrum “will be critical” to their “ability to remain competitive in service and device offerings in next generation networks.” So the FCC prohibited Verizon and AT&T from bidding on 30 MHz of the 70 MHz sold at auction, with Wheeler remaining “confident” that the wireless industry would “participate aggressively” in the auction.

{mosads}Myself and other experts warned the FCC that differences in propagation characteristics between mobile spectrum below and above 1 GHz are not competitively significant because capacity, not coverage, is the most significant issue affecting mobile wireless networks today. Experts also warned the FCC that a spectrum reserve would likely lower auction revenues. The experts were right.

Evidence that Wheeler’s spectrum policies had missed the mark began arriving in 2015, when the AWS-3 auction netted $41.3 billion for 45 MHz of spectrum above 1 GHz (in the 1.7-2.2 GHz range), which equals $2.97 per MHz per person (or MHz-pop). The AWS-3 auction’s total bid amount was more than double the amount of any previous FCC auction. Peter Rysavy concluded in Gigaom that the record bids for relatively high-band spectrum in the AWS-3 auction “obliterated” Wheeler’s notion that spectrum below 1 GHz is “the holy grail.” 

Further evidence that spectrum below 1 GHz is competitively insignificant arrived later that year, when Sprint announced that it would not participate in the 600 MHz auction. According to its CFO, Tarek Robbiati, Sprint’s decision to forgo the auction was not based on a lack of resources; it was based on the fact that spectrum below 1 GHz is “spectrum of the past.” The spectrum of the future is in frequency bands that are much higher than 1 GHz (at 3.5 GHz and up). Because higher frequency spectrum offers far higher capacity, next-generation “5G” networks are expected to use frequencies above 3.5 GHz.

The final results of the 600 MHz auction pounded the last nail in Wheeler’s wireless policy coffin. The 70 MHz of licensed spectrum sold in the 600 MHz auction for $19.8 billion with a MHz-pop price of only 91 cents. Net bids were $5 billion less than the Congressional Budget Office’s expected value of $25 billion, and the $.91 per MHz-pop is less than one-third the MHz-pop price paid in the AWS-3 auction. 

It’s too early to tell how much of the 600 MHz auction’s disappointing revenue amount is attributable to Wheeler’s spectrum reserve, but one thing is already certain: Wheeler’s rationale for adopting the spectrum reserve was wrong. Spectrum below 1 GHz is not necessary to compete effectively in the wireless market and there was never a need for a reserve in the 600 MHz auction. Wheeler’s insistence on imposing a reserve anyway was just another taxpayer swindle.

Fred Campbell (@FredBCampbellJr) is the director of Tech Knowledge and the former head of the Wireless Telecommunications Bureau at the Federal Communications Commission in 2007-08. Fred also served as Wireless Legal Advisor to FCC Chairman Kevin Martin from 2005-06. He received a J.D. with high distinction from the Nebraska College of Law, a B.S. from Excelsior College, and a diploma in Modern Standard Arabic from the Defense Language Institute.

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