No favors needed at spectrum auction

Steve Pociask President, American Consumer Institute
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“T-Mobile’s innovative moves are putting pressure on our competitors.” That is what the company said in its testimony before Congress. However, a closer look at the testimony suggests that T-Mobile wants that competitive pressure to come from regulatory favors, not by winning in the marketplace.

In her testimony regarding the upcoming FCC wireless broadband spectrum auctions, T-Mobile’s vice president for regulatory affairs said that the company “believes the incentive auction should be designed to maximize the amount of spectrum” and that this would provide “significant revenues” to the U.S. Treasury. On the surface, that sounds good.

However, her plan to accomplish that requires that the auctions conveniently exclude T-Mobile’s largest competitors. Now, is that promoting competition or protecting against it?

The company’s testimony asks the FCC to pick winners and losers without regard for fairness or free market forces by essentially limiting who can bid for spectrum. Rather than a fully competitive auction that gives every qualified bidder a chance to compete equally for additional spectrum, the plea for government help does little to serve consumers who benefit from competition.

Indeed, with fewer bidders in the market, the T-Mobile request would set aside spectrum below the full market price. That’s what is called a subsidy – and taxpayers are the ones who would foot the bill, and consumers the ones who would pay more from the misallocation of scarce spectrum.

Calling on the government for help instead of relying on fair competition is just a bad deal for consumers and taxpayers.

As Representative Marsha Blackburn noted at the hearing, it also takes a lot of chutzpah to ask for favors when T-Mobile’s TV ads boast that it has the fastest and least congested network in the industry, presumably because they have plenty of spectrum to deliver video streaming and other data-intensive applications and services. Such ads undermine their claim that, as an underdog, the company needs extra help in the spectrum auction.

The T-Mobile plea is cheekier still when one considers that T-Mobile did not even participate during the last FCC wireless broadband spectrum auction. During the 2008 auction when T-Mobile skipped the auction, 101 bidders competed for spectrum; ninety-nine of those were smaller local and regional competitors who successfully acquired spectrum without set asides or rigged rules.

That is how competition works in open auctions.

That prior spectrum auction resulted in these wireless providers investing billions to acquire the spectrum that is now delivering the 4G services that consumers want. Today, as more consumers embrace smartphones, tablets and other mobile devices, every wireless company needs more spectrum to meet the explosive demand for wireless services.

And that is why the highest bidder should win. Period.

To its credit, T-Mobile is working hard to make up for past neglect, merging with MetroPCS to acquire its significant spectrum holdings and also buying spectrum in the secondary market when other license holders make it available. In fact, by some measures, T-Mobile is less spectrum-constrained than its two largest rivals – AT&T and Verizon – which is one more reason it doesn’t need government favoritism to exclude these rivals.

Next year’s spectrum auction presents an opportunity for T-Mobile and every other wireless provider to competitively bid in an open and free market-based auction.  History and evidence shows that unrestricted auctions work best to attain real market prices and deliver spectrum to the company that will put it to the most efficient use.

T-Mobile has the resources to make winning bids in a fully competitive auction.  It just has to lay down the chips and bid.

The fact is that having open auctions will achieve the highest bidding, which will maximize spectrum availability and maximize revenues for the US Treasury, as well as help fund a first responder broadband network.  Limiting the number of bidders will do the exact opposite.

This time, T-Mobile deserves an “A” for audacity and an “F” in favoritism.

Steve Pociask is president of the American Consumer Institute, an educational and research nonprofit.