United States: Local And Regional Licensing For The US 600 MHz Band (Incentive Auction)

Last Updated: January 16 2014

Article by Richard Marsden, Chantale LaCasse and Jonathan Pike

Report Qualifications/Assumptions & Limiting Conditions

NERA Economic Consulting was commissioned by NTCA – The Rural Association (NTCA)1 and the Rural Wireless Association, Inc. (RWA)2 to explore the arguments for and against using smaller geographic area licenses for the Forward Auction of the 600 MHz Broadcast Incentive Auction (Incentive Auction), and any changes to the auction rules that could facilitate using smaller license areas. The primary audience for this report includes the FCC and other parties interested in the design of the 600 MHz Incentive Auction.

NERA Economic Consulting shall not have any liability to any third party in respect of this report or any actions taken or decisions made as a consequence of the results, advice or recommendations set forth herein.

The opinions expressed herein are valid only for the purpose stated herein and as of the date hereof. Information furnished by others, upon which all or portions of this report are based, is believed to be reliable but has not been verified. No warranty is given as to the accuracy of such information. Public information and industry and statistical data are from sources NERA Economic Consulting deems to be reliable; however, NERA Economic Consulting makes no representation as to the accuracy or completeness of such information and has accepted the information without further verification. No responsibility is taken for changes in market conditions or laws or regulations and no obligation is assumed to revise this report to reflect changes, events or conditions, which occur subsequent to the date hereof.

Executive Summary

The Federal Communications Commission (FCC) recently published detailed proposals for the design of the so-called Incentive Auction, which, if successful, will reallocate 600 MHz spectrum away from broadcasters, and create a new band suitable for the provision of mobile wireless services. A key component of the Incentive Auction is the Forward Auction, in which spectrum will be awarded to wireless operators. The FCC has proposed licensing this spectrum using Economic Areas (EAs) that divide the United States into 176 regions.

This paper explores the arguments for and against using smaller geographic license areas, such as Cellular Market Areas (CMAs), instead of EAs. We conclude that there is a compelling case for defining smaller areas that are more tailored to the demands of potential bidders. We also propose that the Forward Auction be conducted in two sequential bidding phases, consisting of one phase for urban areas primarily based on the EA licensing structure, followed by a second phase of bidding for rural areas, primarily based on the RSA3 licensing structure. We call this the Sequential Forward Auctions approach. It is designed specifically to address concerns about aggregation risk and implementation complexity associated with expanding the number of license areas in the Forward Auction.

The general concept underpinning the definition of a geographic area for a spectrum auction is that it should cover a population that provides a coherent economic market for deploying and offering mobile wireless services. The FCC's proposal to use EAs in the Forward Auction is strongly opposed by local operators and their representatives, who argue that EAs are too large and would create an insurmountable obstacle to them participating in the auction. There appear to be many examples of small local operators whose current footprints are a reasonable fit with CMAs but a poor fit with EAs.

Licensing spectrum using smaller license areas is associated with a number of potential benefits. It may maximize the role of the market in determining allocation, as it is more likely that all types of demand will be represented and tested in the auction. It may also best fulfill the FCC's statutory obligations to promote economic opportunity for small businesses and rural carriers, and deployment of services to rural areas, including its mandate under Section 309(j) of the Communications Act. Finally, it supports maximum granularity in determining the availability of spectrum reclaimed from broadcasters. However, there are also benefits associated with having fewer, larger licenses. This may mitigate aggregation risk for national and large regional bidders, thus giving them greater security to express the full value of their demand. Having fewer licenses may also facilitate auction implementation by reducing complexity for the auctioneer and for some bidders.

Local operators and their representatives generally prefer licensing at the CMA level, but this would mean an increase in the number of license areas from 176 to 734. Large operators oppose this change, primarily on the basis that it will expose bidders to aggregation risk. Most of the additional licenses would be rural, so we doubt this shift would greatly affect the exposure of a national bidder to failing to win a critical mass of population coverage. However, it may increase their exposure to winning an unwanted subset of their demand.

We have not identified any reason why the ascending clock auction design proposed for the Forward Auction could not be adapted to cope with many more license areas than the 176 areas that would be auctioned using EAs. It could probably be made to work for an auction of all 734 CMAs. Given the importance that the FCC and Congress attach to the Incentive Auction being a success, it is perhaps not surprising that the FCC's preliminary preference may have been to license the spectrum on the basis of larger lots. But while there are implementation risks that increase with an expansion in the number of geographic areas, for example with respect to bid submission, none of these implementation risks appear insurmountable.

Ultimately the FCC will have to decide on the approach that it believes maximizes broader benefits, even if this is to the detriment of some stakeholders. This raises two obvious questions which we explore in this paper: firstly, is there a way to constrain the increase in the number of licenses while still meeting the needs of smaller operators; and secondly, are there changes in the design of the Forward Auction that the FCC could make, so as to accommodate the interests of a broader range of stakeholders? We believe the answer to both questions is yes.

With respect to the number of licenses, we propose that the FCC explore further the proposal, currently under consultation, to "right-size" licenses using Partial Economic Areas (PEAs).4 Some form of PEAs, based on a mixture of EA and CMA boundaries, could provide a framework for the FCC to restructure the available licenses so they are more consistent with operator needs within the framework of existing geographic tier boundaries. The specific proposal for PEA boundaries submitted by CCA5 is just one of many possible approaches the FCC could take to defining this new tier level. However, CCA's proposal would likely work for some smaller operators but not for all of them. As a starting point for a more systematic analysis of optimal boundaries, we propose that urban areas (represented by Metropolitan Statistical Area (MSA) licenses) should generally be awarded on an EA basis, but that rural areas (represented by RSA licenses) should be sold separately.

With respect to auction design, there are a number of approaches commonly used to accommodate bidders with disparate demands. For example, in past auctions, the FCC has made spectrum blocks available at different geographic tier levels, and used activity rules, such as staged activity requirements and withdrawals, to manage aggregation risk. We disregard these specific measures as they are not obviously compatible with the proposed clock auction design. Another approach, supported by some national bidders, is package bidding, which could be used in a clock auction context. However, package bidding is controversial, owing to implementation complexity and strong opposition from small bidders, who fear they will be unable to compete against large package bids submitted by national bidders.

We focus on sequencing the award of available lots. Our specific proposal is for a two-phase Forward Auction. In the First Phase Forward Auction, licenses covering urban areas accounting for over 90% of the total value will be sold. The results of this auction will determine the supply scenario, based on linkages to the broadcaster Reverse Auction. In the Second Phase Forward Auction, rural areas will be sold. For the avoidance of doubt, we propose that both auctions remain part of the broader Incentive Auction, and that bidders would have the opportunity to make a single application to participate in both phases. The assignment round could take place as planned after completion of the two bidding phases.

We believe that this approach addresses concerns about participation of small bidders and the role of the market in determining allocation. By right-sizing licenses based on operator demands and sequencing the sale of rural licenses after urban ones, it should reduce aggregation risk. Sequencing the Forward Auction also facilitates an expansion in the number of licenses without increasing implementation risk. The First Phase Forward Auction has a similar structure to the single Forward Auction with EA licensing, so it should be relatively straightforward to implement. As the First Phase Forward Auction should account for more than 90% of total revenues, it is also the most material to the financial success of the broader Incentive Auction. The implementation complexity of dealing with larger numbers of licenses is limited to the Second Phase Forward Auction, which can take place after the supply scenario has been finalized.

To read the full text and footnotes of this article please click here.

Footnotes

1 NTCA – The Rural Broadband Association represents nearly 900 rural rate-of-return regulated telecommunications providers. All of NTCA's members are full service local exchange carriers and broadband providers, and many provide wireless, video, satellite, and/or long distance services as well.

2 The Rural Wireless Association, Inc., formerly known as the Rural Telecommunications Group, Inc., is a 501(c)(6) trade association dedicated to promoting wireless opportunities for rural wireless companies who serve rural consumers and those consumers traveling to rural America. RWA's members are small businesses serving or seeking to serve secondary, tertiary, and rural markets. RWA's members are comprised of both independent wireless carriers and wireless carriers that are affiliated with rural telephone companies. Each of RWA's member companies serves fewer than 100,000 subscribers.

3 CMAs consist of Metropolitan Statistical Areas (MSAs), which are focused on urban areas, and Rural Service Areas (RSAs) which cover the rest of the country.

4 Wireless Telecommunications Bureau Seeks Comment on a Proposal to License the 600 MHz Band Using "Partial Economic Areas", GN Docket No. 12-268, GN Docket No. 13-185, Public Notice, DA 13-2351 (Dec. 11, 2013) ("PEA PN").

5 Ex Parte Presentation from Competitive Carriers Association to Marlene Dortch, GN Docket No. 12-268 (Nov. 27, 2013) ("CCA Ex Parte"); see also Ex Parte Letter from Competitive Carriers Association to Marlene Dortch, GN Docket No. 12- 268 (Dec. 23, 2013) ("CCA Ex Parte 2").

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.