No crystal ball required
It’s Nov. 17, and the 800MHz auction rages on in all of its 1-900 hotline fury with players jockeying for position in a final-stretch run. The horses have been out of the gate for three weeks, and this one ain’t gonna be a photo finish. Nextel Communications, McLean, VA, is going to win by about 475 furlongs. If you’re into suspense, try watching paint dry. It’s more eventful.
Prior to the auction, everyone except the FCC was calling this auction “a lock,” “wired” and “a farce.” Only the FCC was promising surprises and steadfastly clung to its belief that the auction would wind up being competitive. The auction isn’t over, but the FCC’s predictions have turned out to be about as accurate as the 1948 headline “Dewey Wins.”
Based on the “exit polls” in this auction, the participants have all but given over at least 80% of the available spectrum to Nextel. Although originally there were about 90 applicants, the number shrank by a third before the bidding even began. Within two weeks of starting the auction, the original number was cut in half. At this stage, only 21 active bidders remain, with Nextel posting high bids on 474 out of 525 markets. If this were a prize fight, the referee would have stopped it. Observers have noted that the only markets Nextel doesn’t seem determined to snatch up are Guam and American Samoa, if any SMR operators want to move West_way West.
If this auction continues the way that it has (and there is no reason to expect any upset), Nextel will be handed a temporary triumph over the FCC’s claim of a competitive auction. The FCC’s obligation to cause the dissemination of licenses among various applicants, including small business, rural telephone companies and other designated entities, will simply not be met. Instead, this auction will demonstrate that every claim made by every opponent of the auction was correct.
That this auction is simply silly is demonstrated by the numbers. Whereas Nextel is the high bidder for spectrum that allegedly will serve more than 720 million pops. (population is counted twice for overlapping areas), the next highest competitor at this time is Southern Company, Atlanta, covering around 9 million pops. So the difference between number one and number two in the auction is about 80 to 1.
Some misguided people have claimed that Nextel is attempting to gain a monopoly within the 800MHz SMR market. Even the U.S. Department of Justice was concerned about overconcentration of the dispatch market, and that was based solely on Nextel’s holdings about three years ago. So what can we say now? Can we fairly state that Nextel’s reward from this auction will result in a more competitive or less competitive environment?
Nextel claims that the auction will result in greater competition, citing its efforts to compete with cellular and PCS carriers. But is this conclusion correct if, by awarding nearly all of the available spectrum to Nextel, the FCC stifles the competitiveness of the remainder of the SMR market?
On one hand, the FCC has claimed that traditional SMR operations are fully competitive with common carriers, such as cellular and PCS, for the purpose of designating those systems as Commercial Mobile Radio Service (CMRS) and for the collection of Universal Service fees. On the other hand, the FCC has claimed that traditional SMR is not competitive with cellular and PCS_and that only by geographic licensing will this competition be realized. One or both of the agency’s claims are incorrect.
As of mid-November, a number of parties have appealed the FCC Orders that created the 800MHz SMR auctions, and these appeals have been consolidated under one case, Fresno Mobile Radio Inc. et al v. FCC. I am proud to say that my firm represents the Fresno appellants. We will zealously bring forth our argument with a reasonable expectation that the U.S. Court of Appeals, with no ax to grind or political agenda to forward, will carefully review the FCC Orders and will find that this auction does not comport with law.
At this writing, we have not received a briefing schedule from the court, but we expect that our brief will probably be due soon after the beginning of th e year. By that time, this auction should be over, with Nextel standing atop a stack of new geographic licenses that towers over its closest competitor. Whether Nextel gets to keep them will be decided by the court.
This time lag brings up a great opportunity for the FCC. We have new commissioners, new bureau staff and a new general counsel. These new public servants are not irretrievably tied to the decisions of the old commissioners. So, how about something truly novel? What if the new commissioners were to look over the results of this auction and see that maybe, just perhaps, it didn’t turn out well? Could they throw it out? The answer is yes.
Should they toss out the auction results? Yes. By simple canceling the results of the auction, the FCC would demonstrate that it has the integrity to admit that it simply miscalculated. It could show that it truly did not intend that nearly all of the licenses would become the property of a single entity. It could show that it does care about designated entities, fundamental fairness and doing what the Communications Act says that it ought to do.
In a perfect world, the FCC would toss out the auction and make moot the appeals of the court. In a perfect world, there would have been no auction in the first place. In a perfect world, I’d be out of a job. But then, it’s a job I’ve never really liked. For all of my glib comments, I’d give up my role of the loyal opposition, just to get an FCC that cares about mom-and-pop shops, that follows its own rules and that manages the radio spectrum. Maybe this new commission will surprise me. Heaven knows, this auction hasn’t.
Schwaninger, MRT’s regulatory consultant, is a partner in the law firm of Brown & Schwaninger, Washington, DC. He is a member of the Radio Club of America.