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Spectrum Auctions at the FCC: A Lesson for Utilities?
When the fanfare dies down, winners face the same challenge as with any new start-up but may enjoy more options than incumbent licensees.
The Federal Communications Commission's auctions of spectrum should concern two types of energy utilities: those who participate in the auctions and those who don't.
Initially, these auctions were viewed as a spectacular new regulatory tool (em able to raise billions of dollars for the public, without troubling the overburdened taxpayer. As of late, however, a dark side has emerged. Bidders have cried fraud. Companies unable to pay up on overly aggressive bids have left the FCC holding the bag. The irrational exuberance that greeted the initial spectrum auctions appears to have rightly faded.
Before it was granted auction authority, the FCC had often used lotteries to award licenses when applicants filed more than one application to serve the same area. Applicants with the good fortune to win licenses, most notably in cellular telephone lotteries, often became millionaires. Licensees selected at lottery often had no intention of operating a communication service. News of the fortunes to be made in FCC licensing soon reached the scam artists, who charged exorbitant fees to process applications. Fraud had become a huge problem. Congress favored auctions as a way to generate funds and alleviate administrative burdens at the FCC that had delayed the process and denied new services to the public.
Overall, auctions should spur investments in new radio-based technologies and create growth markets for all kinds of new services. For energy utilities, spectrum capacity could fuel services like real-time pricing and meter reading, as well as wireless communications. Auctions hold the key. Utilities that have spectrum (as most do), or need spectrum (as most do), or invest in spectrum (as many have done) should pay close attention as the drama unfolds.
In fact, spectrum auctions may offer bargains. So may the resale market. Nevertheless, even the most sophisticated utilities could fall prey to a bidding frenzy that drives prices into the stratosphere. Those who choose not to bid should prepare for the new environment (em one with little or no chance to obtain additional spectrum at zero cost.
What the FCC Learned: A Market Glut?
To help carry out the new idea, the FCC has relied heavily on geographic area licensing. Applicants buy rights to a segment of spectrum in a particular area. Further, the FCC has divided the country into different-sized markets. Some auctions have been for spectrum in the 51 large, "major trading areas," or for the 493 smaller "basic trading areas." %n1%n
Having completed a number of auctions, the FCC points to many public benefits from the new system: 1) Rapid delivery of spectrum to firms that value it most, 2) faster licensing and 3) less incentive for speculative filings, reducing paperwork. When the FCC was conducting lotteries for cellular licenses, for example, it received more than 400,000 applications. %n2%n The FCC also notes that auctions have made it easier to the aggregate spectrum, allowing more uses for the spectrum and enhancing competition.
Nevertheless, while the FCC can point to