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Spectrum Auctions at the FCC: A Lesson for Utilities?

Fortnightly Magazine - October 15 1997

gain rights to all available spectrum in the block they have purchased in their geographic area. The auction winners generally have a great deal of flexibility in using the spectrum. This is an advantage over the old regulatory approach.

Now, new technologies using radio spectrum bought through auction, such as Internet services, home security services, meter-reading technologies, automatic highway toll booths and new data services, can go to market more quickly.

Winners (em Patched Right Through. Besides gaining the rights to available spectrum, one of the greatest benefits of winning geographic-area auctions is that it provides the auction winner great flexibility in deciding when, where, what and how to build. Whereas non-auction authorizations generally require construction at a specific site by a specific time, construction for auction winners is generally much more flexible.

Auction winners are generally required to provide coverage to a certain percentage of the population within a few years of being granted their licenses. But they get to decide when and where to build their systems, and often, what kind of services to provide. Because they are not required to construct their systems right away, auction winners have the flexibility to develop their systems in response to the evolving demands and offerings of the marketplace. In some cases, this may mean not constructing for a couple of years as technology develops new uses for spectrum. The FCC invested in the success of auction winners, and therefore is receptive to their proposals.

Prior Licensees (em Put on Hold? For incumbent FCC licensees who don't participate in auctions, there are two compelling questions. First, what do you do with the spectrum you have? Second, what do you do if you need more?

Overall, incumbents who acquired their licenses by a process other than at auction may discover that they have less regulatory flexibility than auction winners. It is as if the FCC is telling incumbents: "We are currently unable to take your call."

By contrast, in some cases, auctions winners have a reversionary interest in any spectrum that incumbents currently may be using. Consequently, and frequently with FCC support, auction winners assume a policing role over non-auction winning licensees, ensuring that they have constructed their stations as authorized and that they are operating within FCC regulations. Because they have an economic interest and often greater resources than the FCC, auction winners are likely to actively clean up the spectrum, updating FCC records, and policing compliance among licensees within their geographic area.

Prospects: All Over the Spectrum

By delivering spectrum to those who value it most, and giving auction winners flexibility to determine how best to maximize the value of this asset, the auctions, with all their flaws, represent an endorsement of the free market. Many believe that the results for consumers and smart investors will far overshadow the $23 billion admission fee.

For the first time, communications companies are more in control of their own destinies. They face continuing pressure to use their spectrum more efficiently (em both to maximize its utility and to stay ahead of the competition. They are