Newly-installed FCC Chairman Tom Wheeler received his Christmas turkey a little early this year.
The long-anticipated auction for the so-called H Block, a valuable swath of communications spectrum crucial for next-generation mobile broadband services, is scheduled to take place on Jan 22, 2014.
But a funny thing happened on the way to the auction block. None of the four national mobile carriers filed applications to bid. While neither Verizon nor ATT were expected to participate, both Sprint and T-Mobile USA had pushed the FCC to accelerate the H Block auction, and singaled strong interest in bidding aggressively.
Instead, the two companies blindsided the agency by bowing out inexplicably in the weeks leading up to last week’s application deadline.
The FCC announced last week that only one major bidder, satellite maverick DISH Networks, had committed to compete nationally for the 10 MHz. block of radio spectrum. DISH will likely walk away with the H Block simply by bidding the reserve price of $1.56 billion.
Just as FCC Commissioner Jessica Rosenworcel predicted anxiously in September, “We will have a retail sale–not an auction.”
That’s a far cry from the confident predictions of fiercely competitive biding made back when the FCC announced the auction in June–back when Wheeler was waiting to be confirmed. At last week’s annual dinner of the Federal Communications Bar Association, Wheeler tried hard to put a good face on the situation, but was clearly disappointed.
The FCC Plays God–With Predictable Results
The decision to auction the H Block on its own was controversial from the start. In 2012, Congress authorized the auction of a much bigger group of licenses. But the FCC decided to carve out the H Block and put it up for bid ahead of the other frequencies.
In part, the agency was responding to intense lobbying from Sprint and T-Mobile, who have spent much of this year telling the FCC they need special concessions to help beef up their spectrum holdings, following years of lagging capital investment in their respective networks.
Relying on those pleas, the Commission calculated that a quick auction for the H Block would generate a bidding war among the two carriers, along with DISH, which is eager to get into the mobile business.
The FCC ran a considerable risk in that assumption. Analysts believe the H Block could generate considerably higher bids if bundled with the larger group of licenses. But Sprint rejected that analysis, urging the FCC as recently as September to auction the H Block on its own and on terms favorable to Sprint.
The FCC complied, and now finds itself holding the bag.
With major auction design concessions made to both Sprint and DISH, one commentator noted that “Given all of these factors, it’s hard not to see this auction as having been designed largely to accommodate the needs and desires of Sprint and DISH with very little regard to the needs or desires of anyone else.”
Sprint’s about-face is hard to explain. According to an article in The Kansas City Star, Sprint CFO Joe Euteneuer surprised financial analysts in announcing that the company was walking away from the auction just a few weeks before bidder applications were due. Euteneuer “said the company took issue with the rules governing the auction,” according to the article, “but didn’t specify any complaints.” (Sprint did not respond to a request for comment for this article.)
That’s a very different tune than the company was humming in June, when the auction was scheduled. In a statement at the time, Sprint gushed, thanking the FCC “for working quickly to unanimously adopt licensing, technical and service rules for the eventual auction of the H Block spectrum band later this year,” the statement said.
Sprint specifically noted that it “appreciates the Commission adopting balanced rules to protect neighboring licensees from interference while assuring H Block licensees the flexibility necessary to provide wireless broadband services.”
What’s going on here? The real explanation for Sprint’s caprice could lie in the quickly-changing dynamics in the mobile ecosystem, or simply be a function of auction gamesmanship.
But in the end, the design of the H Block auction became a complicated mess of special conditions, compromises, and deals between the FCC and favored bidders, all but one of whom proved to be no-shows. Unlike the disappearance of Sprint and T-Mobile, the absence of other major bidders is no surprise.
“Trying to outsmart the market is neither a sound investment strategy, nor a good approach to public policy, says Jonathan Spalter, chairman of the wireless trade group Mobile Future. “The H Block auction announcement reminds us just how easy it is to end up on the wrong side of the bet.”