AT&T last week responded negatively to C-Band Alliance’s auction plan for spectrum in the 3.7-4.2 GHz band, contending the proposed format is untested, excessively complex, and serves only to maximize profits for CBA’s four satellite operators.
The CBA met with Federal Communications Commission staff in June to detail its proposed C-band spectrum auction plan, dubbed FUEL (Flexible Use and Efficient Licensing), which would offer nine blocks of 20 MHz across 406 Partial Economic Areas (PEAs).
In a letter (PDF) to the FCC, AT&T acknowledged it’s pleased CBA moved toward a more transparent auction approach for reallocating the key mid-band spectrum needed for 5G, but found many flaws in the auction design.
“It is disappointing, however, that rather than simply offering to conduct a straight forward, tried-and-true uniform price clock auction, they have contrived an unproven, fiendishly complex yet structurally incomplete, second-price single-round sealed bid process,” said AT&T in the filing.
AT&T urged the FCC not to depart from the uniform-price clock auction format, which was successfully used in both of the agency’s recent 28 GHz and 24 GHz millimeter wave spectrum auctions, regardless of whether the C-Band spectrum is sold in a private or public sale.
“CBA has not advanced any compelling argument why its proposal to conduct an auction of C-band spectrum should deviate from established norms,” said AT&T.
Unlike the clock auction design, AT&T said CBA’s proposal doesn’t provide for any price discovery because bidders have only one chance to submit a bid.
In the FCC’s clock format, generic licenses are offered at a uniform price and participants bid the amount of blocks they would be willing to buy at that price. As the so-called “clock price” increases, bidders gradually lower their demand and the auction concludes when bidder demand decreases to or below the available supply.
“Not only does this format provide price discovery that is valuable to avoid massive pricing disparities between licenses and overbidding, the format provides flexibility for bidders to expand into areas where demand is below their initial expectations, or retreat from areas where demand exceeds their initial expectations,” AT&T wrote.
Throughout its response, AT&T worked to poke holes in CBA’s own claims that the alliance’s auction format would provide speed advantages, increase efficiency and provide flexibility to enable participation by a variety of entities.
When it comes to speed, CBA said its auction design would allow the alliance to announce winning bidders within two to four weeks and reduce bid preparation time. AT&T argued that in addition to having to educate participants on the system, CBA ignores the “very, very substantial burden” placed on bidders to prepare for the auction.
AT&T said that in the proposed combinatorial auction, bidders would have to map out all possible variations, such as the marginal cost of adding or subtracting blocks in each individual market.
“This calculus could change even for a specific PEA if, for example, the party is looking at adding a fourth license versus adding a second license,” wrote AT&T. “For a range of one to four blocks, this exercise amounts to 1,664 individual valuations.”
In this hypothetical, AT&T believes it would take months to prepare a bid submission and that errors could easily be introduced.
In addition, in the second-price sealed bid approach, winners don’t pay what they actually bid but the amount of the second-highest bid, which AT&T argued could lead to strategic behavior of bidders trying to ensure their competitors don’t “walk away with spectrum at rock bottom prices.”
The carrier noted the CBA plan provides no transparency into the process of determining winning bids, a factor AT&T called critical as bidders construct a strategy.
“CBA would determine via an algorithm designed and controlled by them which of the disparate bids is in fact the winning bid for each market and license,” wrote AT&T. “This key component of any auction structure remains completely opaque.
“Left unstated is perhaps the true aim of the proposal—creating an environment encouraging strategic and uneconomic overbidding, thereby maximizing the revenues of CBA’s membership,” the carrier added.
While there has been much debate around various aspects of repurposing C-band spectrum, other commenters, including T-Mobile (PDF), aligned on the view that CBA’s auction design is untested, confusing, and would primarily benefit the alliance’s four foreign satellite operator members - Intelsat, SES, Eutelsat, and Telestat.
In early July more than 20 entities, including New America’s Open Technology Institute, the American Library Association, the Dynamic Spectrum Alliance, and the Public Interest Spectrum Coalition, penned a letter to Congressional leaders urging them to prevent a private auction sale of C-Band spectrum, instead opting for a public FCC auction.
FCC Chairman Ajit Pai indicated earlier this month that the commission expects to take action on the complex C-band front in the coming months, telling an audience at a 5G workshop in Argentina that he’s optimistic the agency will have “results to show on this front this fall.”