Study: Barring AT&T, Verizon from auction would choke wireless broadband adoption

Reduced auction revenues, a funding shortfall for FirstNet, an increased spectrum deficit and higher consumer wireless bills would be some of the ramifications of placing bidding restrictions on AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ) in upcoming 600 MHz spectrum auction, according to new research.

If the FCC restricts, but does not ban, bidding by the larger carriers, the impacts would be proportionate to the extent of the restrictions, said the study written by economists Robert Shapiro, Douglas Holtz-Eakin and Coleman Bazelon and released by the Center for Business and Public Policy at Georgetown University's McDonough School of Business.

In a filing last month, the Department of Justice asked the FCC to develop auction rules designed to promote competition and that would ensure that Verizon and AT&T do not shut out smaller carriers in the bidding, prompting AT&T to accuse the DOJ of attempting to rig the auction in favor of Sprint Nextel (NYSE:S) and T-Mobile US (NYSE:TMUS).

The Georgetown study estimates auction revenues would be about 40 percent less--$19 billion rather than $31 billion--if AT&T and Verizon are prevented from bidding. "This in turn would likely reduce the amount of spectrum acquired from broadcasters and made available for wireless broadband services," said the economists.

The lower revenue would, in turn, result in a funding shortfall to support the build out of the interoperable LTE-based nationwide public safety broadband network (NPSBN), which is being designed by the First Responder Network Authority (FirstNet).

"With the estimated $7 billion needed from the auction to deploy the public safety network, coupled with the estimated $2 billion needed for re-packing costs, just $10 billion of the potential $19 billion in auction proceeds would remain for purchasing the broadcasters' spectrum. That likely would not be sufficient to secure the full amount made available by the broadcasters," said the study.

"The first and foremost impact of a significant reduction in forward auction revenues would be the diminished amount of spectrum reallocated from television to wireless broadband uses," said Holtz-Eakin and Bazelon

Shapiro said restricting the largest, and hence most efficient, carriers from gaining more spectrum at auction would increase the industry's "effective spectrum deficit" by as much as 46 MHz." He contends this would ultimately generate additional costs for operators, leading to an increase in consumer wireless bills of about 9 percent a month and a slowdown in the adoption of 4G wireless broadband by some 7 million subscribers by 2017.

Robert Hahn and Peter Passell, economists specializing in regulation, issued a report in March that also suggested restricting leading incumbent operators from accessing additional spectrum would result in slower innovation rather than more competition. Hahn holds several positions, including senior fellow at the Georgetown Center for Business and Public Policy, while Passell is a senior fellow at the Milken Institute.

For more:
- see this Georgetown University release

Related articles:
AT&T accuses DOJ of favoring T-Mobile, Sprint for 600 MHz auction
AT&T, Verizon may face restrictions in 600 MHz auction
Report: AT&T, Verizon 'putting spectrum to use as fast as they can'
FCC intends to auction two spectrum bands in late 2014
Broadcasters form coalition to support FCC's incentive spectrum auctions
FCC's Genachowski: We're on track to free up 300 MHz of spectrum by 2015
FCC gives details for 2014 auction of broadcast spectrum for mobile broadband

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