If Spectrum Prices Are Falling, Blame The Government

The FCC’s Advanced Wireless Services spectrum auction begins next week, and it’s attracting a lot of attention as it’s the first major spectrum auction that’s happened in some time. It’s also prime real estate for wireless broadband services, which is generating interest from a wide range of companies far beyond established wireless operators. But despite the high interest levels and predictions that the auction would raise as much as $15 billion for the government, analysts from one investment bank say that the price of spectrum is dropping on a per-population covered basis, estimating the auction will only generate $7 billion to $10 billion total. It’s not hard to see why the prices people are willing to pay could drop, given the massive writedowns foreign operators took on their 3G licenses, as well as their ongoing trouble to generate revenues from them.

However, it’s worth wondering if the FCC’s way of handling licenses doesn’t also hold things back — not just the amount it takes in from the auction, but the state of the US wireless landscape. The FCC breaks the licenses up into cellular market areas — meaning they cover only a particular city or area — rather than selling regional or national licenses. While such an approach does allow for small, locally or regionally focused companies to grab spectrum, it also forces companies looking to create nationwide networks to bid in hundreds of individual auctions, rather than competing for a single nationwide license. Such licenses could offer a lot of benefits, like using coverage requirements to stipulate broader buildouts, and they could also swell the government’s coffers a bit more. The situation now has operators bidding on individual licenses that aren’t typically worth much except as a part of a greater whole, attaching a significant amount of risk to each one. If operators could mollify that risk by knowing before an auction starts that if they win, they’ll come out with everything, it could loosen their pursestrings. Of course, the entire idea of spectrum allocation and how it’s handled in the US are due for a rethink, not just how the FCC carves the country into licenses. Update: As pointed out in the comments, the FCC is taking something of a hybrid approach with the AWS auction, selling a set of licenses split up into 734 market areas, then two sets split into 176 economic areas, then three sets split into six regional areas. Still, the point remains that the complex and often inefficient methods of spectrum allocation the FCC uses could use some re-examination.

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Comments on “If Spectrum Prices Are Falling, Blame The Government”

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Peter says:

But why auction?

Surely there are many concerns and interested parties such that a more intelligent way of allocating and using spectrum could be found?

Why should’t a Mom & Pop have concurrent real time access to bandwidth over spectrum and that to be shared with a national operator.

That way it really is down to the value of the service offered.

lego says:

RSA, MSA, EAG, & REAG - 90 Mhz, something for ever

There are 168 bidders going after 90 Mhz. The Top 10 upfront payments total over 3.9 billion! If one of these bidders wants 10, 20, or even 30 Mhz in a large area they will buy it. You are right, the FCC did create small markets but they also are selling very large regional areas – check your facts. See Maps for Auction 66 on fcc.gov. With the number of deep pocket players, I won’t be shocked if the government brings in double the estimate of 15B.

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