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Critic: Open Bids Stymie Newcomers

Public-interest law firm Media Access Project says that incumbent broadband carriers, including large U.S. cable and phone companies, successfully blocked potential key new competitors — including direct-broadcast satellite companies — from winning wireless broadband-spectrum auctions last year.

The solution for future auctions is to use anonymous, rather than open, bidding to help keep big telecom companies from scaring away newcomers, the telecommunications-oriented non-profit law firm said.

Through “retaliatory” bids aimed at scaring off bidders considered significant new threats, cable and telephone companies kept targeted newcomers from winning licenses in the advanced wireless services (AWS-1) auction last August and September, according to studies prepared by economist Gregory A. Rose for MAP.

MAP said that the targeted new entrants included Wireless DBS, a notable bidding group, because it combined both satellite powers, EchoStar Communications and DirecTV.

“Wireless DBS LLC was sufficiently blocked that it effectively withdrew from the auction after the 11th round,” one of the studies said.

Also, a group backed by Cablevision Systems chairman Charles Dolan's family, intent on amassing spectrum in the Northeast, withdrew after round 20.

By contrast, SpectrumCo — backed by Comcast, Time Warner Cable, Cox Communications, Advance/Newhouse Communications and Sprint Nextel — won about 61% of the licenses on which it bid, according to MAP. SpectrumCo said last October that it won 137 licenses in the auction, at a cost of $1.37 billion.

MAP's report said other incumbents “notable” for making successful blocking bids were T-Mobile License and Cingular AWS, backed by big mobile providers.

MAP added that Verizon Communications “chose less frequently to engage in blocking new-entrant acquisition of national footprint,” yet it won about 62% of the licenses it bid on.

Targeted new entrants were defined as bidders that went after 10 or more licenses and were challenged by two or more incumbents at a rate that was statistically higher, by a certain amount, than the mean rate at which each incumbent challenged all bidders.

MAP wants anonymous bidding to be used in future government spectrum auctions to encourage more newcomers that wouldn't be intimidated by bidding against large incumbents willing to spend a lot to deter a potential new rival.

The Federal Communications Commission in the AWS-1 auction used a hybrid formula that enabled open bidding — favored by telecommunications incumbents — if the number of qualified bidders indicated there would be at least three per license, MAP said.

As it turned out, there were just enough qualified bidders before the auction — a ratio of 3.05 per license — but four of them never placed a bid and seven bid only once.

Companies that obtained licenses after the AWS auction have 15 years (the term of the initial license) in order to have established substantial service in their territories, according to FCC rules.

Rules governing the next big spectrum auction — for the so-called 700 MHz band that will be freed up after TV stations convert to digital transmission in 2009 — are still being created by the FCC, and the issue of open or anonymous bidding has not been acted on yet, an agency spokesman said.

The 700 MHz auction is expected to raise at least $10 billion from the sale of highly desirable frequencies currently used for analog television broadcasts. The auction has to start no later than Jan. 28, 2008.

“No half-measure or compromise can hope to address the blocking and signaling problems,” Rose said in a Media Access Project release about the studies. “The 700 MHz Auction is the last chance for the FCC to bring wireless broadband competition to all Americans.”