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Study: Limiting Incentive Auction Bidders Is Risky Business

Look for Verizon to file a study With the FCC Sept. 18 from Duke Economics Professor and former FCC Chief Economist Leslie Marx that concludes it would be risky--as in risking auction failure--for the FCC to impose bidding restrictions in the broadcasting incentive auction. Verizon commissioned the study.

Among the key takeaways, according to a copy of the study, are that if Verizon and AT&T had been excluded from past auctions, the revenue would have been 45% lower from the 2008 700 Mhz auction and 16% lower in the 2006 AWS auction.

Marx also concludes that the risks of bidding restrictions are even greater for the FCC's two-sided broadcasting incentive auction, limiting both the maximum revenue and the amount of repurposed spectrum.

The FCC has indicated it would not exclude any bidders, but it is also considering modifications of its local market spectrum screen that could limit how much spectrum Verizon and A&T could bid for.

"Dr. Marx demonstrates the lack of empirical evidence to support claims that some carriers are at risk of foreclosure from access to spectrum unless the Commission restricts Verizon’s and AT&T’s participation in the upcoming Incentive Auction," Verizon says in submitting the study in the FCC's incentive auction docket.

Marx says that there is evidence in the record--unlimited usage plans, for example--that neither Sprint nor T-Mobile face "capacity constraints" that would prevent it from competing effectively if there were not bidding restrictions on the largest players.

She also finds that even if Verizon or AT&T did try to foreclose the competition, it would prove costly and difficult. "[I]n the absence of evidence that anticompetitive foreclosure is likely (which has not been presented by any party)," Marx concludes, "the FCC should avoid imposing restrictions on participation in the Incentive Auction.

And if the FCC nevertheless believes that evidence of a foreclosure risk does exist, it can be addressed through other policies, such as build-out requirements, that do not present the same risk of auction failure."

FCC acting chairwoman Mignon Clyburn has pledged to try and vote on the auction rules and broadcaster repacking regime by the end of the year.

"[N]ot only does the study make clear that arguments for bidding restrictions fail to address any real world problems (other than their proponents' desire to acquire spectrum at a discount)," says Verizon. "It lays to rest the counter-intuitive notion that the Commission could restrict participation by the two largest wireless carriers without adversely and materially affecting auction revenues."