With a five-year gap since the last major spectrum auction, the Federal Communications Commission recently announced the first of the 2014 spectrum auctions, taking place in January 2014. The resurgence of spectrum auctions is a result of Congress' approval of the Middle Class Tax Relief and Job Creation Act in 2012, requiring the FCC to auction and license 65 MHz of spectrum by 2015. These upcoming auctions will allow for current government-owned and TV broadcaster-owned spectrum licensees to be sold to the bidder who will put them to a more efficient use.
The appointment of new FCC Chairman Tom Wheeler comes at a time when many in the telecommunications industry are waiting for the FCC to make key decisions with regards to the spectrum auctions. The most recent wave of planned auctions has not been without controversy, especially with regard to the incentive auction, a complex two-sided auction to repurpose TV broadcast spectrum for wireless use. Demonstrating concern about the two largest players in the wireless broadband space gobbling up the auctioned spectrum, competitors, Sprint and T-Mobile, have lobbied the FCC to restrict AT&T and Verizon's ability to participate in the incentive auction by placing limits on how much spectrum they could acquire. T-Mobile's proposed rule, the Dynamic Market Rule, would deviate from the common understanding of how an auction would operate. While the premise for this lobbying effort is that there is a need for spectrum for Sprint and T-Mobile to effectively deliver service, these carriers leverage their value in the market as having strong networks and the spectrum to back up those claims.
Auction winners and losers are not just those who walk away with their desired amount of spectrum or don't: application developers and the public safety community are just two examples of those who stand to be affected. Spectrum not only involves the carriers that would be directly involved in the auction, but the application developers who are dependent on these carriers to deliver their applications. With the proliferation of applications in healthcare, education, and other areas ripe for innovation, capacity stands to be an issue for the widely used carriers.
Another intended, but perhaps unknown, auction beneficiary is the public safety community. The legislation that granted the FCC the authority to conduct spectrum auctions also included a provision for the creation of FirstNet, a nationwide wireless broadband network dedicated to public safety. This network was called for by the 9/11 Commission, and more than a decade later, it's within reach. With $7 billion of the auction revenue to go towards the deployment of FirstNet, the prospect of an auction that falls short on revenue threatens the future of this network.
Revenue could fall short if restrictions are put on participation as spectrum would not necessarily go to the bidder who wants it most. According to a new paper from Fred Campbell, former Chief of the FCC's Wireless Telecommunications Bureau, restricting the participation of large companies in previous auctions would have reduced revenues between 31 and 61 percent. In addition, a paper released by the Georgetown Center for Business and Public Policy found that barring the participation of the top two carriers could reduce revenues by 40 percent, threatening FirstNet.
While major carriers have made their arguments and everyone from economists to industry analysts have weighed in on how the auctions should be conducted and who should be able to participate, the next move on spectrum lies with Wheeler's FCC. Its decision on how to handle the spectrum auction may be indicative as to how the FCC will approach other issues during Wheeler's tenure.