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The $10 Billion Poker Game Begins
Hugh Pickens writes "Monday was the deadline for potential bidders to file with the Federal Communications Commission over the auction of the 700-megahertz band, a useful swath of the electromagnetic spectrum that is being freed up by the move to digital television. Once bidders file they become subject to strict 'anticollusion' rules that in effect prohibit participants from discussing any aspect of their bidding until the auction is over. The next official word will be late December or mid-January, when the FCC announces who has been approved to bid. The auction will start on January 24. Participants will use an Internet system to enter bids on any of 1,099 separate licenses that are being offered (pdf). Most coveted seems to be the C block, 12 regional licenses that can be combined to create a national wireless network. This is the spectrum Google is presumed to be most interested in. The bidding will be conducted in a series of rounds (pdf)."
Once bidders file they become subject to strict 'anticollusion' rules that in effect prohibit participants from discussing any aspect of their bidding until the auction is over.
It's very hard to prove that you did not collude with someone. If AT&T wins, and a year later it turns out they had a secret deal with Verizon, what happens? Will the license be revoked? Or will AT&T successfully argue about the need to "put the past behind us"?
Apology to Ubuntu forum.
I'm betting google will come out with everything it intended to.
- Aetheral Research -
This whole "bidding" process on the spectrum doesn't create compeition, it makes the government money. If it were truly competitive there would be no fee for spectrum use. Instead we are left with a new spectrum with someone spending billions of dollars to "own" it.
Lame.
I'm also skeptical that this can become a useful resouce in a reasonable amount of time. It's great that Google et al buys up spectrum, but what about build out? How long is that going to take? What about radios? It's probably not that much of a change from current technology but it takes time.
Also, can the radios that use this network roam gloablly?
What would be cool is if Google bought it and let everyone "use" it.
Can someone explain to me why a company has to pay the FCC huge gobs of money in order to use a frequency in the air? What keeps someone from using whatever the heck frequency that they want to? How can someone, in this case the FCC, take control of all frequencies and then 'sell' them to the highest bidder? To me it seems like saying you can't breathe the air around my house unless you pay me, which is dumb of course because nobody owns the atmosphere. I just don't get it, I don't understand this aspect of our economy.
Sniping, anyone?
First rule of holes; When in one, stop digging.
Did we ever pass an ammendment that granted the federal government the right to regulate the electromagnetic spectrum? I don't speak legalese but I'm pretty sure that it wasn't put in there when the Constitution was written.
Hardly threatening, since you can't even match the Ante, let alone the small blind.
Agent K: A *person* is smart. People are dumb, stupid, panicky animals, and you know it.
Bids are exclusively via the internet, and Google probably has enough smart people and resources to intercept a few packets from other bidders....
Why don't they allocate the space to a certain communication technology with established rules for non-interference and then open it up any company to compete? (think wifi) Why should one company have a monopoly on a wavelength? (think broadcast TV/radio) With sophisticated and (relatively) inexpensive packetization and multiplexing available, is there any real need for single-operator wavelength allocation any more? This seems so... early 20th century.
There's more than one round. $4.6 billion is merely the minimum you have to be able to front in order to be allowed to bid in the first place.
The future of the internet is in mobile technology. Except for corporate, mission-critical operations, I think that the majority of internet/TV usage will be done from a mobile device. Even residential internet/TV access will probably be delivered wirelessly (to the premises). The high-speed internet Television market is already a ridiculously profitable area to be in and it will only grow larger. I already consider my internet connection to be almost as important as my other utilities, so I can only foresee the demand increasing.
However, entry into the high-speed ISP business is pretty much impossible. There's all that legal business over who actually owns the lines, regulated monopolies, etc. So what if all of the sudden a wireless medium became available that could reach anybody in any place? You no longer have to worry about laying your own fiber and other infrastructure. No longer do you have the expensive barriers to the ISP market. This is where I think Google wants to be. They already have ton's of content, now they'd have their own means to deliver it (and make you pay -- probably). They essentially want to be the one-stop shop for anything internet and probably TV (the line between the two is starting to blur). I'd switch to their service... although I wonder if they'd throttle the connections to Comcast's sites ;).
How many times does this need to be asked?
The government owns the airwaves.
Whether or not you like it, it's true.
You SHOULD like it, though, because it ensures things WORK.
It keeps people from stepping on each other's toes, and it keeps our communications working.
But hey - lets open up the spectrum. Information wants to be free. It's working great for the internet.
Can you imagine what would happen if airwaves were open?
People would set up towers in their yards and rent the bandwidth to advertisers.
You'll be getting spam on every tv channel, radio station, and phone call.
Your existing devices will cease to function.
Air traffic control will be screwed.
Fire and Police departments will essentially be DOSd.
The military will have HUGE problems.
Legally, it tends to fall under interstate commerce.
Practically, it tends to fall under really freaking important.
People who say we should open it up and just use multiplexing / packeting / encryption really don't understand what they're talking about. If you allow people to openly use these frequencies, they will openly compete by cranking up the power. No amount of tricky signal manipulation will save you from some jerk with a bigger tower than you. If you want to send something from A to B, and someone builds a tower right in the middle, you're screwed.
And worse than that is the fact that, when they're money involved, people will crack encryption and circumvent other controls. Just imagine being able to hijack a TV broadcast during the commercials. You can replace the ads broadcast by the tv station with ads you broadcast, supplied by the same sleazy scum sending spam.
I did a bunch of experimental mock auctions as part of a college experimental economics lab. The rules for the auction aren't too difficult or different from many of the auctions that I participated in.
Here's my opinion on some of the rules and their effects:
1) Package bidding (where someone can bid on a group of licenses and wins or loses all the licenses) -- this helps the large, national bidders that see synergy from owning a number of regional licenses. As the minimum required bid for individual licenses fluctuates due to other individual and package bids, a package spreads the cost over the whole set and makes individual breakthrough bids more expensive / challenging. Size and structure of packages allowed can change the dynamics of the bidding process quite dramatically.
2) Activity requirements -- makes sure everyone is bidding or dropping out. The amount you can bid in one round depends on the amount you bid (or were winning) in the previous round. Google can't snipe the whole auction with a $10 bln bid after not making a single bid beforehand. Activity can strongly favor the big players as they can push around smaller players with large package bids while the small bidders are only making very high single or small package bids. Nobody should stop bidding on anything until it becomes clearly unprofitable to do so--activity crucial to securing winning package bids. There was a 100% use-it-or-lose-it activity requirement in the auctions I participated in, but these rules are similar and gross bid oriented vs. license oriented.
3) Bid retraction -- creates a strange second phase of the auction where some bidders pull bids to get packages to shuffle in their favor. There was a penalty for doing so on winning bids, and I remember some people losing money on this or not making much at all due to it. No professional will make that mistake, but the FCC isn't being generous here.
4) Bid incrementing -- nobody can open or continue the bidding with a massive bid compared to the current minimum required bid. This is important as it prevents someone from throwing out a profitable but discouragingly large bid. I started doing this, particularly when I was a national or powerful regional bidder. There's a name to this strategy that I discovered after the fact.
My prediction on who wins:
The big players -- AT&T, Verizon, maybe Google
A few regional powerhouses might crop of here or there, particularly in more rural regions of the country -- Alltel
The FCC / US Government -- pulls in billions of dollars.
Who loses:
Smaller national players -- Sprint, T-Mobile (unless the Germans want to go for broke)
Cable companies -- their dreams of breaking into wireless data and telephony will die, unless they cut a deal with Google or one of the smaller and more desperate wireless carriers (above). I'm not sure if there's any way that syndicates can form to bid, but that or an after-the-fact deal with Google may be their only hope. If Sprint pulls a coup and wins a major bid, it'll be desperately strapped for cash that Cox, Comcast, et. al. has to offer, but Sprint's going to have trouble winning much spectrum.
Ken Martin's a telco lobbyist, looking to exact revenge on the cable companies for their success in stealing phone and broadband customers from his patrons. I don't claim that it's why the auction is structured this way, but it's clear that nobody went out of the way to encourage diversity in the ownership of different regional licenses.
Unknown:
American wireless consumers? Somebody has to pay for these astronomical bids, and the auctions operate like a tax in some senses. You can see the difference between a spectrum-tax free environment and a taxed environment by comparing 2.4 ghz with 1.9 ghz cell phone service. A little of this range could allow some exceptional innovation to come about.
The EM spectrum in this country is the property of the general public, not the FCC, regardless of how the FCC behaves.