On Friday, we filed reply comments on the FCC’s proposed procedures for the 600 MHz incentive auction.  This public notice (PN) gets down to the nuts and bolts of how the auction will be run and, in many ways, the decisions made here will be some of the most important to date.

When the FCC initiated the incentive auction proceeding, it identified some core principles that would guide the proceeding.  First, to maximize participation, it sought to make the auction process as transparent and easy-to-understand as possible.  Second, it committed to a focus on engineering and economics.  Finally, although recognizing the complexity of the task at hand, there was a strong commitment to simplicity and fungibility.

In many ways, the proposals in the most recent PN stray far from that core mission.  The proposals currently on the table introduce interference into the proposed band plan where it need not exist, they contemplate a level of market variability that will be difficult and inefficient to implement, they unfairly foist impairments on the bidders facing the biggest auction restrictions, they tip the auction too far in favor of reserve-eligible bidders and they create significant opportunities for gaming.

As we explained in our opening comments and further on reply, the proposals, if not adjusted, will unnecessarily complicate the auction, devalue the spectrum being reallocated for auction, suppress auction revenues and reduce the quantity of spectrum ultimately cleared.  The proposals also raise the specter of a post-auction band plan fraught with interference that will burden the wireless industry indefinitely.

Outlined below are just a few of the issues that AT&T believes need to be addressed to return to the core goals of transparency, simplicity, fungibility and sound engineering.

Don’t create interference in the LTE bands:  There are circumstances where broadcaster interference into the LTE band is inevitable, specifically at the borders.  The U.S. must accommodate and protect the Canadian and Mexican broadcast allocations at the borders.  Indeed, the borders present such uniquely difficult band plan and repacking challenges we believe they deserve a separate solution.  But apart from the need to efficiently manage the impacts at the borders, there is almost no support in the record for the Commission’s proposal to affirmatively repack U.S. broadcasters into the LTE band.

We understand that the Commission wants to retain flexibility to deal with difficult to repack broadcasters, but parking them in the LTE band where they will create indefinite impairments to wireless allocations is not the answer.  Other proposed approaches deserve careful consideration.

Don’t permit services in the guard bands that will create interference:  In determining what unlicensed uses should be permitted in the guard bands, including the duplex gap, physics and engineering must be the guide, and the Commission should not permit any services that will create interference into the licensed block in normal use cases.

CTIA and the wireless industry have submitted interference testing that demonstrates that the Commission’s currently proposed unlicensed services, when examined in real world scenarios, will create interference into licensed allocations.  That is both bad policy and bad law.  The spectrum act requires the Commission to build guard bands that will protect the licensed allocations.  Adjustments to the Commission’s proposals, as outlined in CTIA’s filing, are needed to stay true to that mandate.

Simplify where ever possible:  Having proposed new impairments that undermine block fungibility, the PN struggles to deal with them in the context of the auction.  The resulting proposals are enormously complex.  The Commission proposes multiple auction products, including non-impaired reserve blocks (that still contain some degree of impairment); non-impaired non-reserve blocks; and impaired non-reserve blocks.  On this construct, it would impose a 20% aggregate weighted impairment threshold, the market-specific impact of which is almost impossible to interpret.

The commission also proposes to foist the most significant impairments on non-reserve eligible bidders.  In other words, the bidders that are most restricted in a market may be permitted to bid on only significantly impaired blocks.  The unimpaired blocks would largely be sheltered from competitive bidding, a result that is not only unfair to restricted bidders but one that could dangerously undermine auction revenues and clearing targets.

On top of this, reserve eligible bidders are now proposing their own additional complications.  Some are asking for a bigger reserve, a lower reserve trigger price, and even authority to collude or commit not to compete.  The weight of these cumulative proposals is starting to raise significant questions about the workability of the proposed reserve framework.

Be wary of opportunities for gaming:  As more layers of restrictions and complexity are added to the framework, the opportunities for gaming the auction significantly increase.  On this point, it is most troubling that the Commission proposes to de-link the reserve and non-reserve auctions after the final stage triggers.  This is an invitation to reserve eligible bidders to express excess demand in the non-reserve simply to run up that clock.  After some of the “creative” bidding tactics in the AWS-3 auction, the Commission needs to move aggressively now to foreclose gaming opportunities.

What is clear is that this historic auction is much too important for the Commission to rush to adopt auction rules with such an unprecedented degree of complexity, uncertainty, and foreseeable harms.   In our comments, we focus on four broad areas in which the Commission should change course:  (1) avoiding television stations in the 600 MHz band; (2) rejecting lopsided proposals for operation of the reserve auction; (3) eliminating unnecessary complexity and defects in reverse clock auction pricing; and (4) revising and clarifying auction rules as necessary to maximize auction revenues, minimize strategic bidding and maintain the integrity of the auction.

Simplicity, efficiency, transparency and fungibility – they remain worthy goals and they should continue to inform the FCC’s progress in this proceeding.

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