Additional reactions to Auction 97 are emerging with everyone putting their own spin on the results.

First, in a blog, T-Mobile offered its view, calling the auction a disaster for U.S. consumers.  Hard to figure how they can reach that result.  The auction reallocated 50 MHz of valuable paired spectrum to the wireless industry – an allocation that T-Mobile itself has long advocated for.  The spectrum is internationally harmonized and is already being standardized so it can be efficiently deployed to bring substantial additional data capacity to U.S. wireless consumers.  And the auction proceeds will fully fund FirstNet, so the country will finally realize the promise of an interoperable public safety broadband network.  These are all wins for the FCC, the wireless industry and the American public.

The Public Interest Spectrum Coalition also offered its own lessons, oddly casting the Dish entities as victims of the “continued dominance” of other bidders. But to believe them, you have to ignore the fact that the Dish entities won more licenses than any other bidder in the auction and have laid claim to a $3B subsidy from American taxpayers to boot.

Any serious analysis of the auction must be based on the facts of what actually happened in the auction – not fiction and not bluster about “twin bell” monopolies.  Consider this an addendum to my last blog, with more lessons from the auction.

Lesson No. 6:  You Can’t Win in an Auction if You Don’t Keep Bidding

In its blog, T-Mobile pats itself on the back for being “conservative” and “strategic” in the auction, but it’s pretty clear they are unhappy with the results.  And predictably, they rush to pin their unhappiness on AT&T and Verizon (insert shop-worn twin bell rhetoric here).

T-Mobile won 151 licenses in the auction for a total of $1.77B.  But in some of the early rounds, T-Mobile had as much as $3.5B on the table.  From a strategic perspective, one can surmise that T-Mobile came to the auction with a $3.5B budget but, as valuations rose, decided to take some of its capital off the table, which was certainly its prerogative to do.  But you can’t withdraw capital from the auction then complain that you didn’t win.

Spectrum auctions are capital intensive.  Period.  You can’t win if you don’t bring capital and stand prepared to use it.  The fact is that the Dish designated entities (DEs) outbid T-Mobile over 6 to 1 in the auction (5 to 1 if you factor in the DE subsidies).  And T-Mobile took close to $2B off the auction table.

Lesson No. 7:  The Auction Mirrored the Industry – it was Intensively Competitive

The auction had 70 qualified bidders, including four large national players, all vying for 65 MHz of spectrum.  Even setting aside Dish’s unusual bidding construct, auction competition was going to be fierce anyway you cut it.  T-Mobile is a big proponent of competition unless they are facing it in an auction – there they prefer protection.

Ignoring the competitive dynamics in the auction, T-Mobile alleges in its blog that AT&T and Verizon showed that they will “dig into their deep pockets” to buy spectrum “at nearly any cost.”  But we didn’t set the prices at auction – the auction competition did.  And we paid for the 10×2 MHz footprint we acquired exactly what the auction competition required us to pay – no more and no less.

Lesson No. 8:  AT&T and Verizon Weren’t T-Mobile’s Competition in this Auction

Bidding patterns in the auction suggest that T-Mobile was primarily interested in the G-block, bidding aggressively for it in major markets like Chicago, Seattle and Denver.  But, in the end, they lost those blocks and the majority of the G-block in the top 100 CMAs to the Dish DEs.  This is probably the lesson T-Mobile most wants to avoid.  Indeed, it couldn’t even bring itself to identify Dish by name in its blog.

AT&T conducted an analysis of winning bids and who the winning bidder bid off to take the license.  The fact is that Dish outbid T-Mobile on 132 licenses to win the license.  (AT&T outbid T-Mobile on 26 licenses – Verizon 16.)   Even of the 151 licenses T-Mobile won, T-Mobile had to outbid Dish on 69 of those licenses to succeed (compared to AT&T on 12 and Verizon on 32).  AT&T and Verizon weren’t T-Mobile’s competitive nemesis in the auction – Dish was.  And the 600 MHz reserve won’t protect T-Mobile from Dish, or Sprint, or Google, or any other player not named AT&T or Verizon that comes with capital to win spectrum.

In the end, Dish – a company with less revenue than T-Mobile and no wireless subs – showed up with a $10B budget (which it turned into $13B in spending power with the taxpayer’s help) and simply ran T-Mobile out of much of what it wanted.  And you can’t blame that on us.

Lesson No. 9:  Perhaps We Need to Rethink Options for Small Facilities-based Entities

Missing from the reaction to date is an analysis of what happened to small facilities-based bidders.  These entities are not DE-centric shell corporations formed in the months leading up to the auction but rather companies with real wireless operations that make them too big to be a DE.  Rather than playing the DE angle, they are focused instead on providing wireless service to their customers in their market areas.  These are companies like NE Colorado Cellular d/b/a Viaero Wireless, Bluegrass Wireless, and the Horry and Pioneer Telephone Cooperatives.

In the auction, these types of small non-DE bidders won 74 licenses.  To win they primarily had to outbid other DEs (Dish DEs 28 times; other DEs 22).  Dish or another DE outbid these entities to win licenses 72 times (Dish 42; other DEs 30).  Given these results, perhaps we need to not only revisit who the DE rules really benefitted in this auction, but also take a look at how the DE rules may have hampered small facilities-based competitors.

As we look forward to the 600 MHz auction, we need to consider how the set asides as planned will work and who they will really benefit.  The set asides have been designed for the benefit of Deutsche Telekom/T-Mobile and Softbank/Sprint, even as Deutsche Telekom touts a 2014 spend of €9.5 billion in Europe (before expenses for mobile spectrum) which is expected to increase going forward.  But the set asides will also protect Dish, who’s proven it can bring serious financial resources to an auction and win significant allocations without restrictions.

While others are now calling to expand the set asides, the cautionary tale of the AWS-3 auction suggests the contrary.  Preferences and set asides can tilt the auction playing field in very unexpected ways.  And history has shown us time and again how government preferences in a dynamic, rapidly changing industry can easily lead to perverse results.  The 600 MHz auction is simply too important to get it wrong.

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