At the dawn of the cellular phone age, in the early 1980s, the federal government faced a crucial decision: who should get the rights to send signals across the public airwaves, potentially cracking the monopoly of the wired telephone companies?
At first, officials chose big cities to introduce the technology, conducting an endless bureaucratic procedure called “comparative hearings” in which they sought to select the best among rival bids. That proved so time-consuming that they soon turned to what seemed a more effective route: give away the rights to use the electromagnetic spectrum through a lottery.
They were not prepared, however, for the gold rush that followed.
“People tried to get more balls in the lottery drum,” recalled Lawrence Krevor, vice president for government affairs at Sprint Nextel, who co-wrote the lottery order when he was a lawyer at the Federal Communications Commission’s wireless division. “Their wife applied; their parakeet applied; their dog applied.”
Dentists, hairdressers, truck drivers, you name it, got together in syndicates to enter the lottery in hundreds of service areas around the country. They used “application mills” like Romulus Engineering of San Francisco, which for $275,000 offered a package of bids in all the 422 rural service areas in the country, with a line of credit from equipment manufacturers to prove their financial wherewithal.
Ostensibly committed to deliver cellular phone service wherever they won a license, many winners instead immediately sold the license to a bona fide phone operator. And they made a bundle.
The actor Ernest Borgnine hit the jackpot, as part of a syndicate. So did Chuck Hagel, the current defense secretary. Mark R. Warner, now a Democratic senator from Virginia, made a fortune by brokering spectrum between the lucky few and those who bought their licenses.
The only outfit that didn’t make any money from the process seems to have been the United States government.
Now, Washington is back in the business of putting vast chunks of wireless spectrum on the market. It has learned an important lesson: since 1993, the F.C.C. has leased spectrum to the highest bidder using Dutch auctions. From 2001 to 2010, it reaped a hefty $33 billion on behalf of taxpayers.
But there is another lesson that the political system has not learned as well: how to foster competition. Cheap, competitive wireless broadband will be absolutely crucial for advancing the frontier of the digital economy. Yet as the government prepares to sell perhaps the last big chunk of valuable low-frequency spectrum that will be made available for wireless communications and mobile computing, pressure from Congress to raise as much money as possible threatens to get in the way of this objective.
The F.C.C. expects to complete the two-part deal by next year, or 2015 at the latest. It will first offer television broadcasters an opportunity to sell their rights to a crucial portion of the spectrum, hoping that many of the marginal channels in big cities offering reruns of “I Love Lucy” and “Hawaii Five-O” will welcome the opportunity to cash out.
The agency wants to acquire up to 120 Megahertz of spectrum, with 40 to 80 MHz being the more realistic goal. It will reorganize the spectrum into a big contiguous band — moving TV broadcasters into one compact block — and auction it off to wireless companies that value it much more highly.
A critical concern is that ATT and Verizon Wireless have deep enough pockets and a clear interest in keeping competitors out at any price. The two companies control roughly two-thirds of the cellular communications market and hold the licenses to 80 percent of the far-reaching, low-frequency spectrum most valued by mobile providers.
Seizing on the government’s thirst for revenue, the two dominant carriers are hard at work to convince Congress that imposing limits on the spectrum they are allowed to buy would drastically reduce the amount of money the government would generate. “The reduced auction revenues would mean less (and potentially no) broadcast spectrum cleared for mobile wireless use and less (or no) surplus available to fund the Spectrum Act’s other goals,” ATT wrote to the F.C.C. in April.
Congress should not take the bait.
E-mail: eporter@nytimes.com; Twitter: @portereduardo
Article source: http://www.nytimes.com/2013/06/05/business/in-wireless-spectrum-competition-is-critical.html?partner=rss&emc=rss