I thought the Cypherpunks might take an interest in this... In <9309151633.AA29877@essential.org>, james love wrote...
Taxpayer Assets Project Information Policy Note September 15, 1993
TAXPAYER ASSETS PROJECT FILES COMMENTS WITH FCC ON PERSONAL COMMUNICATIONS SERVICES (PCS) SPECTRUM AUCTION
On Friday September 10, 1993 the Taxpayer Assets Project (TAP) filed comments with the Federal Communications Commission (FCC) on the proposed auction of spectrum for Personal Communications Services (PCS). PCS is the name for a new class of wireless telecommunications services that industry groups claim will generate more than $200 billion in revenue by the year 2010.
TAP's comments addressed two issues, the size of the spectrum blocks to be auctioned, and the bidding methods used to allocate the PCS licenses.
BACKGROUND
Congress and the Clinton Administration will use auctions to award licenses to use new spectrum that was previously allocated to the government and other uses. Industry groups are engaged in intense lobbying over the terms of the auctions, which will be designed by the FCC. A key issue is the number of licenses to be awarded in each market. PCS Action, Inc., an industry trade group, wants the FCC to limit the number of licenses in each market, in order to limit "excessive" competition, that would "marginalize" PCS services. PCS Action prefers two licenses per market, and "certainly no more than three." PCS Action, Inc. has also argued that large blocks of spectrum (40 Mhz) are needed for each license for technical reasons. If the large 40 Mhz blocks are used the FCC can award no more than 3 license per market.
Other potential license holders or PCS competitors have argued that much smaller spectrum blocks are technically feasible, and would provide more post auction competition. MCI and Bell Atlantic have filed comments with the FCC saying that 20 Mhz blocks are adequate, and some PCS bidders have indicated that blocks as small as 10 Mhz may be large enough. The issue of the size of spectrum blocks is important, since it will determine the maximum number of licenses that can be issued in each local market.
A second issue that has received less attention concerns the methods used to receive revenues from winning bidders. The government can require bidders to submit up front cash payments, or payments over time, including royalties against future PCS revenues.
TAP COMMENTS ON THE SIZE OF PCS SPECTRUM BLOCKS
Regarding the size of the spectrum blocks to be auctioned, TAP said:
The FCC should allow bidders to purchase the smallest possible blocks of the spectrum, while providing for mechanisms that will allow bidders to aggregate or consolidate blocks, subject to FCC approval. . .
By choosing the smallest possible blocks of spectrum to auction, the FCC will assign the initial rights to use the spectrum to a potentially large group of license holders, who can be expected to consider a wider range on innovative PCS services. However, some important PCS services may require the larger bandwidth. The FCC can easily accommodate this problem by allowing bidders to aggregate and consolidate spectrum blocks, in order to offer higher bandwidth services. The aggregation and consolidation of spectrum blocks should be subject to an FCC finding that the new allocation is in the public interest. This procedure would allow more flexibility in determining the size of allocation blocks with each market, and provide better opportunities for smaller firms to bid on spectrum.
The initial size of spectrum blocks will be an important decision, since it is unlikely that the FCC will "split" licenses, even if it turns out that smaller blocks are adequate to provide useful PCS services. By beginning with the "smallest possible blocks," the FCC can always allow license holders to aggregate and consolidate blocks, if the larger blocks are truly needed. This will also allow local markets to consider a wider range of configurations, including combinations of small and large blocks, as PCS markets develop.
TAP CAUTIONS AGAINST BIDDING METHODS THAT RELY EXCESSIVELY UPON UP FRONT CASH PAYMENTS
TAP also told the FCC the auction should not rely excessively on up front cash payments. The federal government can structure the payments on the license in a number of ways, including up front cash payments, fixed payments spread out over several years, or payments which are contingent on future cash flows, such as royalties on future revenues or units of services provided.
The PCS spectrum auction will be the largest non-financial auction held by the federal government. But the economic value of a PCS license will depend upon a highly uncertain cash flow over the long period of time. If the FCC auctions the licenses to the highest cash bidders, the government will be asking firms to pay now for the rights to enter a business that will not be fully developed for many years.
TAP raised two objections to excessive reliance upon up front cash payments to auction the spectrum. First, many smaller firms will be unlikely to raise enough cash to bid against the larger incumbents in the telecommunications markets. Second, bidders will discount the future "economic rents" from licenses by a higher "discount rate" than the government's costs of capital (the rate of interest on its bonds), leading to excessive discounting of license revenues.
In order to promote more competition in the auctions, and also to increase the present value of license payments, TAP urges the FCC to consider a bidding system that combines cash payments with payments that are contingent upon future PCS revenues, such as a royalty on future PCS revenues. We believe that over the long run, the government (the taxpayers) will earn more from royalties on a mature PCS market, than it will earn from up front cash payments for licenses.
--------------------------------------------------------------- Taxpayer Assets Project, P.O. Box 19367, Washington, DC 20036 v. 202/387-8030; f. 202/234-5176; internet: tap@essential.org --------------------------------------------------------------- Subscriptions to tap-info are available by sending an email message to listserver@essential.org with the folowing message: subscribe tap-info your name ---------------------------------------------------------------
;; __________________________________________________________________________ ;; Stig@netcom.com netcom.com:/pub/stig/00-PGP-KEY ;; It's hard to be cutting-edge at your own pace... 32 DF B9 19 AE 28 D1 7A ;; Bullet-proof code cannot stand up to teflon bugs. A3 9D 0B 1A 33 13 4D 7F