The US Department of Justice has written to the FCC warning against indiscriminate use of spectrum auctions, arguing that the mantra of "the highest bidder will make the greatest use" is increasingly outdated.
The warning comes in the form of an open letter (PDF, long-winded), just as the FCC is deciding how best to dispose of the radio spectrum being released by broadcast TV channels. The TV folk have been promised a cut of the revenue raised from what was assumed would be an open auction. Pointing out how effective the tactic has been in the past, the Justice Department suggests the FCC should parcel spectrum into smaller chunks to prevent them from all falling into the hands of the dominant duoploy - as has hitherto been the norm.
Commenting on the auction process, which is generally justified on the basis that companies who pay most for spectrum have most incentive to use it well, the letter makes it clear that this simple mantra no longer always applies as:
that approach may not lead to market outcomes that would ordinarily maximise consumer welfare due to the presence of strong wireline or wireless incumbents, since the private value for incumbents in a given locale includes not only the revenue from the use of the spectrum but also any benefits gains by preventing rivals from improving their service and thereby eroding the incumbents existing business.
Basically "big operators will buy spectrum to lock out smaller competitors", and the Department of Justice reckons that's a bad thing. Apparently 78 per cent of the best spectrum - the stuff below 1GHz with decent propagation - is now in the hands of the big two US operators. This is making it increasingly difficult for competitors, which, if they can get spectrum at all, are stuck with high-end stuff which requires more base stations to achieve the same coverage.
Auctions have long been the preferred way to shift radio spectrum, ostensibly to ensure buyers are motivated to make great use of it, with the billions falling into government coffers nothing more than a happy side-effect. But as operators around the world have gotten better at gaming the system and governments have come to appreciate (or expect) the resulting revenue, the process has become less efficient. We have already seen numerous examples of companies hoarding, or at least failing to utilise, their purchases.
It is hoarding which worries the Department of Justice, and should worry the FCC too, but auctions are simple and finding a weighted alternative will be tough, and undoubtedly challenged by the incumbents it is intended to control. ®