Results tagged “auction rules”

July 12, 2013 11:39 AM

Bidder Exclusion? Ain't Nobody Got Time for That

So I take my eyes off the spectrum auction debate for a couple months, and what happens?  Well, for the most part, absolutely nothing . . . or so it seems.  Actually, it's worse than nothing happening, because parties have refused to wisely ignore the DoJ's substance-less April ex parte submission.  Instead, a "tire fire" of a debate (toxic, polluting, and burning for far too long) has rather predictably broken out; a fact that confirms the darkest suspicions of many--that one can never underestimate the FCBA crowd's appetite for mindless bickering.

 She obviously read the DoJ ex parte

The putative beneficiaries of DoJ's casual musings--Sprint and T-Mobile--are struggling to animate this theory by adding their own piece parts, like the "Dr. Frankensteins" of economic policy creation.  Others, who oppose these efforts, are also exaggerating the substance (or lack thereof) of the Department's submission so that they can then "slay" the paper tiger of their own creation. 

Fortunately, and finally, one "grownup" expert has, admirably, refused to reflexively engage in the "yea or nay" foreclosure debate, choosing instead to simply, and elegantly, point out that the DoJ submission lacks sufficient substance to even be worthy of discussion.  This expert calmly explains that the DoJ never contends that the likelihood of the auction being subverted by a bidder pursuing an "input foreclosure" strategy is high enough to merit any exceptional analytical framework, or specific prophylactic rules. 

Before I reveal the identity of our helpful expert, I'll give you one hint.  This expert understands, possibly through experience, that the Antitrust Division is well aware of the level of detail and documentation that must accompany a regulatory policy proposal if it is to be taken seriously by the regulator.

When DoJ Is Serious About An Economic Framework

When you think about it, this realization becomes a little more powerful.  The Antitrust Division knows full well how to provide a regulatory agency with enough factual and theoretical support for its theories to give the agency that adopts its proposals a good chance of surviving appellate review.  

A good example of the DoJ at its best is the Department's Evaluation of the Bell Atlantic (Verizon) Application to provide "long distance" service in New York.  The Division filed over 200 pages of advocacy, including 2 economist declarations.  The DoJ's evaluation contains 8 single-spaced pages of citation sources.  In contrast, the DoJ probably devoted twice as many words to cataloguing the sources it used in its New York 271 analysis than it did in its "police sketch" of a foreclosure theory in the April ex parte. 

An even better comparison is the analysis the Antitrust Division provided in its 1992 Comments on rules for the PCS auction, which was the FCC's very first spectrum auction.  The DoJ filed 41 pages of very thorough analysis in November of 1992, which it followed with an equally-thorough 28 pages of Reply Comments in January of 1993. 

Interestingly, the content of the DoJ's rigorous PCS auction comments could not be more different from the more "casual" reasoning in its April ex parte.  Even though there were only 2 mobile wireless providers at the time of the PCS auction, the Division opposed a any flat prohibition on wireless mergers (which the Commission was considering adopting).  While mergers between the new PCS entrants would certainly result in increased concentration, the Division was unwilling to "foreclose" from consideration mergers that would result in enhanced efficiency of spectrum use, because such mergers could benefit consumers.  See 1992 Comments, pp. 23-28. 

When DoJ Wants To Be "Supportive" Without Providing Support

So, I know you're probably wondering which expert rationally declined to join the melee of parties jousting against the DoJ's "windmill" chimera of input foreclosure.  Somewhat ironically, and yet not surprisingly, the expert is former Deputy Assistant Attorney General for Economics of the Antitrust Division, Michael "it's cool for" Katz.  Katz, and some other economists, submitted a declaration (at pp. 5-13) on behalf of AT&T last month.

So how did Katz, et al., cut through the noise surrounding the DoJ ex parte?  Take a look for yourself (pp. 5-13).  The first clue is that it's 8 double spaced pages long, and the first two pages summarize the DoJ filing.  The brevity of the Katz, et al., Declaration is its elegance. 

The Katz Declaration uniquely approaches the DoJ filing from a generously analytical perspective.  Accepting the DoJ's threshold premise--that there could be circumstances in which the largest firms might profitably pursue a foreclosure strategy--Katz, et al., explain essential elements of the theory, as well as factual predicates (i.e., "evidence"), that the DoJ would have discussed if the Department reasonably expected the FCC to adopt such a justification for bidder exclusion.

Professor Katz, of course, is a classy dude, so he never actually says "if the Division was serious . . . ."  That's way too vulgar, and--as far as I can tell--it's the only reason AT&T chose him to make this point instead of me.  Thankfully, Professor Katz and his colleagues have advanced this docket by demonstrating for all participants that there is no risk of the Commission adopting any part of the Division's ex parte.

Given that the DoJ fails to present their "theory" in an economically correct manner, or to even recklessly--much less accurately--assert factual predicates that would require the FCC to consider the DoJ's ex parte, it is safe to assume that the Antitrust Division has no intention of providing the FCC with the requisite legal, factual, and economic testimonial support that would give the FCC even the barest excuse to exclude auction bidders on an "input foreclosure" theory.    Hopefully, all parties, including the FCC, will soon appreciate this reality, and stop wasting valuable time arguing over an ex parte that not even the DoJ expects the FCC to take seriously.

May 1, 2013 11:12 AM

What's the [Low] Frequency, Kenneth? The Government's Uniquely "Consumerless" Concept of Competition

Has anyone else noticed how nutty the news stories have become about the FCC and DoJ fight to promote wireless competition?  Here are some examples: this and this, but I'll summarize for you.  First we have the DoJ "letter" to the FCC; a letter which I think the FCC probably sent the DoJ along with a self-addressed, stamped envelope a few months ago.

I mean, seriously, how could two separate agencies--both independently, and within six months of each other--come up with the same notion that the next available spectrum to be auctioned would be put to its best use by Sprint and T-Mobile (who had not even bid on spectrum the last time it was available) because of its radio frequency characteristics?  That last part was highlighted because it's like the peanuts on top of the walnuts on top of the almonds in this all-nut sundae of a theory.

Like most tin foil hat theories, this one has a small kernel of logic.  For a smaller carrier, especially a new entrant, low-frequency spectrum provides a lot more value per cell site--and requires a lot less cell sites--for a carrier to achieve adequate coverage. But do the FCC and DoJ want to promote smaller carriers or new entrants?  Of course not; that might provide consumers with some value.  And since the FCC/DOJ believe that only national firms count toward improving competition in the marketplace - new entrants as envisioned by these agencies would fail to meet that goal.

The DoJ and the FCC didn't have this theory of theirs until they also seemed to arrive at the conclusion--as near as I can tell, sometime during their analysis of the proposed AT&T/T-Mobile merger--that mobile wireless competition is best measured by market share on a national level.  And, with a market artificially defined as "national", despite the fact that consumers make choices locally, a "market" could only be truly competitive if each firm's share (of customers, of spectrum, of cool new handsets, and crunchy nut confections) is roughly equal.

Does anybody recognize the problem with this raison d'etre?  Does the conclusion at the end of the last paragraph sound a little like the description of a commodity market?  Yeah, it kind've does, doesn't it?  Are wireless services a commodity market?  Well, the AT&T iPhone crowd from 2007 didn't seem to think so; nor did the Verizon Droid evangelizers from 2009.  So, let's just say no; wireless is not a commodity market.  Like with cars, people seem to take a certain personal pride in their selected combination of network and handset.  

Why would anyone expect that differentiated product markets would result in competitors having a roughly equal share of sales?  After all, some people like (and can afford) fancy overpriced compact cars, while others need pimped-out, baller SUVs because . . . that's just how they roll.  So isn't it nice that we have BMWs and Escalades?  Do they have the same market share?  Yeah, probably, but that's beside the point.

The problem with the government's idea of what competition should look like is that it starts from a lot of flawed premises--all of which come from the same flawed premise: consumer preferences don't count.  The relevant geographic market is national, not because this is the way consumers actually purchase wireless service, but because this is the way the government likes to look at it.

To the government, market shares are only unequal because firms have unequal amounts of low frequency spectrum, and not the other way around.  They don't seem to understand that AT&T and Verizon have customers that, for the most part, have chosen not to buy service from at least 3 other firms.  Now that's competition.  

Why doesn't the government just reconcile itself to the reality of consumer driven competition and "wreckanize" that the consequences of choice can produce distinct winners and losers?  Yogi Berra told us a long time ago:  "If the people don't want to come out to the ballpark, nobody's going to stop them."  Why do the DoJ and the FCC keep trying?

May 24, 2011 7:39 PM

A "Leap" in the Wrong Direction: Regulatory Problems Disguised as Merger Concerns

Yesterday, Leap Wireless ("Leap") added its voice to those opposed to the AT&T/T-Mobile merger.  What is interesting about Leap's opposition, are Leap's claimed concerns about the acquisition.  According to Leap's Chairman, Doug Hutcheson, the proposed AT&T/T-Mobile merger:

raises problems of spectrum concentration and impaired access to spectrum by competitive carriers; undercuts access to wholesale voice and data roaming services; and threatens to foster reduced device availability and reduced interoperability of wireless networks and devices, among many other issues.

See Leap Press Release. (emphasis added)

Mr. Hutcheson expresses some important concerns about the future of the wireless industry, although it's unclear how any of these concerns are necessarily exacerbated by the merger, or would be mitigated by cryogenically preserving T-Mobile in its present state.  However, I do sympathize with Mr. Hutcheson's concern over whether smaller carriers have been getting a fair shot at spectrum, and whether things will change for them in the future--though I disagree that the merger is the appropriate target of this frustration.  In other words, there is no immediate solution that could mitigate Leap's concerns, or solve AT&T's capacity crunch.

Continue reading A "Leap" in the Wrong Direction: Regulatory Problems Disguised as Merger Concerns