FCC Wireless Auction Faulted

Critics charge that the auction helped AT&T and Verizon Wireless solidify their industry dominance. Some call for tighter regulation

by Olga Kharif

Federal Communications Chairman Kevin Martin. Getty Images

As far as Kevin Martin is concerned, the government's recent auction of wireless airwaves that fetched a record $19.12 billion was a resounding "success." A chorus of critics begs to differ with the chairman of the Federal Communications Commission.

Sure, the FCC-led auction fetched almost twice the $10.2 billion Congress expected, and as much as all U.S. government wireless auctions of the past 15 years combined. The FCC also succeeded in imposing rules on one winning bidder that in Martin's view will result in increased competition and innovation in wireless technology.

But a wave of revisionist thinking is beginning to wash over that sanguine view. Members of Congress, industry analysts, and smaller wireless carriers are crying foul over the auction, faulting the FCC for failing to sell a section of airwaves set aside for emergency responders and alleging that the auction left too great a concentration of assets in the hands of the two biggest mobile-phone carriers, AT&T (T) and Verizon Wireless, which is owned by Verizon Communications (VZ) and Vodafone (VOD). Some lawmakers insist tighter regulation is needed to undo what they consider the auction's damage.

In a recent congressional hearing, Representative Edward Markey (D-Mass.) evoked Charles Dickens to describe the auction. It was "the best of auctions and the worst of auctions," he said. Martin rejects that view and on Apr. 15 appeared before the House Subcommittee on Telecommunications & the Internet to debunk what he calls "myths" about the auction, including the notion that it wasn't a success. Thanks to the requirement that winners of part of the spectrum open their network to competing handsets and features, "consumers will be able to use the wireless device of their choice and download whatever legal software or applications they choose," Martin said.

Duopoly Redux?

Open-network stipulations indeed represent a victory for new players such as Google (GOOG), which lobbied hard for the requirement (BusinessWeek.com, 2/14/08) and aims to develop a wide range of features and tools it hopes end up on mobile phones. But at what price? The open-access conditions may have deterred some bidders and deprived taxpayers of an extra $5 billion in funds, according to an estimate by Coleman Bazelon, a former congressional budget office analyst who is a principal at consultancy Brattle Group.

More vexing still for critics is that the auction's biggest winners were carriers that already dominate the industry. AT&T and Verizon Wireless already control 75% of the country's total wireless service revenues and nearly 53% of U.S. wireless subscribers. "AT&T and Verizon have solidified their lead," says Blair Levin, an analyst with Stifel Nicolaus and a former FCC chief of staff. "[The auction] reinforced the existing dynamics of the top two getting stronger."

The two carriers spent more than $16 billion, or 85% of all money raised in the sale of airwaves in the 700Mhz band. "Chairman Martin has taken the industry and helped bring duopoly [that existed in most markets in the 1990s] back into the marketplace," says Bazelon.

AT&T and Verizon Wireless appear to have accumulated more than 95Mhz of spectrum in more than a dozen markets, analysts say. The concentration has renewed debate over whether the government should impose caps on how much spectrum a single carrier can own in a given market.