FCC sets rules for next-generation wireless bids

On June 29, the Federal Communications Commission is planning to auction 90MHz of radio spectrum, which is projected to bring in between $8 billion and $15 billion for the government. Companies are interested in snapping up the 1,122 licenses for that spectrum so they can roll out more third-generation, or 3G, mobile networks capable of shuttling voice, data, video and other services at higher speeds.

For more than a decade, the FCC's policy was to unveil each participant's identity and bid for each license at the end of every auction round. Spectrum auctions, which occur electronically, historically have lasted anywhere from a few days to a few months, depending on the number of licenses up for grabs.

But in a public notice (click here for PDF) released in late January, the agency said it had concerns about potential anticompetitive effects arising from that approach.

Citing reports from economists, regulators said they worried that if information about bidders were revealed during the auction's multiple and simultaneous rounds, sneaky participants could use that information to "signal" each other. Through that tactic, they could find ways to coordinate their own bids--perhaps resulting in lower-than-market-value prices for licenses--or to fight off competing ones.

At Wednesday's meeting, the four seated commissioners agreed by voice vote to a compromise that would permit "anonymous" or "blind" bidding only if the FCC determined beforehand that a sufficient level of competition be present. That decision, based on a formula that accounts for the number of bidders that apply to participate and the upfront payments they provide, will likely not occur until sometime after June 1, the target date for those payments.

The commission initially wanted to require blind bidding, regardless of the expected competition level. That plan drew support from the U.S. Department of Justice and a coalition of consumer advocacy groups, which deemed anonymous bidding the best way to ensure a fair process. But most national wireless carriers opposed the idea, saying there's no evidence that open disclosure of bidder information has led to abuses.

In comments to the FCC, Cingular Wireless, the nation's largest carrier, called the proposal "a solution in search of a problem."

FCC Chairman Kevin Martin said the commission was "uncomfortable" leaving the rules unchanged and that adding the competition formula, a variation of which was suggested in comments by T-Mobile, "reflects the fact that while all of us have legitimate concerns about what those unintended consequences can be, we also have concerns about the potential for collusion and anticompetitive behavior."

In any case, if the necessary competition threshold isn't met, blind bidding will occur, meaning that the identities of bidders placing bids in any particular round will not be disclosed until after the entire auction ends. Only the sum of all the bids placed in a particular round would become public during the auction.

That prospect caused lingering concerns by Commissioner Jonathan Adelstein. He said he voted in favor of the rules in hopes of ensuring the auction proceeded on schedule but remained concerned that blind bidding would have a negative effect on small businesses, who have "spoken out loudest" against the idea. "Participating in an auction is like placing a bet," he said. "They're willing to make that bet, but there's a big difference between making a blind bet and making an educated one."