[Senate Hearing 113-340]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-340
 
  CRAFTING A SUCCESSFUL INCENTIVE AUCTION: STAKEHOLDERS' PERSPECTIVES 

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           DECEMBER 10, 2013

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation

                               ----------

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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California            JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida                 ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington           ROY BLUNT, Missouri
MARK PRYOR, Arkansas                 MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri           KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota             DEAN HELLER, Nevada
MARK WARNER, Virginia                DAN COATS, Indiana
MARK BEGICH, Alaska                  TIM SCOTT, South Carolina
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
BRIAN SCHATZ, Hawaii                 DEB FISCHER, Nebraska
EDWARD MARKEY, Massachusetts         RON JOHNSON, Wisconsin
CORY BOOKER, New Jersey
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                     John Williams, General Counsel
              David Schwietert, Republican Staff Director
              Nick Rossi, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on December 10, 2013................................     1
Statement of Senator Pryor.......................................     1
Statement of Senator Thune.......................................     2
    Letter dated November 20, 2013 to Hon. Thomas Wheeler, 
      Chairman, Federal Communications Commission from Hon. 
      Charles E. Schumer, U.S. Senate............................     3
    Letter dated October 29, 2013 to Hon. Mignon Clyburn, Federal 
      Communications Commission from Larry Cohen, President, 
      Communications Workers of America..........................     4
    Letter dated December 5, 2013 to Hon. Jay Rockefeller and 
      Hon. John Thune from Leslie M. Marx, Ph.D., Robert A. 
      Bandeen Professor of Economics, Duke University and former 
      Chief Economist, Federal Communications Commission.........     6
    Report dated September 18, 2013 entitled ``Economic Analysis 
      of Proposals that Would Restrict Participation in the 
      Incentive Auction'' by Leslie M. Marx, Ph.D., Robert A. 
      Bandeen Professor of Economics, Duke University and former 
      Chief Economist, Federal Communications Commission.........     7
Statement of Senator Booker......................................    84
Statement of Senator Markey......................................    86
Statement of Senator Klobuchar...................................    88
Statement of Senator Blunt.......................................    90
Statement of Senator Blumenthal..................................    92
Statement of Senator Warner......................................    93
Statement of Senator Nelson......................................    95
Statement of Senator Ayotte......................................    97

                               Witnesses

Gary Epstein, Special Advisor and Chair, Incentive Auction Task 
  Force, Federal Communications Commission.......................    49
    Prepared statement...........................................    50
Joan Marsh, Vice President, Federal Regulatory, AT&T.............    51
    Prepared statement...........................................    52
Hal J. Singer, Ph.D., Senior Fellow, Progressive Policy Institute    55
    Prepared statement...........................................    56
Steven K. Berry, President and Chief Executive Officer, 
  Competitive Carriers Association...............................    57
    Prepared statement...........................................    59
Preston Padden, Executive Director, Expanding Opportunities for 
  Broadcasters Coalition.........................................    64
    Prepared statement...........................................    65
Rick Kaplan, Executive Vice President, National Association of 
  Broadcasters...................................................    68
    Prepared statement...........................................    69
Harold Feld, Senior Vice President, Public Knowledge.............    72
    Prepared statement...........................................    73

                                Appendix

Hon. John D. (Jay) Rockefeller IV, U.S. Senator from West 
  Virginia, prepared statement...................................   105
Letter dated December 10, 2013 to Hon. John D. Rockefeller IV and 
  Hon. John R. Thune from Ellen Stutzman, Director of Research & 
  Public Policy, Writers Guild of America, West; Harold Feld, 
  Senior Vice President, Public Knowledge; Michael Calabrese, 
  Director, Wireless Future Project, Open Technology Institute, 
  New America Foundation; and Matt Wood, Policy Director, Free 
  Press..........................................................   106
Letter dated December 10, 2013 to Hon. John D. Rockefeller IV and 
  Hon. John R. Thune from Kathleen Ham, Vice President, Federal 
  Regulatory, T-Mobile USA, Inc.; Jeffrey Blum, Senior Vice 
  President and Deputy General Counsel, DISH Network LLC; 
  Lawrence R. Krevor, Vice President, Legal and Government 
  Affairs, Sprint Corporation; Grant Spellmeyer, Vice President, 
  Federal Affairs & Public Policy, US Cellular; Eric B. Graham, 
  Senior Vice President--Strategic Relations, C Spire Wireless; 
  Cathy Sloan, Vice President, Government Relations, Computer & 
  Communications Industry Association; and Tim Donovan, Vice 
  President--Legislative Affairs, Competitive Carriers 
  Association....................................................   107
Letter dated November 14, 2013 to Hon. Thomas Wheeler, Chairman, 
  Federal Communications Commission from Charlie Ergen, Chairman, 
  DISH Network Corp.; John J. Legere, President and Chief 
  Executive Officer, T-Mobile US, Inc.; Daniel R. Hesse, 
  President and Chief Executive Officer, Spring Corporation; Hu 
  Meena, President and Chief Executive Officer, C Spire Wireless; 
  Edward Black, President and Chief Executive Officer, Computer & 
  Communications Industry Association; Steven K. Berry, President 
  and Chief Executive Officer, Competitive Carriers Association; 
  Kenneth R. Meyers, President and Chief Executive Officer, U.S. 
  Cellular; Ronald Smith, President and Chief Executive Officer, 
  Bluegrass Cellular; and Jonathan Foxman, President and Chief 
  Executive Officer, MTPCS, LLC d/b/a Cellular One...............   108
Response to written questions submitted to Gary Epstein by:
    Hon. Mark Warner.............................................   109
    Hon. Amy Klobuchar...........................................   111
Response to written questions submitted to Joan Marsh by:
    Hon. Amy Klobuchar...........................................   112
    Hon. Mark Warner.............................................   112
Response to written questions submitted by Hon. Mark Warner to:
    Hal J. Singer, Ph.D..........................................   115
    Steven K. Berry..............................................   115
    Preston Padden...............................................   117
Response to written questions submitted to Rick Kaplan by:
    Hon. Amy Klobuchar...........................................   117
    Hon. Mark Warner.............................................   119
Response to written questions submitted by Hon. Mark Warner to 
  Harold Feld....................................................   119


  CRAFTING A SUCCESSFUL INCENTIVE AUCTION: STAKEHOLDERS' PERSPECTIVES

                              ----------                              


                       TUESDAY, DECEMBER 10, 2013

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:39 p.m., in 
room SR-253, Russell Senate Office Building, Hon. Mark Pryor, 
presiding.

             OPENING STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. I will go ahead and call the hearing to 
order. I want to thank everyone for being here. I especially 
want to thank our witnesses. I know it has been a snow day here 
in D.C. and some of you had to make arrangements. So thank you 
for being here.
    And, you know, in early 2012, we passed bipartisan 
legislation, which originated in this committee, to make 
available a significant amount of new spectrum for commercial 
use and, at the same time, establishing and funding a public 
safety wireless broadband network.
    Now, as part of that, the FCC has the authority to conduct 
voluntary incentive auctions of spectrum. The FCC is in the 
midst of setting up the rules for the first of these incentive 
auctions. And, also, the rules include protections to make sure 
that the auction does not unduly harm TV stations that are not 
interested in participating.
    So I think the Congress rightly left many practical and 
technical decisions to the Federal Communications Commission, 
as the expert agency. Today the Committee will hear from the 
FCC and various stakeholders about what it will take to craft a 
successful incentive auction.
    Now, designing one of these is immensely complicated, 
possibly the most complicated of these type of auctions ever 
designed by the FCC. They must get a sufficient number of 
broadcasters to participate in the reverse auction in order to 
have adequate spectrum to sell the forward auction.
    In the forward auction, the FCC must balance competing 
interests with the need to raise enough money to cover the 
incentive payments and pay for the priorities set forth in the 
2012 legislation, including FirstNet that I mentioned. And 
during the repacking process, the FCC must meet its statutory 
duty to make ``all reasonable efforts,'' quote/unquote, ``all 
reasonable efforts'' to protect remaining TV stations' coverage 
areas while designing a practicable and workable band plan for 
mobile wireless services.
    So, as you can tell, this is complicated.
    And on the technical side, the FCC must also craft software 
and hardware to accomplish this first ever incentive auction. 
And, of course, we have learned in the last few weeks that 
software and hardware are important when it comes to these type 
of things, and they want to get it right.
    But if the FCC is to get it right, it means innovative, new 
wireless services and more robust wireless networks to meet 
consumers' insatiable demands, a revitalized TV broadcast 
industry, and a new international precedent and standard for 
smart spectrum policy.
    I know we have a large panel of witnesses today. It is very 
unusual for us to have seven. But if there is ever a topic that 
may require this many witnesses, I think this is it.
    And this hearing is also very timely because on Friday FCC 
Chairman Tom Wheeler set a timeline to hold the voluntary 
broadcast TV incentive auction in the middle of 2015. I think 
that, in effect, is a six-month delay or so from what it was 
previously thought to be. So I encourage everyone here on the 
panel today, all the stakeholders who are watching or 
participating, to work constructively with the FCC to make this 
auction a success.
    I look forward to hearing your testimony, but first I would 
like to recognize Senator Thune.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Mr. Chairman, for holding this 
hearing. And I want to thank our witnesses for being with us 
today.
    American consumers are hungry for more mobile connectivity. 
The innovation economy is being driven by mobility, and 
spectrum is what fuels those wireless services. We must make it 
a priority to increase the availability of spectrum for 
commercial use, both licensed and unlicensed, as quickly as 
possible.
    Last week, as Chairman Pryor mentioned, FCC Chairman 
Wheeler announced that the agency's timeline for the broadcast 
incentive auction has slipped from 2014 to mid-2015. It is 
important for the auction to be completed as soon as possible, 
but one lesson from the disastrous rollout of Healthcare.gov is 
that a short delay of this complicated effort may be justified.
    Consumers will benefit from a speedy reallocation of 
spectrum for more valuable uses, but those households that 
continue to receive over-the-air TV broadcasts after the 
auctions must not be unduly disrupted during the channel-
repacking process. Congress was clear about this in the 
Spectrum Act of 2012, and the technical details to make this 
work deserve an appropriate amount of time and deliberation.
    As we all know, the mobile market is no longer focused on 
voice calls alone; it is increasingly about robust broadband 
Internet connectivity. During the Committee's recent broadband 
adoption hearing, we learned that one in eight online Americans 
now access the Internet solely through their mobile smartphones 
rather than subscribing to a fixed broadband service. With that 
in mind, I hope our witnesses will share their thoughts about 
what spectrum policies will make it more likely for wireless to 
develop as a substitute for and a competitor to wireline 
broadband.
    Getting more spectrum into the marketplace for broadband 
via auction to the parties that will put it to highest use is 
ultimately the best way for Federal policymakers to encourage 
new services, spur competition, and benefit consumers.
    In the incentive auction, I believe the FCC should let all 
interested participants freely compete against one another in 
the open market and should avoid putting its thumb on the 
scale, as we are apparently witnessing in connection with the 
Justice Department's settlement agreement in the American 
Airlines and U.S. Airways merger. The value of using spectrum 
auctions is that the free market is more effective at 
allocating spectrum than relying on the subjective opinions and 
predictions of government officials. American consumers should 
pick who wins in the marketplace, not the government.
    And with the U.S. being the global leader in 4G LTE 
connectivity, this approach has clearly been very successful. 
By any measure, including usage, coverage, speed, and price, 
consumers have benefited enormously from market-driven spectrum 
auctions.
    As the Commission moves forward, its primary focus needs to 
be on how to maximize participation in the upcoming incentive 
auction among both broadcasters and wireless bidders, not on 
how to limit their participation. I agree with our colleague 
Senator Schumer, who recently urged the Commission to avoid 
imposing auction rules that could discourage broadcasters from 
participating, could limit bidding by certain wireless 
carriers, and could ultimately reduce the amount of spectrum 
offered as well as the revenue that would be generated in 
return.
    Mr. Chairman, I would ask for consent to submit for the 
record Senator Schumer's letter, along with two additional 
documents that echo his and my concerns.
    Senator Pryor. Without objection.
    Senator Thune. The first is an analysis by Dr. Leslie Marx, 
a Professor at Duke University and a former Chief Economist at 
the FCC. And the second document is a letter to the FCC from 
Larry Cohen, the President of the Communications Workers of 
America.
    [The information referred to follows:]

                                       United States Senate
                                  Washington, DC, November 20, 2013
Hon. Thomas Wheeler,
Chairman,
Federal Communications Commission,
Washington, DC.

Dear Chairman Wheeler:

    As you assume the helm of the FCC, one of the most important tasks 
that lies before you is the structuring of the incentive auctions 
authorized by the Middle Class Tax Relief and Job Creation Act of 2012. 
I was a strong supporter of the provisions of the law that authorized 
these auctions, and I am deeply committed to ensuring their success.
    The success of the incentive auctions is critical to our Nation in 
several ways. First and foremost, the auctions will generate the 
revenue needed to establish a national, interoperable public safety 
broadband network. The creation of this network is an unfilled 
recommendation of the 9/11 Commission; over a decade after that tragic 
day, we are finally on the precipice of establishing a system to 
prevent the communications failures that hampered the evacuation and 
rescue operations of our heroic first responders.
    Second, the auctions will help put back into the market spectrum 
that is currently not being used to its fullest potential. In an era of 
rapidly increasing demand for spectrum, ensuring that this limited 
resource is being used most efficiently and effectively is a high 
priority for businesses and consumers alike.
    It is the responsibility of the Commission to structure the auction 
so that broadcasters will realize substantial benefit for choosing to 
put spectrum up for auction, broadcasters who will have to move to new 
channel assignments can be adequately compensated, and so that the 
auctions generate maximum revenue in order to adequately fund FirstNet.
    That is why I urge you, in structuring these auctions, to maximize 
participation by broadcasters and bidders alike by avoiding limitations 
that could lower the potential return and disincentivize broadcasters 
from offering their spectrum for auction. While I understand that some 
have advocated for rules that would limit participation by certain 
wireless carriers, the effect of such rules would simply be to reduce 
the amount of spectrum offered for auction as well as the revenue that 
would be generated in return. Ultimately, then, the biggest loser would 
be FirstNet and the public safety network America needs to thrive in 
the 21st century.
    I appreciate that this is a challenging issue, and look forward to 
working with the Commission to structure the most successful auction 
possible.
            Sincerely,
                                        Charles E. Schumer,
                                             United States Senator.
                                 ______
                                 
                         Communications Workers of America,
                                   Washington, DC, October 29, 2013
Hon. Mignon Clyburn,
Federal Communications Commission,
Washington, DC.

RE: Expanding the Economic and Innovation Opportunities of 
  Spectrum through Incentive Auctions, GN Docket No. 12-268

Dear Chairwoman Clyburn and Commissioners:

    The Federal Communications Commission (FCC) now has the critical 
mission of designing rules for an upcoming auction of valuable public 
airwaves that will help speed the continued nationwide deployment of 
high-speed mobile broadband service.
    The FCC faces a most important near-term challenge as it attempts 
to make more airwaves available--at auction--to advance the deployment 
of and investment in high-speed mobile wireless communications. Getting 
the design of the upcoming auction right is critical. As the Commission 
has long recognized, high-speed wired and wireless networks are 
essential to job creation, economic growth, and improvements in 
education, health care, public safety, civic participation, and closing 
the digital divide.
    The Communications Workers of America (``CWA'') represents 700,000 
workers, including more than 40,000 in the wireless industry, whose 
families and communities depend on the success or failure of unionized 
wireless carriers. As such, CWA urges the Commission to construct an 
open and competitive auction in which every carrier and any other 
qualified bidder can participate equally on a level playing field.
    Because an open competition is the best way to serve the public 
interest, CWA supports an auction that:

   Provides for continued investment, innovation, and job 
        creation in the wireless industry

   Efficiently allocates additional spectrum for consumer 
        wireless to support the speedy deployment of LTE networks and 
        the continued expansion of other services

   Maximizes auction proceeds and provides full funding for the 
        planned public safety network, FirstNet

    T-Mobile and Sprint are now asking the FCC to establish different 
rules for different bidders, potentially slowing the spread of wireless 
and the investment and jobs that go with it. Yet, past FCC experience 
demonstrates that open auctions, in which bidders compete without 
restrictions, have generated the most revenue and assigned spectrum to 
the providers who will put it to work quickly and efficiently for the 
American public. A recent economic analysis found that if spectrum 
limits had been put in place in the 2008 auction of 700 MHz spectrum it 
would have reduced auction revenue by 45 percent or almost $9 
billion.\1\
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    \1\ Dr. Leslie Marx, ``Economic Analysis of Proposals that Would 
Restrict Participation in the Incentive Auctions,'' Sept. 18, 2003.
---------------------------------------------------------------------------
    As former Chairman Julius Genachowski has noted, such even-handed 
policies have created a wireless boom and enabled our country to 
recapture world leadership in wireless and mobile technology.\2\ 
According to a recent White House report on broadband, wireless 
investment has climbed more than 40 percent to $30 billion a year since 
2009, and the top two wireless companies have combined to invest more 
than the top five oil companies and nearly four times more than the big 
three auto companies.\3\ As a whole, the wireless industry now supports 
3.8 million jobs.\4\
---------------------------------------------------------------------------
    \2\ Julius Genachowski Farewell Remarks, March 22, 2013
    \3\ ``Four Years of Broadband Growth,'' White House Office of 
Science and Technology Policy and the National Economic Council, June 
2013
    \4\ ``50 Wireless Quick Facts,'' CTIA, updated May 2013
---------------------------------------------------------------------------
    The FCC should not favor one competitor over another. Each of the 
four national carriers have ample resources to bid aggressively for the 
spectrum they need without rules that tilt the playing field one way or 
the other. T-Mobile is strengthened by its recent combination with 
MetroPCS, the spectrum it acquired from AT&T and Verizon Wireless, and 
the $3 billion cash penalty fee it received from AT&T. Sprint, now 
majority owned by the Japanese firm Softbank, received billions of new 
funds as part of that deal and, in combination with its affiliate 
Clearwire, controls more spectrum than any competitor.\5\ These 
companies are strong competitors.
---------------------------------------------------------------------------
    \5\ ``Sprint Set to Become 'Spectrum Powerhouse,' '' Computerworld, 
June 25, 2013
---------------------------------------------------------------------------
    We also are concerned that rules that limit participation by any 
bidder would reduce auction revenues and jeopardize funding for 
deployment of the Nation's public safety mobile broadband network 
(FirstNet). A recent independent study by Georgetown University found 
that bidding restrictions on Verizon and AT&T could reduce auction 
revenues by as much as $12 billion and create a funding deficit for 
FirstNet.\6\ That result would make it harder and more dangerous for 
first responders to do their job and would expose the American people 
to needless risk.
---------------------------------------------------------------------------
    \6\ ``The Economic Implications of Restricting Spectrum Purchases 
in the Incentive Auction,'' Robert J. Shapiro, Douglas Holtz-Eakin, and 
Coleman Bazelon for the Georgetown University Center for Business & 
Public Policy, April 30, 2013
---------------------------------------------------------------------------
    A dedicated and interoperable nationwide broadband network will 
save lives by providing public safety personnel with the modern 
communication tools necessary to provide effective, speedy, and 
coordinated response in emergency situations. The network, first 
recommended a decade ago by the 9/11 Commission, is long overdue. 
Auction rules that limit funding should not be allowed to endanger 
first responders or the U.S. public they serve.
    In addition to the revenue needed to fund the public safety 
network, the wireless auction must raise enough funds to pay 
broadcasters to give up their spectrum. Limitations on participation in 
the auction would reduce the funds available to pay the broadcasters. 
If not enough money is raised to meet the broadcasters' price, the 
spectrum goes unsold, and the auction fails.
    Sprint and T-Mobile have suggested that the Commission should 
establish special rules for low-frequency spectrum, claiming that such 
spectrum is an essential input for wireless services due to its 
superior propagation. Because Sprint and T-Mobile failed to bid in the 
700 MHz auction, and have chosen not to purchase low-frequency spectrum 
on the open market, they have little low frequency spectrum. Yet, both 
companies are competing aggressively with national 4G LTE networks that 
rely almost entirely on high-frequency spectrum. As recently explained 
by noted economists, low-and high-frequency spectrum are substitutes 
and wireless carriers do not require low-frequency spectrum in order to 
compete. Therefore, the Commission need not adopt special low-frequency 
spectrum aggregation rules.\7\
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    \7\ Michael L. Katz, Philip A. Haile, Mark A. Israel, and Andres V. 
Lerner, ``Comment on the Submission of the U.S. Department of Justice 
Regarding Auction Participation Restrictions,'' WT Docket No. 12-269, 
June 13, 2013
---------------------------------------------------------------------------
    The U.S. Department of Justice (DOJ) has raised concerns that AT&T 
and Verizon might pursue a ``foreclosure strategy'' by purchasing and 
warehousing spectrum to keep it out of the hands of rivals.\8\ 
According to leading economists, such strategy is highly unlikely 
because it would require the acquisition of large amounts of expensive 
spectrum and depend on the ability of auction participants to ``read 
the minds'' of other auction bidders.\9\ But more important, there is a 
far simpler and more effective method to block any foreclosure 
strategy: the FCC should impose build-out requirements, complete with 
timetables and benchmarks, on any spectrum acquired at auction.
---------------------------------------------------------------------------
    \8\ U.S Department of Justice, Ex parte Submission, In the Matter 
of Policies Regarding Mobile Spectrum Holdings, WT Docket No. 12-269, 
April, 2013.
    \9\ Michael L. Katz, Philip A. Hail, Mark A. Israel, and Andres V. 
Lerner, Comment on the Submission of the U.S. Department of Justice 
Regarding Auction Participation Restrictions, Policies Regarding Mobile 
Spectrum Holdings, WT Docket No. 12-269, June 13, 2013.
---------------------------------------------------------------------------
    As President Obama recently noted, wireless communications and the 
digital economy have been a bright spot in the U.S. economy. Continued 
expansion of wireless services and the resulting consumer benefits they 
enable should not be placed at risk from the spectrum shortage 
identified by the Commission in its National Broadband Report. Done 
correctly, the coming incentive auction is a vital part of the 
solution. CWA respectfully urges the Commission to support continued 
growth in U.S. wireless capabilities and the jobs that will be created 
by designing an open and competitive auction in which every bidder can 
compete without handicaps for the spectrum it needs.
            Sincerely,
                                               Larry Cohen,
                                                         President.
Cc: Commissioner Jessica Rosenworcel
Commissioner Ajit Pai
                                 ______
                                 
              The Fuqua School of Business--Duke University
                                       Durham, NC, December 5, 2013

Hon. Jay Rockefeller,
Chairman,

Hon. John Thune,
Ranking Member,

Committee on Commerce, Science, and Transportation,
United Senates Senate,
Washington, DC.

Dear Chairman Rockefeller and Ranking Member Thune:

    Thank you for the opportunity to contribute to this hearing on the 
FCC's upcoming Incentive Auction. I am the Robert A. Bandeen Professor 
of Economics at Duke University and former Chief Economist at the FCC. 
I regularly research auctions, including spectrum auctions and 
incentive auctions. Verizon asked me to analyze proposed bidding 
restrictions in the upcoming incentive auction. I attach that report, 
``Economic Analysis of Proposals That Would Restrict Participation in 
the Incentive Auction,'' which has been filed with the FCC.
    Congress and the FCC are counting on the ``incentive auction'' to 
accomplish two goals: (1) transfer a substantial amount of low-
frequency spectrum from broadcasters to mobile wireless service 
providers who need the spectrum to give consumers the high-speed 
broadband they demand; and (2) thereby raise revenue for the U.S. 
Government and public safety. But the spectrum in this auction already 
is licensed to television broadcasters, and the auction rules do not 
compel them to transfer their spectrum. For this auction to work, the 
broadcasters must be induced to relinquish their spectrum. That 
inducement comes in the form of high bids from wireless carriers--if 
the broadcasters are offered enough money, they'll move; if not, they 
won't. Higher bids thus increase the amount of spectrum that can be 
transferred from broadcasters to mobile wireless providers.
    As the economics literature and my own research have shown, the 
best way to maximize auction revenues is to have as many eligible 
bidders as possible. But some, including T-Mobile and Sprint, have 
urged the FCC to adopt rules that restrict Verizon and AT&T from 
bidding in the incentive auction. Should the FCC impose such 
restrictions, the overall bids for broadcast spectrum would be lower. 
As a result, less money would be raised for the government and public 
safety, and less scarce spectrum would be made available for use by 
wireless carriers, leading to either higher prices or lower quality, or 
both, for consumers. It is also possible that the entire auction would 
fail: the bids would be too low to induce broadcasters to sell their 
spectrum.
    My report quantifies the likely effect of rules that restrict 
bidding by Verizon and AT&T. Using actual bidding data from two recent 
FCC auctions, I modeled the effect of such restrictions. I concluded 
that any restriction that materially reduces the demand that Verizon 
and AT&T bring to the Incentive Auction risks a substantial reduction 
in auction revenue and thus the amount of spectrum reallocated. If, for 
example, the FCC restricted Verizon and AT&T from bidding where they 
hold more than one-third of the low frequency spectrum, revenue would 
have been reduced by 15 percent and 40 percent in the auctions that I 
studied. Outright exclusion of AT&T and Verizon would have reduced 
revenues by 16 percent in one auction and 45 percent in the other.
    I also simulated a two-sided incentive auction and showed that the 
risks created by imposing bidding restrictions are greater than in a 
traditional auction. Indeed, my model shows that bidding restrictions 
in a two-sided auction reduce both the maximum possible revenue and the 
maximum possible quantity of repurposed spectrum that can be achieved, 
thus jeopardizing both goals of the incentive auction.
    Finally, it is not apparent to me why the government would put the 
success of this critical auction at risk based on the stated concerns 
of those who advocate for restrictions.

   First, it has been suggested that the low frequency 
        broadcast spectrum has special characteristics that make it 
        essential for wireless carriers to compete effectively. But 
        contrary to what I would expect if T-Mobile and Sprint required 
        low-frequency spectrum to compete effectively,\1\ they did not 
        participate at all in the most recent auction for low-frequency 
        spectrum (the 700 MHz Auction), and have bought almost no low-
        frequency spectrum in private market transactions. Of the 2,096 
        low frequency spectrum transactions I examined from January 
        2007 to May 2013, T-Mobile and Sprint combined bought only one. 
        And public statements by both T-Mobile and Sprint indicate 
        their belief that their spectrum positions overall provide them 
        a competitive advantage. Indeed, their highly advertised 
        unlimited data plans suggest they have sufficient spectrum to 
        handle volume increases.
---------------------------------------------------------------------------
    \1\ Sprint has the largest spectrum holdings of any wireless 
provider and has some low frequency spectrum, but Sprint has less low 
frequency spectrum than Verizon or AT&T.

   Second, even if there were some basis for a concern that 
        Sprint or T-Mobile could be ``foreclosed'' from acquiring 
        spectrum that is essential for them to compete, the FCC can 
        prevent foreclosure using tools that do not create the risks 
---------------------------------------------------------------------------
        that bidding restrictions create.

     It can impose build-out requirements requiring 
            companies that obtain licenses to deploy the spectrum 
            promptly, thus making it uneconomic for a firm to 
            ``warehouse'' spectrum it does not actually need.

     It can (as it usually does) conduct an ``anonymous'' 
            auction where no party knows who else is bidding on a 
            particular license. That would make it virtually impossible 
            for Verizon or AT&T to target a specific competitor because 
            they would not know who they were bidding against.

     And DOJ and the FCC can continue their existing 
            practice of examining the auction results in particular 
            markets and taking corrective action if competitive 
            conditions warrant.

    I thank you and the Committee for the opportunity to submit these 
materials and for your important work on this topic.
            Sincerely,
                                      Leslie M. Marx, Ph.D.
                                 ______
                                 
                                                 September 18, 2013

Economic Analysis of Proposals that Would Restrict Participation in the 
                           Incentive Auction

  By Leslie M. Marx, Ph.D., Robert A. Bandeen Professor of Economics, 
  Duke University and former Chief Economist, Federal Communications 
                               Commission

                           Table of Contents
I. Executive summary

        I.A. Empirical evidence and economic theory contradict 
        assertions that there is a risk of foreclosure if all bidders 
        are permitted to participate fully in the Incentive Auction

        I.B. The economics literature confirms that bidding 
        restrictions are expected to reduce auction revenue

        I.C. Bidding restrictions in past FCC auctions would have 
        substantially reduced revenue

        I.D. Bidding restrictions in the Incentive Auction would risk 
        auction failure

II. Introduction and scope of submission

        II.A. Relevant qualifications

        II.B. Background and scope of analysis

III. There is no evidence that Sprint and T-Mobile have been foreclosed 
from access to low-frequency spectrum

        III.A. Sprint and T-Mobile were not foreclosed from acquiring 
        spectrum in the 700 MHz and AWS spectrum auctions

                III.A.1. 700 MHz Auction

                III.A.2. AWS spectrum auction

        III.B. Evidence from secondary market transactions shows that 
        Sprint and T-Mobile have not been foreclosed

                III.B.1. Sprint and T-Mobile buy and sell spectrum in 
                the secondary market

                III.B.2. Neither T-Mobile nor Sprint has chosen to 
                acquire low-frequency spectrum in the secondary market 
                despite significant opportunities to do so

                III.B.3. Sprint and T-Mobile have failed to act on 
                opportunities to purchase low-frequency spectrum in 
                rural areas

        III.C. Evidence from pricing plans suggests a pattern of 
        capacity constraints that makes foreclosure unlikely

IV. Verizon and AT&T are unlikely to have the incentive or ability to 
foreclose Sprint and T-Mobile in the Incentive Auction

        IV.A. As a policy tool to prevent foreclosure, build-out 
        requirements have significant advantages over bidding 
        restrictions

        Iv.B. Incentives to free ride imply that there is unlikely to 
        be a unilateral incentive for significant foreclosure by either 
        Verizon or AT&T

        IV.C. Anonymous auction design makes foreclosure less likely

        IV.D. Uncertainty about the level and elasticity of supply in 
        an incentive auction makes a foreclosure strategy difficult to 
        implement

        IV.E. The market for wireless services is unlikely sufficiently 
        concentrated to make foreclosure profitable

V. Effects of bidding restrictions in the economics literature

        V.A. Papers on auction design suggest that bidding restrictions 
        are likely to reduce revenue and efficiency

        V.B. Assertions that bidding restrictions might not suppress 
        revenue are based on unrealistic hypothetical scenarios

        V.C. Empirical evidence from timber auctions further undermines 
        the revenue theory advanced by Sprint and T-Mobile

VI. Simulating the effects of bidding restrictions in past spectrum 
auctions suggests large negative effects on revenue

        VI.A. Procedure

        VI.B. Results--Auction 66--AWS spectrum auction

        VI.C. Results--Auction 73--700 MHz auction

VII. Bidding restrictions in a simulated incentive auction

        VII.A. Procedure

        VII.B. Results

                VII.B.1. Exclusion of bidders in a two-sided mechanism 
                worsens the choices available to an auctioneer

                VII.B.2. Exclusion of bidders in a two-sided mechanism 
                can cause revenue and transaction goals to be 
                unattainable

        VII.C. Proposals for a contingent auction would distort the 
        auction process and potentially contribute to auction failure

VIII. Conclusion

Appendix A. Curriculum vitae of Leslie M. Marx, Ph.D.

Appendix B. Secondary market transactions, all bands

Appendix C. Band plans for spectrum auctioned in the AWS and 700 MHz 
auctions

Appendix D. Results assuming CMA-only licenses

Appendix E. Modeling details for the simulated incentive auction
                                 ______
                                 
                            Table of Figures
Figure 1 Number of B-block licenses won by top bidders in rural and 
non-rural CMAs in 700 MHz Auction

Figure 2 Number of A-block licenses won by top bidders in rural and 
non-rural CMAs in AWS spectrum auction

Figure 3 Secondary market transactions by band, January 2007-May 2013

Figure 4 MHz*POPs traded, all bands, January 2007-May 2013 (whole 
licenses only)
Figure 5 Number of transactions of low-frequency whole licenses, 
January 2007-May 2013

Figure 6 MHz*POPs of low-frequency spectrum transacted from January 
2007 to May 2013 (whole licenses only)

Figure 7 Number of transactions of low-frequency rural licenses traded, 
January 2007-May 2013 (whole licenses only)

Figure 8 Rural MHz*POPs of low-frequency spectrum transacted January 
2007-May 2013 (whole licenses only)

Figure 9 Comparison of individual 2013 (Jan-Jun) post-paid plans 
including unlimited anytime minutes and unlimited text messaging--
monthly charge ($) and corresponding included data usage (GigaBytes)

Figure 10 The effect of spectrum aggregation caps on Verizon's and 
AT&T's ability to bid in the Incentive Auction

Figure 11 AWS spectrum auction simulation example (license AW-REA001-F)

Figure 12 700 MHz auction simulation example (license WY-CMA167-B)

Figure 13 Summary of simulated revenue reductions in the AWS spectrum 
auction

Figure 14 Summary of simulated revenue reductions in the 700 MHz 
auction

Figure 15 Expected number of trades and auction revenues in a simple 
two-sided auction

Figure 16 Impact of exclusion in a simple two-sided auction (max trades 
under no exclusion=100; max auctioneer revenue under no exclusion=100)

Figure 17 Exclusion may cause the illustrative two-sided auction to 
fail

Figure 18 Number of transactions, all bands, January 2007-May 2013 
(whole and partial licenses)

Figure 19 Auction 66 (AWS-1) band plan, reserve price, and minimum 
opening bids

Figure 20 Auction 73 (700 MHz) band plan, reserve prices, and winning 
bids

Figure 21 Simulated auction revenue change with artificial CMA-only AWS 
spectrum auction licenses in different scenarios of Verizon and AT&T 
exclusion

Figure 22 Simulated percent change in the MHz*POP with CMA-only AWS 
spectrum auction licenses in different scenarios of Verizon and AT&T 
exclusion
                                 ______
                                 
I. Executive summary

(1)  This report analyzes proposals to restrict Verizon's and AT&T's 
            participation in the Federal Communication Commission's 
            (FCC's) upcoming Incentive Auction. My key conclusions are:

    Foreclosure

    Proposals to restrict the participation of Verizon and AT&T 
        in the Incentive Auction do not address any real world problem. 
        The assertion that some smaller wireless operators are at risk 
        of being foreclosed from the spectrum necessary for them to 
        compete is inconsistent with those firms' own behavior, 
        including their repeated decisions to forego opportunities to 
        acquire low-frequency spectrum. Other evidence, including 
        Sprint's and T-Mobile's marketing of unlimited usage plans, 
        further belies the assertion that those operators face capacity 
        constraints that could be exploited though a foreclosure 
        strategy.

    Even if (despite the evidence to the contrary) a strategy 
        by Verizon and AT&T to attempt to foreclose rivals were 
        rational, implementing it would be difficult. A foreclosure 
        strategy is particularly difficult to implement in the context 
        of the Incentive Auction because higher bids on the part of 
        buyers result in a greater quantity of spectrum being made 
        available from sellers, thus increasing the costs of 
        foreclosure. In addition, in an auction with anonymous bidding, 
        it would be difficult for AT&T and Verizon to know whether they 
        are bidding against the foreclosure targets or against one 
        another. Furthermore, even if a foreclosure strategy were 
        feasible, Verizon and AT&T would each have an incentive to 
        ``free ride'' on the other's willingness to pay supra-
        competitive prices for spectrum.

    Bidding Restrictions

    Based on the economics literature, empirical data from past 
        FCC auctions, and a model of a two-sided auction mechanism, I 
        conclude that restricting Verizon and AT&T in the Incentive 
        Auction would put at risk its twin priorities of raising 
        significant revenue and reallocating a substantial amount of 
        spectrum from broadcast to mobile wireless services.

      My simulations of past auctions show that, without 
            Verizon and AT&T, revenue in the 700 MHz auction would have 
            been 45 percent lower and revenue in the AWS-1 auction 
            would have been 16 percent lower.

      I also analyze bidding restrictions that would not 
            fully exclude Verizon or AT&T, such as spectrum aggregation 
            caps. The evidence indicates that any restriction that 
            causes a material reduction in the participation of Verizon 
            and AT&T risks a significant reduction in auction revenue 
            and a failure of the auction.

    Parties supporting auction restrictions speculate that they 
        might actually increase revenue by ensuring that smaller firms 
        are not discouraged from participating. But they support that 
        conjecture only with hypothetical examples. Their theories are 
        undermined by the empirical evidence, including the historical 
        fact that smaller firms routinely compete successfully in 
        auctions despite the unrestricted presence of larger bidders. 
        Although Sprint's and T-Mobile's economists speculate that 
        restricting larger bidders might encourage small bidders to 
        participate more robustly, they do not assert that their own 
        clients would choose not to participate because of the 
        unrestricted presence of Verizon and AT&T.

    I also analyze T-Mobile's complex proposal to successively 
        ease the proposed restrictions, after each round and on a 
        market-by-market basis, if the restrictions cause the auction 
        to fall short of an unspecified revenue target. That proposal 
        would not avoid the revenue-suppressing effects of the auction 
        restrictions. In addition, the added complexity and incentives 
        created for strategic bidding threaten to distort auction 
        outcomes.

  (2)  Both the risks and costs of auction failure are further 
            heightened by the overall complexity of the Incentive 
            Auction and the significant difficulties associated with 
            reallocating spectrum from broadcast to mobile wireless at 
            a later date, if it is not reallocated as part of the 
            Incentive Auction. Therefore, in the absence of evidence 
            that anticompetitive foreclosure is likely (which has not 
            been presented by any party), the FCC should avoid imposing 
            restrictions on participation in the Incentive Auction. And 
            if the FCC nevertheless believes that evidence of a 
            foreclosure risk does exist, it can be addressed through 
            other policies, such as build-out requirements, that do not 
            present the same risk of auction failure.

      Empirical evidence and economic theory contradict 
            assertions that there is a risk of foreclosure if all 
            bidders are permitted to participate fully in the Incentive 
            Auction

  (3)  There is no basis for assertions that Sprint or T-Mobile has 
            been foreclosed from acquiring low-frequency spectrum. The 
            evidence points instead to a choice by Sprint and T-Mobile 
            not to compete for low-frequency spectrum, rather than 
            foreclosure from access to it. These carriers have not 
            purchased it in the secondary market, where there were 
            2,153 licenses available since 2007: Sprint bought none and 
            T-Mobile bought only one. And they did not purchase it in 
            the FCC's recent auction of low-frequency spectrum, the 700 
            MHz auction in 2008, despite the claimed need for the low-
            frequency spectrum on offer there. It is particularly 
            notable that Sprint and T-Mobile, despite the claimed need 
            for low-frequency spectrum in order to build out rural 
            areas, have acquired no such spectrum in rural markets 
            despite numerous opportunities to do so.

  (4)  Evidence on pricing plans is inconsistent with a finding that 
            Verizon and AT&T have an incentive to ``warehouse'' 
            spectrum in order to keep T-Mobile and Sprint capacity-
            constrained. Sprint and T-Mobile both tend to offer plans 
            with unlimited data usage, and T-Mobile explicitly touts 
            its network as being less congested than that of its 
            competitors. By contrast, Verizon and AT&T tend to offer 
            plans that require incremental payments for data use beyond 
            a specified level. That pattern is the opposite of what 
            would be expected under theoretical conditions where the 
            smaller national competitors' access to a key input is 
            constrained.

  (5)  Head-to-head competition between AT&T and Verizon where no other 
            bidders were present accounted for more than $4.2 billion 
            in revenue during the 700 MHz auction. Those dollars would 
            not have been spent by Verizon and AT&T if the purpose of 
            their bidding had been simply to keep spectrum out of the 
            hands of other operators.

  (6)  Concerns that Verizon and AT&T might pursue a foreclosure 
            strategy against Sprint and T-Mobile also ignore a number 
            of key features of the market and the Incentive Auction. 
            First, the FCC can directly address the issue using tools 
            that would not create a risk of auction failure, such as 
            imposing build-out requirements on licenses won in the 
            Incentive Auction. Second, free-rider issues make 
            foreclosure less likely because Verizon and AT&T would each 
            prefer that the other incur the costs of such a strategy. 
            Third, anonymous auction design makes a foreclosures 
            strategy difficult and costly to implement. Fourth, a 
            foreclosure strategy is particularly difficult to implement 
            in the context of an incentive auction because higher bids 
            on the part of buyers result in a greater quantity of 
            spectrum being made available from sellers. Fifth, the 
            market for mobile wireless services does not appear to be 
            sufficiently concentrated to support the profitability of a 
            foreclosure strategy.
I.B. The economics literature confirms that bidding restrictions are 
        expected to reduce auction revenue

  (7)  The theoretical literature concludes that excluding bidders 
            reduces auction revenue. In addition, empirical evidence on 
            the effects of bidding restrictions at U.S. Forest Service 
            timber auctions shows that set-asides reduced auction 
            revenue and the amount of timber sold. The literature also 
            identifies key ways in which a two-sided auction differs 
            from the more familiar one-sided auction. In particular, a 
            two-sided auction can be more sensitive to the exclusion of 
            buyers than a one-sided auction.

  (8)  Thus, the literature indicates that regulators should expect 
            reductions in revenue and the quantity transacted as a 
            result of restrictions on bidders at the Incentive Auction. 
            In addition, a reduction in the amount of spectrum 
            transacted in the Incentive Auction means that less 
            spectrum will be reallocated from broadcast use to mobile 
            wireless services. This potentially has broader economic 
            consequences given that there appears to be a consensus 
            that the wireless industry as a whole is likely to suffer 
            from a spectrum shortage as data usage continues to 
            increase. Failure to promote the FCC's goal in its National 
            Broadband Plan to repurpose a substantial amount of 
            spectrum for wireless operations could lead to higher 
            prices for consumers, reduced quality of services, and 
            stalled innovation.\1\
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    \1\ See, e.g., National Broadband Plan: Connecting America at 
p.xii.
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I.C. Bidding restrictions in past FCC auctions would have substantially 
        reduced 
        revenue

  (9)  I simulate the effects of bidding restrictions in two previous 
            FCC auctions, Auction 66, the AWS spectrum auction, and 
            Auction 73, the 700 MHz auction. The simulation results 
            show that bidding restrictions at these past FCC auctions 
            would have lowered revenues and prices and negatively 
            affected efficiency. The results show that, in the absence 
            of Verizon and AT&T, auction revenues would have been 16 
            percent lower in the FCC's 2006 AWS spectrum auction and 45 
            percent lower in the 2008 700 MHz spectrum auction. In the 
            AWS auction, T-Mobile would have benefited from a 
            substantial subsidy if bidding restrictions had been 
            imposed on Verizon and AT&T: in the simulation, the average 
            price per MHz*Pop that T-Mobile pays for the licenses it 
            wins falls by 18 percent.

  (10)  I also analyze the impact of spectrum share caps that, as 
            proposed by some parties, fall short of outright exclusion, 
            and find revenue reductions of 15 percent in the AWS 
            spectrum auction and of 41 percent in the 700 MHz auction. 
            While the simulation of such caps in past auctions cannot 
            be expected to provide precise estimates of the impact of 
            such policies in the Incentive Auction, the empirical 
            evidence indicates that any policy that leads to a 
            significant reduction in the participation of Verizon and 
            AT&T risks a significant negative revenue impact. The 
            larger the reduction in participation, the larger will be 
            the negative impact on revenue. As these simulations show, 
            the loss of Verizon and AT&T as active competitors in the 
            auction leads to substantial reductions in revenue.
I.D. Bidding restrictions in the Incentive Auction would risk auction 
        failure

  (11)  I simulate the effects of bidding restrictions in a two-sided 
            auction using a theoretical model of buyer and seller 
            behavior in a two-sided auction, one where sellers must be 
            enticed to give up their assets by the magnitude of the 
            buyers' bids. This model illustrates how the risk of 
            auction failure is heightened where bidding restrictions 
            are imposed in the context of a two-sided auction.

  (12)  Bidding restrictions would reduce the maximum possible revenue 
            and the maximum possible quantity of repurposed spectrum 
            that can be achieved. In fact, the entire set of possible 
            outcomes is shifted in the direction of lower revenue and a 
            lower quantity of repurposed spectrum. If a minimum 
            combination of revenue and quantity is required in order 
            for the auction to succeed, then the elimination of two 
            buyers could make that objective impossible to achieve, 
            causing the auction to fail.

  (13)  Moreover, it is my understanding that there may be a minimum 
            amount of spectrum the FCC will need to clear in the 
            reverse auction in order to offer spectrum in the forward 
            auction that is attractive to a majority of wireless 
            operators. Specifically, it is my understanding that in any 
            market where less than 72 MHz of spectrum is available to 
            be sold to wireless operators, it may be challenging or 
            even impossible to configure a technically viable band plan 
            featuring paired spectrum. To the extent that technical 
            considerations dictate a quantity floor below which the 
            Incentive Auction may not fall, the risk that auction 
            restrictions would cause auction failure is increased.
II. Introduction and scope of submission

  (14)  I have been asked by Verizon to evaluate the claim that Verizon 
            (possibly in conjunction with AT&T) has an incentive and 
            ability to foreclose Sprint and T-Mobile from gaining 
            access to low-frequency spectrum through the FCC's upcoming 
            Incentive Auction, which is meant to reallocate spectrum 
            from broadcasters to providers of mobile wireless 
            services.\2\ In addition, I have been asked to analyze the 
            likely effects of some of the proposals to limit Verizon's 
            and AT&T's participation in the Incentive Auction.
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    \2\ For background on the FCC's Incentive Auction, see http://
www.fcc.gov/incentiveauctions. For additional discussion, see Simon 
Loertscher, Leslie M. Marx, and Tom Wilkening (2013), ``A Long Way 
Coming: Designing Centralized Markets with Privately Informed Buyers 
and Sellers,'' Working Paper, Duke University, available at https://
faculty.fuqua.duke.edu/marx/bio/papers/incentiveauction.pdf. An early 
proposal suggesting that the FCC put in place an incentive auction type 
of mechanism was put forward by Evan Kwerel and John Williams (2002), 
``A Proposal for a Rapid Transition to Market Allocation of Spectrum,'' 
OPP Working Paper No. 38, Federal Communications Commission.

  (15)  A number of parties argue in submissions to the FCC that, 
            because of purported concerns about foreclosure of Sprint, 
            T-Mobile, or other wireless operators, the FCC should limit 
            Verizon's and AT&T's participation in the Incentive 
            Auction. \3\ However, the principal goals of the Incentive 
            Auction are to reallocate spectrum to a higher-valued use 
            and to raise revenue to fund other priorities. Therefore, 
            limiting participation in the Incentive Auction by two 
            buyers that have shown that they place a high value on 
            spectrum puts the goals of the Incentive Auction at risk.
---------------------------------------------------------------------------
    \3\ See, e.g., U.S. Department of Justice, ``Ex Parte Submission of 
the United States Department of Justice,'' WT Docket No. 12-269, April 
11, 2013 (DOJ ex parte).
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II.A. Relevant qualifications

  (16)  I am the Robert A. Bandeen Professor of Economics at the Fuqua 
            School of Business at Duke University. In addition, I am a 
            Partner at the economic consulting firm Bates White, LLC. I 
            received my PhD in Economics from Northwestern University. 
            I served as Chief Economist for the FCC from August 2005 to 
            August 2006 and served as a consultant to the Wireless 
            Telecommunications Bureau of the FCC from August 2006 to 
            August 2007. I have published numerous articles on various 
            industry organization topics and on auction theory, and 
            have recently focused on the economics of two-sided 
            auctions. My CV is attached as Appendix A.

  (17)  My opinions are based on my training and experience as an 
            economist, including my experience working with the FCC, 
            and my analysis of the available evidence and data.
II.B. Background and scope of analysis

  (18)  In 1993, the U.S. Congress directed the FCC to design and 
            implement auctions to assign spectrum licenses to providers 
            of mobile wireless services. Although nothing like that had 
            been done before, the first auction was held in 1994, and 
            since then the FCC has held more than 80 auctions, issued 
            more than 36,000 licenses, and raised more than $50 billion 
            for the United States Treasury.\4\
---------------------------------------------------------------------------
    \4\ Congressional Hearing on ``Keeping the New Broadband Spectrum 
Law on Track'' (U.S. House Energy and Commerce Committee, 12 Dec. 
2012), statement of FCC Commissioner Jessica Rosenworcel.

  (19)  In 2012, the U.S. Congress directed the FCC to design and 
            implement a new type of auction. The upcoming Incentive 
            Auction will create a centralized market for the exchange 
            of spectrum licenses in the 600 MHz frequency band from 
---------------------------------------------------------------------------
            broadcasters to providers of mobile wireless services.

  (20)  The authorizing legislation for the Incentive Auction states 
            that, in order for any transactions to occur, the sale of 
            licenses to providers of wireless services must raise funds 
            sufficient to cover: (i) the accepted bids of the 
            television broadcasters, (ii) the FCC's out-of-pocket costs 
            of conducting the auction, and (iii) the expected 
            reimbursement costs of broadcasters and certain other 
            parties associated with the license reassignments occurring 
            as part of the auction.\5\ The legislation authorizing 
            incentive auctions does not explicitly require the FCC to 
            raise any additional revenue, but it does state that any 
            additional revenue shall be transferred to the Public 
            Safety Trust Fund for various enumerated purposes.\6\ 
            Statements by members of Congress and FCC Commissioners 
            indicate that the auction is expected to generate 
            sufficient revenue to fund the FirstNet public safety 
            network.\7\
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    \5\ Public Law 112-96, Section 6403(c)(2)(B), http://www.gpo.gov/
fdsys/pkg/PLAW-112publ96/pdf/PLAW-112publ96.pdf.
    \6\ See Sec. 6403(d)(4)(A).
    \7\ In Congressional Hearings on ``Keeping the New Broadband 
Spectrum Law on Track'' (U.S. House Energy and Commerce Committee, 12 
Dec. 2012), FCC Commissioner Ajit Pai argued that if the incentive 
auction did not yield any net revenues, ``That would mean no money for 
the First Responder Network Authority (FirstNet) to build out a 
nationwide, interoperable public safety broadband network; no money for 
state and local first responders; no money for public safety research; 
no money for deficit reduction; and no money for next-generation 911 
implementation. Most of the problem stems from the structure of the 
proposed auction. The only closing condition set forth in the NPRM is 
that the revenues from the forward auction must cover the costs of the 
reverse auction.'' In the question-and-answer portion of the hearing, 
the FCC Commissioners were asked, ``Should the Commission ensure that 
the auction raises $7b [for a nationwide interoperable public safety 
network]?'' The responses were: ``Pai: Yes, we should focus on 
maximizing revenue. Rosenworcel: Yes, absolutely. Clyburn: Absolutely. 
McDowell: Yes. Genachowski: Yes.''

  (21)  At the same time, the Department of Justice (DOJ) and various 
            parties to the Spectrum Holdings and Incentive Auctions 
            proceedings have expressed concerns about allowing AT&T and 
            Verizon to acquire spectrum licenses at the Incentive 
            Auction.\8\ DOJ expressed particular concerns that Verizon 
            and AT&T might acquire the low-frequency spectrum in rural 
            areas only to hamper the ability of other carriers to 
            compete in those markets. DOJ argues that low-frequency 
            spectrum is particularly important for providing coverage 
            in rural areas and Sprint and T-Mobile have ``virtually 
            none.'' \9\
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    \8\ DOJ ex parte.
    \9\ DOJ ex parte at p.14.

  (22)  Assistant Attorney General Bill Baer later clarified in 
            testimony to the Senate Judiciary Committee that the DOJ's 
            submission was designed to ``urge the FCC. . .to take a 
            look. . .at whether or not the playing field is already 
            tilted in favor of big guys who may or may not--we were not 
            making a factual judgment--. . . [be] using what they 
            already have and use that as a factor in deciding what 
            rules to set in the auction.'' \10\
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    \10\ Senate Judiciary Hearing, April 16, 2013, available at http://
www.judiciary.senate.gov/resources/webcasts/index.cfm.

  (23)  Nonetheless, DOJ states that, ``The Commission's policies, 
            particularly regarding auction of new low-frequency 
            spectrum, can potentially improve the competitive landscape 
            by preventing the leading carriers from foreclosing their 
            rivals from access to low-frequency spectrum.'' \11\ It 
            goes on to say, ``[f]or instance, rules that ensure that 
            the two smaller nationwide carriers are not foreclosed from 
            access to more spectrum, and particularly low-frequency 
            spectrum, could benefit consumers. Auction rules of this 
            nature would ensure the smaller nationwide networks, which 
            currently lack substantial low-frequency spectrum, would 
            have an opportunity to acquire it.'' \12\
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    \11\ DOJ ex parte at p.14.
    \12\ DOJ ex parte at p.23.

  (24)  In addition, in reply comments to the FCC on the design of the 
            Incentive Auction, other commenters suggest the imposition 
            of rules that would restrict the acquisition of additional 
            spectrum by certain firms.\13\
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    \13\ As reported in the communications trade press, ``[a]mong the 
areas of continuing disagreement is whether the FCC should impose a cap 
on the ability of Verizon Wireless and AT&T to buy spectrum in the 
auction.'' (``Sharp Disagreements Remain on Incentive Auction Rules,'' 
Communications Daily, March 15, 2013) See, for example, the comments by 
T-Mobile: ``One of the strongest deterrents to widespread participation 
in the 600 MHz auction is the prospect that bidding will be pointless 
if the Nation's two largest carriers--each of which has a market 
capitalization roughly ten times that of its next largest competitor--
are given an unfettered ability to acquire all of the spectrum offered. 
Most commenters, therefore, support imposing a cap on spectrum 
acquisitions. . . .'' (Reply Comments of T-Mobile USA, Inc., GN Docket 
No. 12-268, March 12, 2013, pp.iv-v, available at http://apps.fcc.gov/
ecfs/document/view?id=7022130363, accessed March 20, 2013) Other 
examples include the reply comments of the Competitive Carriers 
Association and Cellular South, Inc. in the same docket.

  (25)  As I show in this report, there is substantial conflict between 
            the desire to raise revenue and reallocate spectrum through 
            the Incentive Auction and the proposals to restrict the 
            ability of Verizon and AT&T to compete in the auction. Such 
            restrictions would potentially overcomplicate an already 
            complex auction and put at risk achieving the dual goals of 
            raising revenue and reallocation of spectrum. In addition, 
            I show that historical bidding behavior indicates that 
            restrictions on Verizon and AT&T are unlikely to 
            substantially affect the allocation of licenses in rural 
            areas, which appeared to be the key concern of DOJ.
III. There is no evidence that Sprint and T-Mobile have been foreclosed 
        from access to low-frequency spectrum

  (26)  Throughout this submission, I define low-frequency spectrum as 
            spectrum that is at a frequency below one GHz.\14\ Data on 
            the availability of low-frequency spectrum--both at auction 
            and on the secondary market--are relevant for two reasons. 
            First, to the extent that there are significant 
            opportunities for wireless operators to acquire low-band 
            spectrum through vehicles other than the Incentive Auction, 
            such firms have the ability to bypass any theoretical 
            ``foreclosure'' by Verizon and AT&T. Second, assertions 
            that Sprint's and T-Mobile's ability to compete are reduced 
            if they are not guaranteed access to low-frequency spectrum 
            in the Incentive Auction can be tested against the conduct 
            of these carriers in pursuing recent opportunities to 
            acquire such spectrum.
---------------------------------------------------------------------------
    \14\ This is a common definition of ``low frequency'' in this 
context as noted in the DOJ ex parte at p.12.

  (27)  I conclude, based on the empirical evidence, that the existence 
            of a liquid market for low-frequency spectrum undercuts the 
            assertion that there is a risk that AT&T and Verizon could 
            foreclose rivals from such spectrum by buying up all 
            available spectrum. I also conclude that the behavior of 
            Sprint and T-Mobile, who have consistently failed to 
            purchase low-frequency spectrum even when given numerous 
            recent opportunities to do so, undercuts the assertion that 
            either of those firms is at risk of being ``foreclosed'' 
            from an input that is crucial to their ability to compete.
III.A. Sprint and T-Mobile were not foreclosed from acquiring spectrum 
        in the 700 MHz and AWS spectrum auctions
III.A.1.  700 MHz Auction

  (28)  The 2008 700 MHz auction was a large, relatively recent auction 
            where the FCC auctioned 80 MHz of low-frequency (700 MHz) 
            spectrum. It concluded in March 2008. Licenses sold in the 
            700 MHz auction can be used for mobile wireless services, 
            including voice and mobile broadband, among other things.

  (29)  Neither T-Mobile nor Sprint participated in the 700 MHz 
            auction. By contrast, Verizon and AT&T, along with 99 other 
            entities, actively participated. That 99 other entities 
            participated is evidence that Verizon's and AT&T's 
            participation in that auction did not discourage other 
            interested buyers from bidding in the auction.

  (30)  It is useful to focus on the 700 MHz B-block licenses because 
            these licenses cover areas the size of Cellular Market 
            Areas (CMA) and thus can be easily defined as rural or non-
            rural.\15\ As reported in Figure 1, the majority of rural 
            CMA-level licenses (72 percent in terms of numbers of 
            licenses and 62 percent in terms of MHz*POPs \16\) were won 
            by entities other than Verizon and AT&T.\17\ Thus, DOJ's 
            concern that Verizon and AT&T may foreclose other buyers of 
            the low-frequency spectrum in rural areas is misplaced.
---------------------------------------------------------------------------
    \15\ In fact, the FCC identifies certain CMAs as rural areas.
    \16\ The term ``MHz-POPs'' is defined as the product of the number 
of megahertz associated with a license and the population of the 
license's service area, both of which affect the value of a license. 
Because trades can involve licenses of different sizes, both in terms 
of MHz and population coverage, an examination of the MHz*POP 
associated with trades provides additional information.
    \17\ 72 percent is calculated by dividing the number of rural 
licenses won by participants other than Verizon and AT&T (305) by the 
total number of rural licenses (425). Similarly 62 percent is 
calculated by dividing 488 by 783.
---------------------------------------------------------------------------
Figure 1 Number of B-block licenses won by top bidders in rural and 
        non-rural CMAs in 700 MHz Auction

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations based on the FCC data and documentation.
III.A.2. AWS spectrum auction

  (31)  In order to further evaluate claims that Sprint and T-Mobile 
            have been foreclosed from acquiring spectrum suitable to 
            expand coverage in rural areas, I analyze data from the 
            2006 AWS spectrum auction. The AWS spectrum auction, 
            referred to as the ``AWS-1 Auction,'' was another large, 
            relatively recent auction. It concluded in September 2006. 
            Licenses sold in the AWS-1 spectrum auction can be used for 
            mobile wireless services, including voice and mobile 
            broadband. In this section, I focus on the AWS-1 A-block 
            licenses, which are 20 MHz licenses defined over the 734 
            CMAs. It is useful for the purposes of this section to 
            focus on the A-block licenses because CMA-sized areas can 
            more easily be defined as either rural or non-rural.

  (32)  Figure 2 reports the number and MHz*POPs of A-block licenses 
            won by bidder broken down by rural and non-rural CMAs. The 
            vast majority of these rural licenses (96 percent in terms 
            of numbers of licenses and 95 percent in terms of MHz*POPs) 
            were won by an entity other than Verizon, AT&T, T-Mobile, 
            or Sprint. This suggests that Sprint and T-Mobile had an 
            opportunity to acquire additional spectrum that would have 
            expanded their rural coverage, but chose not to, even 
            though Verizon and AT&T were not actively bidding on these 
            licenses themselves either to acquire the spectrum or to 
            keep it out of the hands of Sprint and T-Mobile.
Figure 2 Number of A-block licenses won by top bidders in rural and 
        non-rural CMAs in AWS spectrum auction

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations based on the FCC data and documentation.
III.B. Evidence from secondary market transactions shows that Sprint 
        and T-Mobile have not been foreclosed

  (33)  The availability of low-frequency spectrum on the secondary 
            market would make it difficult for Verizon and AT&T to 
            implement a successful foreclosure strategy at the 
            Incentive Auction. AT&T and Verizon cannot prevent other 
            providers from purchasing low-frequency (or any other) 
            spectrum on the secondary market, unless they stand ready 
            to purchase all or most of the available supply--and the 
            evidence shows that they have not.

  (34)  In addition, past secondary market transactions suggest that 
            Sprint and T-Mobile have not been particularly interested 
            in acquiring low-frequency spectrum--a fact that undercuts 
            the assertion that they are at risk of being foreclosed.

  (35)  Verizon gave me data, taken from the publicly available 
            sources, on all of the assignment and transfer applications 
            that the FCC received from January 8, 2007, to January 30, 
            2013. These transactions were consummated between February 
            16, 2007, and May 10, 2013. I use these data to investigate 
            whether the empirical evidence supports the claim that 
            Sprint, T-Mobile, or other wireless operators have not had 
            opportunities to substantially increase their holdings of 
            low-frequency spectrum.

  (36)  The secondary market transactions data contain 5,153 spectrum 
            trades.\18\ Eighty-eight percent of these transactions 
            (4,510 out of 5,153) involved the transfer of the whole 
            license. In the remaining 12 percent of transactions, the 
            license was partitioned or disaggregated. When only one 
            part of a license is transferred, the database does not 
            report the fraction of the total licensed spectrum that was 
            traded.
---------------------------------------------------------------------------
    \18\ I excluded 23 internal trades between two entities both under 
Verizon's control (2) or AT&T's control (21).

  (37)  Figure 3 reports the number of whole and partial license 
            transactions and the MHz*POPs million \19\ transacted as a 
            part of whole license transfers. Because only 12 percent of 
            transactions involved the partial assignment of a license 
            and because the data do not specify the size of the partial 
            assignment, I exclude these transactions from my analysis 
            of secondary market transactions.
---------------------------------------------------------------------------
    \19\ Because trades can involve licenses of different sizes, both 
in terms of MHz and population coverage, an examination of the MHz*POP 
associated with trades provides additional information.
---------------------------------------------------------------------------
Figure 3 Secondary market transactions by band, January 2007-May 2013

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Source: Calculations based on FCC data and documentation.
III.B.1. Sprint and T-Mobile buy and sell spectrum in the secondary 
        market

  (38)  By looking at all transactions, not just low-frequency 
            transactions, I establish that Sprint and T-Mobile actively 
            participated in the secondary market, engaging in 
            approximately the same number of buy transactions as sell 
            transactions. That active participation suggests that 
            Sprint and T-Mobile were able to acquire useful spectrum 
            through this channel, but as I show below, they did not 
            take advantage of the secondary market to acquire low-
            frequency spectrum. Figure 18 in Appendix B reports the 
            number of transactions by buyer and seller.

  (39)  As shown in Figure 4 below, the evidence in terms of MHz*POPs 
            traded (based on the 4,510 trades involving whole licenses) 
            shows that both Sprint and T-Mobile were net buyers of 
            spectrum in secondary market transactions, including 
            purchases of spectrum from Verizon and AT&T. Furthermore, 
            the data show that Sprint and T-Mobile could have purchased 
            an additional 24,233 million MHz*POPs that spectrum holders 
            other than Verizon and AT&T put up for sale. (These 24,233 
            million MHz*POPs correspond roughly to an 80 MHz license 
            covering the entire United States.) Figure 4 shows that T-
            Mobile was able to increase its spectrum holdings 
            substantially through secondary market transactions and 
            that it could have purchased about six times more from 
            sellers other than Verizon and AT&T than it decided to buy. 
            (T-Mobile purchased 4,180 million MHz*POPs from ``Other'' 
            sellers, but 24,233 million MHz*POPs sold by those other 
            sellers were purchased by ``Other'' buyers.) The fact that 
            Sprint only purchased 304 out of 24,233 million MHz*POPs 
            from ``Other'' sellers suggests that although the secondary 
            market was relatively active across most commercial 
            spectrum bands, Sprint failed to take advantage of 
            opportunity to acquire spectrum. The evidence from these 
            secondary market transactions does not support claims that 
            Sprint and T-Mobile have been anticompetitively foreclosed 
            from acquiring spectrum.
Figure 4 MHz*POPs traded, all bands, January 2007-May 2013 (whole 
        licenses only)

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations based on FCC data and documentation.
III.B.2. Neither T-Mobile nor Sprint has chosen to acquire low-
        frequency spectrum in the secondary market despite significant 
        opportunities to do so

  (40)  Since January 2007, there have been 2,153 transactions of low-
            frequency spectrum. T-Mobile bought one license and Sprint 
            did not buy any.\20\ Although Verizon and AT&T have been 
            active buyers of low-frequency spectrum, a significant 
            proportion of the spectrum transacted did not involve 
            Verizon or AT&T and thus could not have been subject to 
            foreclosure by Verizon and AT&T.
---------------------------------------------------------------------------
    \20\ T-Mobile bought a 25 MHz Cellular A license from SunCom 
Wireless Holdings covering CMA 629 (South Carolina 5--Georgetown) where 
about 375,000 people currently reside. This was a part of T-Mobile's 
acquisition of SunCom Wireless Holdings, Inc. that was announced in 
September 2007 and consummated in February 2008. In addition to one 25 
MHz Cellular A license, T-Mobile also received 27 PCS licenses as part 
of the acquisition.

  (41)  In particular, focusing on the 2,096 low-frequency transactions 
            that involved the transfer of a whole license, Figure 5 
            shows that--at a minimum--Sprint or T-Mobile could have 
            been the buyer in 729 transactions when the buyer and 
            seller were firms other than Verizon or AT&T. Figure 6 
            reports the quantities of low-frequency spectrum transacted 
            in MHz*POPs rather than in numbers of transactions. 
            Approximately thirty percent of the MHz*POPs of low-
            frequency spectrum transacted (3,691 million out of 12,832 
            million) were sold and purchased by a firm other than 
            Verizon or AT&T and thus could not have been subject to 
            foreclosure by Verizon or AT&T this is roughly the same 
            MHz*POPs as a 12 MHz license covering the entire United 
            States. This evidence supports the conclusion that Sprint 
            and T-Mobile have had opportunities to purchase low-
            frequency spectrum but have chosen not to.
Figure 5 Number of transactions of low-frequency whole licenses, 
        January 2007-May 2013

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations based on FCC data and documentation.
Figure 6 MHz*POPs of low-frequency spectrum transacted from January 
        2007 to May 2013 (whole licenses only)

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations based on FCC data and documentation.

  (42)  Verizon offered for sale all of its licenses in two blocks of 
            the Lower 700 MHz band in 2013. This spectrum could have 
            provided significant coverage in low-frequency spectrum for 
            T-Mobile or Sprint, but neither company bought any of these 
            licenses. The CFO of Deutsche Telekom said, ``We are not 
            interested in 700 megahertz spectrum at this time [. . .] 
            [T]his spectrum is nothing which would be attractive for 
            us.'' \21\
---------------------------------------------------------------------------
    \21\ Q1 2012 Investor call (May 10, 2012).
---------------------------------------------------------------------------
III.B.3. Sprint and T-Mobile have failed to act on opportunities to 
        purchase low-frequency spectrum in rural areas

  (43)  In the previous section, I show that there were opportunities 
            for firms to purchase low-frequency spectrum on the 
            secondary market, but that Sprint and T-Mobile did not take 
            advantage of those opportunities. The evidence shows that 
            they passed up these opportunities even in rural areas. 
            This is noteworthy because DOJ has indicated a particular 
            concern about potential foreclosure in rural markets, where 
            low-frequency spectrum can facilitate deployment of 
            wireless service with fewer cell sites because of its 
            ability to propagate signals further.

  (44)  The 2007-2013 data show that there were significant 
            opportunities to purchase low-frequency spectrum in rural 
            areas, which the FCC defines as areas where population 
            density is currently below 100 inhabitants per square 
            mile.\22\ According to the transactions data, Sprint and T-
            Mobile made no purchases of low-frequency spectrum in rural 
            areas.
---------------------------------------------------------------------------
    \22\ ``We establish a baseline definition of `rural area' as those 
counties (or equivalent) with a population density of 100 persons per 
square mile or less, based upon the most recently available Census 
data.'' Facilitating the Provision of Spectrum-Based Services to Rural 
Areas and Promoting Opportunities for Rural Telephone Companies to 
Provide Spectrum-Based Services, Report and Order, 19 FCC Rcd 19078, at 
 11, 79 (2004).

  (45)  Figure 7 and Figure 8 below report transactions of low-
            frequency spectrum in rural areas. A significant proportion 
            of the transactions involves neither Verizon nor AT&T as 
            either the buyer or seller and thus could not have been 
            subject to anticompetitive foreclosure by either. Yet of 
            these 469 low-frequency licenses sold in rural areas, 
            Sprint and T-Mobile bought none.
Figure 7 Number of transactions of low-frequency rural licenses traded, 
        January 2007-May 2013 (whole licenses only)

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations based on FCC data and documentation.
Figure 8 Rural MHz*POPs of low-frequency spectrum transacted January 
        2007-May 2013 (whole licenses only)

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations based on FCC data and documentation.

  (46)  There may be limitations to secondary market opportunities, and 
            engaging in a sequence of small secondary market 
            transactions may not be attractive for a carrier because of 
            the risk that the carrier may be unable to purchase 
            sufficient licenses at attractive prices to support its 
            business plan. But T-Mobile's and Sprint's failures to make 
            any meaningful attempts to acquire low-frequency spectrum, 
            particularly rural low-frequency spectrum, suggest that 
            they have chosen to target other bands of spectrum, not 
            that they have been foreclosed. And the active secondary 
            market for spectrum, including for rural low-frequency 
            spectrum, would make it difficult for Verizon and AT&T to 
            successfully execute a foreclosure strategy in the future.
III.C. Evidence from pricing plans suggests a pattern of capacity 
        constraints that makes foreclosure unlikely

  (47)  DOJ states that, ``[a]bsent compelling evidence that the 
            largest incumbent carriers are already using their existing 
            spectrum licenses efficiently and their networks are still 
            capacity-constrained, the Department would normally expect 
            the highest use value for new spectrum that is in the 
            public interest to come from rivals to the leading firms 
            that could effectively make use of additional spectrum to 
            expand capacity, improve coverage, or introduce new 
            services in an effort to challenge the dominant firms.'' 
            \23\
---------------------------------------------------------------------------
    \23\ DOJ ex parte at p.12.

  (48)  This report does not address the extent to which mobile 
            wireless service providers are capacity constrained. That 
            question has been separately addressed by economists and 
            industry analysts. For example, Allan Shampine submitted a 
            declaration on behalf of Verizon in which he calculated the 
            customers per MHz*POP of various wireless operators and 
            concluded that Verizon and AT&T use their spectrum more 
            intensively than other operators, including T-Mobile and 
            Sprint.\24\ And a recent market research report by Deutsche 
            Bank labels Sprint the ``new spectrum powerhouse'' and 
            emphasizes that Sprint has ``more bandwidth available for 
            LTE than all of its national competitors combined.'' \25\ 
            Similarly, Macquarie Capital recently commented that Sprint 
            and T-Mobile have a ``strong spectrum and network capacity 
            position'' and that Verizon and AT&T ``will need to 
            purchase additional spectrum'' within the next two 
            years.\26\
---------------------------------------------------------------------------
    \24\ Declaration of Allan L. Shampine, In the Matter of Policies 
Regarding Mobile Spectrum Holdings, Docket No. 12-269 (Nov. 26, 2012), 
at 18-19, available at http://apps.fcc.gov/ecfs/document/
view?id=7022067975.
    \25\ See Brett Feldman et al., Deutsche Bank Market Reports 
Research, Sprint Nextel Corp. The New Spectrum Powerhouse; Restating 
Coverage at Buy at 1, available at http://apps.fcc.gov/ecfs/document/
view?id=7520931274.
    \26\ July 29, 2013 Macquarie Capital report, ``US Telecom Services: 
Spectrum and network capacity vs. traffic demand for the Big 4 wireless 
carriers.''

  (49)  Additional economic evidence speaking to the issue can be found 
            in a review of pricing plans offered by the four national 
            providers. On the one hand, if a wireless carrier is 
            relatively unconstrained in terms of its network capacity, 
            one would expect that it would offer pricing plans that 
            allow for customers to use large amounts of data or even 
            offer plans with unlimited data usage. On the other hand, 
            one would expect carriers that are more capacity 
            constrained to offer plans that encourage customers to 
---------------------------------------------------------------------------
            conserve on network capacity.

  (50)  Statements by the FCC and industry analysts support the 
            economic logic that wireless operators' pricing plans can 
            be expected to reflect their relative capacity constraints. 
            For example, in the Fifteenth Annual CMRS Competition 
            Report, the FCC stated: ``In late 2009 [. . .] the chief 
            executive of AT&T's wireless operations hinted that the 
            company would eventually shift from unlimited data pricing 
            to charging subscribers based on the amount of data used in 
            order to encourage high-usage customers to curb demand for 
            network capacity and improve the operator's ability to 
            manage its network. Analysts have long anticipated the 
            introduction of usage-based wireless data pricing, arguing 
            that a departure from the unlimited data pricing model is 
            only a matter of time. In June 2010, AT&T became the first 
            national operator to move from unlimited data pricing to 
            usage-based tiered data pricing for smartphones.'' \27\ In 
            the Sixteenth CMRS Competition Report, the FCC confirmed 
            that more wireless carriers facing capacity constraints are 
            shifting to usage-based data plans: ``the Fifteenth Report 
            [. . .] had focused on the industry's shift from unlimited 
            data pricing to tiered, usage-based data pricing for 
            smartphones. As discussed in the Fifteenth Report, this 
            shift was a response to the effects of increased bandwidth 
            consumption by smartphone users on network utilization and 
            capacity constraints.'' The report also stated that Sprint 
            has an ``unlimited data pricing [. . .] and T-Mobile 
            reintroduced an unlimited smartphone data pricing option.'' 
            \28\
---------------------------------------------------------------------------
    \27\ See In the Matter of Implementation of Section 6002(b) of the 
Omnibus Budget Reconciliation Act of 1993 Annual Report and Analysis of 
Competitive Market Conditions With Respect to Mobile Wireless, 
Including Commercial Mobile Services, WT Docket No. 10-133 (2011) 
(``Fifteenth CMRS Competition Report''), at  87-88.
    \28\ The FCC also reported that ``[t]he same network management 
issues motivating the ongoing shift from unlimited data pricing to 
tiered smartphone data plans in the postpaid segment--namely, the 
impact of higher bandwidth consumption by smartphone users on network 
utilization and capacity constraints--are also beginning to induce 
changes in the pricing and service terms and conditions of high-end 
prepaid plans for users of smartphone data.''  167; see In the Matter 
of Implementation of Section 6002(b) of the Omnibus Budget 
Reconciliation Act of 1993 Annual Report and Analysis of Competitive 
Market Conditions With Respect to Mobile Wireless, Including Commercial 
Mobile Services, WT Docket No. 11-186, released March 21, 2013 
(``Sixteenth CMRS Competition Report'').

  (51)  Figure 9 compares the individual post-paid plans of Verizon, 
            AT&T, T-Mobile, and Sprint. During the first half of 2013, 
            Sprint and T-Mobile offered service plans to their 
            customers that allow those customers to increase their data 
            use in an unlimited way at zero incremental cost to those 
            customers. Sprint offered an unlimited data plan at $110 
            per month, and T-Mobile offered an unlimited data plan at 
            $90 per month during the first quarter and $70 per month 
            during the second quarter, for an average price of $80 per 
            month. This type of pricing is consistent with a lack of 
            binding capacity constraints. If network capacity were a 
            problem for T-Mobile and Sprint, I would have expected to 
            see pricing plans that encourage customers to conserve on 
            network usage. In fact, a recent T-Mobile advertisement 
            portrays AT&T's network as overcrowded but T-Mobile's 
            network as having ample capacity.\29\ Similarly, Sprint 
            recently announced that customers who choose the ``New 
            Unlimited, My Way Plan'' starting at $80 per month would 
            receive the ``Sprint Unlimited Guarantee,'' an offering 
            that allows the customers ``to lock-in unlimited talk, text 
            and data not for just the next two years, but for life.'' 
            \30\
---------------------------------------------------------------------------
    \29\ See, e.g., PhoneArena.com, ``T-Mobile ad attacks AT&T for 
having slow pipes,'' available at http://www.phonearena.com/news/T-
Mobile-ad-attacks-AT-T-for-having-slow-pipes_id42743, site accessed 
July 4, 2013; T-Mobile ``Pipes'' Apple iPhone 5 Commercial, available 
at http://www.youtube.com/watch?v=h2Scc6fGz9o, site accessed July 4, 
2013.
    \30\ See, e.g., ``Sprint Launches Unlimited Guarantee and New 
Unlimited, My Way Plan,'' available at http://newsroom.sprint.com/news-
releases/sprint-launches-unlimited-guarantee-and-new-unlimited-my-way-
plan.htm?view_id=2933, site accessed July 23, 2013.
---------------------------------------------------------------------------
Figure 9 Comparison of individual 2013 (Jan-Jun) post-paid plans 
        including unlimited anytime minutes and unlimited text 
        messaging--monthly charge ($) and corresponding included data 
        usage (GigaBytes)

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Verizon.

  (52)  In contrast, Verizon and AT&T have commonly offered service 
            plans that cap the amount of data that is available to 
            customers at zero incremental cost. Most recently, both 
            Verizon and AT&T offered plans that allow for 4 GB of data 
            usage at $110 per month. Plans that limit the data usage 
            that is available at no incremental cost are consistent 
            with the kind of pricing that I would expect from a 
            wireless carrier that is capacity constrained relative to 
            carriers offering unlimited plans.

  (53)  Therefore, the pricing behavior of the four national wireless 
            operators is not consistent with the assertion that Verizon 
            and AT&T are purchasing spectrum they do not need for their 
            operations in order to ensure that their competitors remain 
            capacity constrained.
IV. Verizon and AT&T are unlikely to have the incentive or ability to 
        foreclose Sprint and T-Mobile in the Incentive Auction

  (54)  In its submission, DOJ expresses concern that Verizon and AT&T 
            will engage in a form of predatory bidding that will drive 
            up the price of spectrum in the Incentive Auction to such 
            an extent as to deny Sprint and T-Mobile the ability to 
            acquire low-frequency spectrum in rural areas, which DOJ 
            claims is needed to improve network coverage. But the DOJ 
            paper includes no data or other evidence to support its 
            concern, and DOJ subsequently clarified that it has not 
            made any judgment about what the FCC will find when it 
            undertakes the factual analysis needed to evaluate the 
            concerns.\31\
---------------------------------------------------------------------------
    \31\ Senate Judiciary Hearing, April 16, 2013, available at http://
www.judiciary.senate.gov/resources/webcasts/index.cfm.

  (55)  Verizon and AT&T could have an incentive to purchase spectrum 
            with the intent of withholding it from the market and thus 
            decreasing supply in order to raise or maintain price 
            levels only if smaller rivals are already constrained in 
            terms of spectrum and Verizon and AT&T are not. However, 
            the pricing plan evidence that I present in section III.C 
---------------------------------------------------------------------------
            suggests that the opposite is true.

  (56)  If margins are high and either Verizon or AT&T faces spectrum-
            capacity constraints in the coming years, then purchased 
            spectrum will most likely be deployed in order to expand 
            output at the high margins rather than withheld from the 
            market. Furthermore, if smaller rivals are already 
            unconstrained by their spectrum holdings, then withholding 
            additional spectrum from them is unlikely to have any 
            effect, while at the same time being costly to the larger 
            wireless carriers. Therefore, if, as the evidence suggests, 
            Verizon and AT&T are capacity-constrained relative to their 
            smaller rivals, Verizon and AT&T would have no incentive to 
            foreclose by purchasing spectrum to keep it out of the 
            hands of their rivals.

  (57)  Additionally, DOJ suggests that its concerns about low 
            frequency spectrum may extend beyond rural markets if 
            carriers require that spectrum to ``offer[] coverage across 
            a broad service area.'' (DOJ ex parte at 14). But Sprint 
            already has low frequency spectrum in the 800 MHz band, 
            which it is using for its LTE deployment.\32\ And T-
            Mobile's senior management has made clear that any coverage 
            constraints it may face can be remedied with the 
            acquisition of a small amount of low-band spectrum: 
            according to an analyst at Jefferies who recently met with 
            T-Mobile's leadership, T-Mobile believes it only needs a 
            5x5 block of low frequency spectrum to improve its coverage 
            ``dramatically.'' \33\ This suggests that Verizon and AT&T 
            would have to buy up almost all of the low frequency 
            spectrum at the 600 MHz auction to succeed in a foreclosure 
            strategy targeting DOJ's potential non-rural concerns.
---------------------------------------------------------------------------
    \32\ See Sprint Q2 2013 Earnings Call (July 30, 013).
    \33\ August 28, 2013 Jefferies report, ``T-Mobile USA''. (``. . . 
T-Mobile believes that its coverage would improve dramatically with 
just a small (5x5) channel of low band spectrum.'').

  (58)  In the remainder of this section, I first address a much more 
            direct remedy at the FCC's disposal that, unlike bidder 
            participation restrictions, does not risk the success of 
            the Incentive Auction. Then, I discuss some additional 
            reasons why foreclosure by bidding up the price of spectrum 
            in the Incentive Auction is unlikely to be an effective or 
            profitable strategy for Verizon and AT&T: (1) Given the 
            high costs associated with foreclosure and the uncertain 
            benefit, both Verizon and AT&T would have an incentive to 
            free ride on the efforts of the other to bid up the cost of 
            spectrum. (2) Anonymous auction design would make the 
            implementation of a foreclosure strategy difficult and 
            costly. (3) The supply of spectrum is likely to increase as 
            Verizon and AT&T bid up the price, increasing the cost of 
            implementing a foreclosure strategy (4) The market does not 
            appear to be sufficiently concentrated to make the 
            foreclosure strategy profitable enough to justify the costs 
            to Verizon and AT&T.
IV.A. As a policy tool to prevent foreclosure, build-out requirements 
        have significant advantages over bidding restrictions

  (59)  If, despite the evidence to the contrary, the FCC believes that 
            foreclosure by purchasing spectrum with the intent of 
            withholding it from use is likely, then a more direct and 
            less risky remedy is available to the FCC.

  (60)  The FCC can defeat a foreclosure strategy simply by imposing 
            build-out requirements for licenses purchased at the 
            Incentive Auction. DOJ notes in its ex parte submission 
            that bidders may consider both use value and foreclosure 
            value of spectrum when bidding. But bidders must also 
            consider holding costs of any spectrum won, which offsets 
            the perceived value. Holding costs of spectrum are 
            increased by the extent to which the FCC requires that 
            holders of spectrum pursue the build out of capacity in 
            order to make use of acquired spectrum. Thus, the FCC has a 
            tool at its disposal by which it can directly reduce the 
            likelihood that firms will find it profitable to withhold 
            spectrum from the market through a warehousing strategy.

  (61)  The imposition of a build-out requirement does not have to 
            cause the significant risks and distortions that bidding 
            restrictions do. Suppose that, as the evidence suggests, 
            neither Verizon or AT&T (or anyone else) has any intention 
            of purchasing spectrum in the Incentive Auction to withhold 
            it from the market. Then a properly designed build-out 
            requirement would only minimally impact bidding behavior, 
            if at all. In such a case, however, bidding restrictions 
            would unnecessarily put at risk the goals of the Incentive 
            Auction and interfere with the efficient allocation of 
            spectrum. Therefore, build-out requirements will tend to be 
            a much more efficient means of deterring foreclosure than 
            bidding restrictions.

  (62)  In addition, because increases in the supply of spectrum reduce 
            the profitability of a foreclosure strategy, the FCC can 
            address foreclosure concerns by taking steps to accelerate 
            the reallocation of spectrum, such as that currently 
            assigned to the Federal Government, to use for commercial 
            mobile wireless services.

  (63)  Moreover, if DOJ is concerned about foreclosure in rural areas, 
            it could examine the results of the auction and bring 
            challenges if it uncovers anticompetitive conduct. For the 
            reasons described in this report, I think it is unlikely 
            that Verizon and AT&T would have an incentive to engage in 
            foreclosure, but DOJ could easily determine whether AT&T 
            and Verizon had purchased all or almost all of the relevant 
            spectrum in the auction at prices significantly in excess 
            of expectations, and then DOJ could investigate whether 
            that was in pursuit of foreclosure. DOJ could use such a 
            post-auction review to challenge foreclosure instead of a 
            prophylactic rule restricting bidding by Verizon and AT&T.

  (64)  Because the FCC could impose build-out requirements and the DOJ 
            could examine bidding behavior post-auction in rural areas, 
            policy tools exist for addressing foreclosure concerns that 
            avoid the undesirable effects of bidding restrictions.
IV.B. Incentives to free ride imply that there is unlikely to be a 
        unilateral incentive for significant foreclosure by either 
        Verizon or AT&T

  (65)  Free rider concerns suggest that a foreclosure strategy may be 
            difficult for AT&T and Verizon to implement. DOJ's theory 
            involves Verizon and AT&T both being willing to warehouse 
            all or almost all the rural spectrum up for auction to 
            prevent Sprint and T-Mobile from gaining access to that 
            spectrum. That means that a significant portion of the 
            foreclosure costs borne by Verizon or AT&T will benefit the 
            other firm.

  (66)  The effect of this will be to greatly reduce Verizon's and 
            AT&T's unilateral incentives (if any) to foreclose well 
            below the incentive that a single large firm would have. A 
            single large firm would internalize all of the additional 
            profits from the foreclosure strategy. When benefits are 
            shared, however, each firm sharing the benefits would 
            prefer to free ride on the other's efforts, leading to 
            significantly less foreclosure than would have occurred if 
            the benefits were not shared.
IV.C. Anonymous auction design makes foreclosure less likely

  (67)  The FCC can make auction design choices that reduce concerns 
            related to foreclosure. In past auctions, the FCC has used 
            anonymous bidding procedures in order to limit the scope 
            for strategic bidding. By using anonymous bidding in the 
            Incentive Auction, the FCC can prevent bidders from knowing 
            the identity of rivals for a particular license, making a 
            foreclosure strategy more difficult and costly to 
            implement.

  (68)  In the context of an auction with anonymous bidding, it would 
            not be possible for Verizon or AT&T to know when one of 
            them (as opposed to one of the firms supposedly a target of 
            their foreclosure strategy) has won a license. The result 
            is that Verizon and AT&T would not know when to stop 
            bidding. Notably, as discussed in Section VI.C below, in 
            the 700 MHz Auction, Verizon and AT&T competed head-to-head 
            with one another for spectrum in various markets, even 
            after all other participants had stopped bidding. In fact, 
            that head-to-head competition between Verizon and AT&T 
            contributed to more than $4.2 billion in additional 
            revenues that would not have been received if AT&T and 
            Verizon had stopped bidding as soon as one of them was 
            guaranteed to acquire the license. None of the parties 
            asserting that there is foreclosure risk has put forth a 
            theory explaining how foreclosure could take place in the 
            context of anonymous bidding and direct competition between 
            Verizon and AT&T.
IV.D. Uncertainty about the level and elasticity of supply in an 
        incentive auction makes a foreclosure strategy difficult to 
        implement

  (69)  A foreclosure strategy is particularly difficult to implement 
            in the context of an incentive auction because higher bids 
            on the part of buyers result in greater quantity being made 
            available from sellers.

  (70)  In an incentive auction, unlike other auctions the FCC has run, 
            there is significant uncertainty regarding the ultimate 
            supply of spectrum to the market. The nature of the 
            Incentive Auction involves broadcasters making decisions 
            about the price at which they are willing to supply 
            spectrum to the market. It will be difficult for 
            participants to predict before the auction how much will be 
            supplied at a given price level. A company seeking to 
            implement a foreclosure strategy that involves bidding up 
            the price of spectrum so as to purchase that spectrum in 
            order to withhold it from the market already faces 
            uncertainty over how high it will have to bid in order to 
            keep spectrum away from rival bidders. An incentive auction 
            introduces additional uncertainty associated with how much 
            spectrum will have to be purchased at inflated bids. This 
            uncertainty makes planning and implementing this 
            foreclosure strategy difficult and costly.

  (71)  The extent to which higher prices stimulate sellers to offer 
            more spectrum for sale is reflected in the elasticity of 
            supply. If supply is highly elastic, then a small increase 
            in price results in a large increase in the quantity of 
            spectrum supplied. To analyze the effects of supply 
            elasticity, auction theorists consider the set of 
            equilibria of an auction, where an equilibrium is a 
            specification of bidding strategies, one for each bidder, 
            that are mutual best responses. These equilibria provide 
            predictions on likely outcomes for the auction. The theory 
            for one-sided auctions suggests that the elasticity of 
            supply and uncertainty regarding that elasticity affects 
            the set of equilibria in these auctions, with greater 
            uncertainty and more elastic supply eliminating certain 
            equilibria that may be undesirable from the perspective of 
            the auction designer.\34\ It seems likely that uncertainty 
            regarding the elasticity of supply in the Incentive Auction 
            would further inhibit attempts by bidders to coordinate on 
            a foreclosure strategy. For example, if bidders are unsure 
            about the elasticity of supply, they may be unsure about 
            whether coordination on foreclosure strategies can be 
            supported as an equilibrium, or if their beliefs about the 
            elasticity of supply differ, they may disagree regarding 
            foreclosure strategies.
---------------------------------------------------------------------------
    \34\ See Paul Milgrom (2004), Putting Auction Theory to Work, 
Cambridge University Press, Chapter 7.2, showing that when bidders at a 
multi-unit auction face elastic supply rather than inelastic supply, 
some low-revenue equilibria may be eliminated.
---------------------------------------------------------------------------
IV.E. The market for wireless services is unlikely sufficiently 
        concentrated to make foreclosure profitable

  (72)  In all models of competition that I am aware of, the effects of 
            foreclosing a rival diminish as the number of firms already 
            effectively competing in the market increases. For example, 
            a monopolist that is able to foreclose an entrant in order 
            to remain a monopolist rather than sharing a duopoly profit 
            will find that foreclosing that rival is significantly more 
            profitable than foreclosing a rival that, had it been able 
            to enter, would have become the third competitor rather 
            than the second. Similarly, foreclosure of a fourth rival 
            is significantly less profitable than foreclosing the 
            third.

  (73)  For example, consider a market consisting of symmetric firms 
            competing by setting quantities facing inverse demand equal 
            to p = 100 - q, where p is the market price and q is the 
            total quantity supplied to the market. This is an example 
            of a model of Cournot competition.\35\ Assuming that firms 
            produce at zero cost, the equilibrium price is equal to 
            100/(n + 1), where n is the number of symmetric firms in 
            the market. Equilibrium profit of each firm is equal to 
            (100/n + 1)) \2\. The aggregate value to the remaining 
            firms of foreclosing one potential entrant decreases as the 
            number of firms in the market increases. Specifically, if 
            there are two potential competitors but one is foreclosed, 
            the value of foreclosure is approximately 1,389.\36\ If 
            there are three potential competitors but one is 
            foreclosed, the joint value of foreclosing the third firm 
            for the two other firms is approximately 972.\37\ If there 
            are four potential competitors but one is foreclosed, the 
            joint value of foreclosing the fourth firm for the three 
            other firms is 675.\38\
---------------------------------------------------------------------------
    \35\ See, e.g., Jean Tirole (1989), The Theory of Industrial 
Organization, Cambridge, MA: MIT Press, Section 5.4.
    \36\ The profit of a monopolist is 2500, whereas the profit of a 
duopolist is approximately 1111, where 2500-1111=1389.
    \37\ With three firms, each firm has profit 625, but with two each 
has profit 1111, and 2(1111)-2(625)=972.
    \38\ With four firms, each firm has profit 400. Using the prior 
result, 3(625)-3(400)=675.

  (74)  The current market structure for mobile wireless services in 
            the United States involves a significant number of national 
            and regional competitors of various sizes and strengths. 
            The potential foreclosure that is described by DOJ does not 
            involve the complete foreclosure of a rival by a monopolist 
            but rather is marginal in nature. It involves 
            (theoretically) foreclosing rivals' access to a small 
            subset of the available input when there are already many 
            small, medium, and large-sized rivals and therefore the 
            value of that foreclosure and its effect would likely be 
---------------------------------------------------------------------------
            small.

  (75)  In addition, the costs of a successful foreclosure strategy are 
            likely to be large because it would require a firm to 
            purchase licenses for large amounts of spectrum and then to 
            fulfill any build-out requirements associated with those 
            licenses.

  (76)  In sum, in the Incentive Auction, bidders likely will not know 
            whom they are bidding against, making a targeted 
            foreclosure strategy difficult or impossible to implement. 
            In addition, a firm will not know whether a higher bid will 
            have the effect of increasing the total amount of spectrum 
            available in the market. This uncertainty, together with 
            the limited benefits and high costs of a foreclosure 
            strategy, suggests that firms will not have the incentive 
            to engage in such a strategy.
V. Effects of bidding restrictions in the economics literature
V.A. Papers on auction design suggest that bidding restrictions are 
        likely to reduce revenue and efficiency

  (77)  Economic theory supports the intuitive conclusion that a seller 
            should be able to raise more money when running an auction 
            that does not exclude any bidder than an auction that 
            excludes even a single bidder. Bulow and Klemperer (1996) 
            prove a theorem that shows that, when the auctioneer's goal 
            is to raise the highest amount of money possible, ``an 
            auction with N + 1 bidders beats any standard mechanism for 
            selling to N bidders.'' \39\
---------------------------------------------------------------------------
    \39\ Jeremy Bulow and Paul Klemperer (1996), ``Auctions Versus 
Negotiations,'' The American Economic Review, Vol. 86, No. 1, pp. 180-
194.

  (78)  The authors show that this conclusion requires only that the 
            bidders are ``serious,'' that is, they value the object for 
            sale more than the seller, and holds true under fairly 
            general conditions. In particular, the conclusion that 
            there is nothing as valuable to a seller as attracting one 
            extra bona fide bidder to a competitive auction holds true 
            both under ``private values'' conditions, ``common value'' 
            conditions, and anything in-between. In a ``private value'' 
            scenario, each bidder knows how much she values the object 
            for sale; this information is private to herself and would 
            not affect the values of other bidders if that information 
            were revealed to them. In contrast, in a ``common value'' 
            scenario, the value of the object for sale is the same for 
            all bidders, but it is unknown at the time of the auction 
            (e.g., the amount of oil that can be extracted after 
---------------------------------------------------------------------------
            winning an oil lease auction).

  (79)  This result suggests that a seller should generally focus on 
            maximizing the number of bidders. In the authors' own 
            words: ``A simple competitive auction with N + 1 bidders 
            will yield a seller more expected revenue than she could 
            expect to earn by fully exploiting her monopoly selling 
            position against N bidders.'' \40\
---------------------------------------------------------------------------
    \40\ See also Vijay Krishna (2002), Auction Theory, New York: 
Academic Press. More nuanced effects are possible in models with 
participation costs and investments. For example, in Flavio M. Menezes 
and Paulo K. Monteiro (2000), ``Auctions with endogenous 
participation,'' Review of Economic Design 5, 71-89, the authors 
distinguish between the number of bidders who pay the participation 
costs required to actually participate in an auction and the number of 
bidders who could potentially participate in an auction. The 
auctioneer's expected revenue always increases in the number of bidders 
who actually participate in an auction, but they show that an increase 
in the number of bidders who could potentially participate could in 
theory cause the auctioneer's expected revenue to decrease, although 
they conclude that not much can be said in general about the likelihood 
of this effect. In Richard J. Gilbert and Paul Klemperer (2000), ``An 
Equilibrium Theory of Rationing,'' RAND Journal of Economics 31(1), 1-
21, the authors consider a model in which the seller sets its pricing 
policy and then each of two buyers must make an initial sunk investment 
that determines probabilistically whether its value is positive or 
zero. In this case, the seller's prices must provide incentives for 
investment and the seller may prefer to commit to sell to only one 
buyer in order to promote investment.

  (80)  Combining theoretical and empirical analysis, Brannman, Klein, 
            and Weiss (1987) show that having more bidders results in 
            higher winning bids both in theory and in the data in a 
            range of different auction settings, including 
            underwriters' spreads on tax-exempt general obligation 
            bonds and on tax-exempt revenue bonds, U.S. Department of 
            Interior offshore oil lease auctions, and oral ascending 
            and sealed-bid auctions of National Forest Service timber 
            in the Pacific Northwest.\41\
---------------------------------------------------------------------------
    \41\ Lance Brannman, J. Douglass Klein and Leonard W. Weiss (1987), 
``The Price Effects of Increased Competition in Auction Markets,'' 
Review of Economics and Statistics 69(1), pp. 24-32.
---------------------------------------------------------------------------
V.B. Assertions that bidding restrictions might not suppress revenue 
        are based on 
        unrealistic hypothetical scenarios

  (81)  In his March 12, 2013, declaration on behalf of T-Mobile,\42\ 
            Prof. Jonathan B. Baker posits the following theoretical 
            exception to the typical revenue result expected when 
            bidding restrictions are imposed: ``Given the non-trivial 
            fixed costs of auction participation, a firm expecting to 
            be outbid could readily be deterred from participating in 
            the auction in the first place. If auction participation is 
            thin as a result of this dynamic, the large incumbent firms 
            that are in principle willing to pay to obtain foreclosure 
            benefits may enjoy these benefits without bidding up the 
            auction price to a level that pays for those benefits 
            fully, leaving the public with a less competitive wireless 
            sector and the government with lower revenues than could be 
            obtained.'' Similarly, in their paper on behalf of Sprint, 
            economists Dr. Stanley M. Besen, Dr. Serge X. Moresi, and 
            Prof. Steven C. Salop state that: ``Economic theory has 
            shown that unrestricted auctions can discourage some 
            potential bidders and lead to the result that auction 
            revenues fall far short of expectations.'' \43\
---------------------------------------------------------------------------
    \42\ Jonathan B. Baker, ``Spectrum Auction Rules That Foster Mobile 
Wireless Competition,'' paper submitted on behalf of T-Mobile, In the 
Matter of Policies Regarding Mobile Spectrum Holdings, WT Docket No. 
12-269.
    \43\ Stanley M. Besen, Serge X. Moresi, & Steven C. Salop, Why 
Restricting Participation in Spectrum Auctions Can Increase Bidder 
Participation, Increase Auction Revenues, and Increase Competition in 
Wireless Markets, Mar. 12, 2013 (filed with Sprint's reply comments in 
Docket No. 12-268), p. 3, emphasis added.

  (82)  However, both T-Mobile's and Sprint's economists limit 
            themselves to hypothetical examples illustrating how the 
            typical outcome--a reduction in revenue--might not occur 
            (under their theories) if certain theoretical conditions 
            are met. They present no evidence that the conditions that 
            they claim might lead to a revenue-enhancing outcome are 
            present in the context of the Incentive Auction or any 
---------------------------------------------------------------------------
            other spectrum auction in the United States.

  (83)  For example, neither Dr. Baker nor Sprint's economists provide 
            evidence that in the Incentive Auction smaller bidders will 
            face ``non-trivial fixed costs'' to participate, or that 
            such costs would cause them to be discouraged from 
            participating if larger bidders are permitted to 
            participate without restrictions.

  (84)  The data indicate that the hypothetical conditions posited by 
            T-Mobile's and Sprint's economists do not appear to be 
            present. For example, in the AWS auction, it was known that 
            Verizon, AT&T, and T-Mobile would participate without 
            restrictions, yet 168 qualified bidders registered for the 
            auction and 104 bidders won licenses during the 
            auction.\44\ One of those bidders was T-Mobile, which won 
            more licenses and spent more money than either Verizon or 
            AT&T. Similarly, in the 700 MHz auction, there were 214 
            qualified bidders, of which 101 won licenses. Neither T-
            Mobile's nor Sprint's economists explain how the 
            substantial number of active participants in those past 
            actions is consistent with their apparent assumption that 
            ``non-trivial fixed costs'' of auction participation may 
            deter smaller bidders from participating in future U.S. 
            spectrum license auctions.
---------------------------------------------------------------------------
    \44\ See http://wireless.fcc.gov/auctions/
default.htm?job=auction_summary&id=66.

  (85)  Sprint's and T-Mobile's economists do not appear to assert that 
            their clients are among the ``smaller'' firms that may be 
            deterred from participating in auctions if there are not 
            restrictions on Verizon and AT&T. Given those companies' 
            substantial financial resources and their proven historical 
            ability to acquire spectrum when they seek to acquire it, 
            there does not appear to be a basis to conclude that the 
            presence of ``non-trivial fixed costs'' for participating 
            in the Incentive Auction would discourage their 
            participation. Indeed, even if they provided factual 
            support for their conjecture that smaller firms may be 
            deterred by the presence of unrestricted larger firms (and 
            they do not), Sprint and T-Mobile do not explain why their 
            own presence would not similarly deter smaller rivals from 
            participating.
V.C. Empirical evidence from timber auctions further undermines the 
        revenue theory advanced by Sprint and T-Mobile

  (86)  U.S. Forest Service timber auctions are an apposite and 
            instructive real-world test for Sprint's and T-Mobile's 
            conjecture about likely outcomes when smaller bidders face 
            non-trivial fixed costs to participate in auctions. When 
            the U.S. Forest Service sells the rights to harvest timber 
            in a given area (``tract'') by auction, it allows would-be 
            participants to survey the tract to gather information 
            about the value of the timber to be harvested. The 
            evaluations of the idiosyncratic features of each tract are 
            typically done through on-foot surveys of each tract by 
            experienced experts known as ``cruisers.'' \45\ These 
            surveys represent a non-trivial fixed cost of auction 
            participation for small loggers who may consider 
            participating in the auction in competition with large 
            mills.\46\ The U.S. Forest Service sets a fraction of 
            harvesting contracts aside for small firms, thus providing 
            the FCC with what economists call a ``natural experiment'' 
            about the effects of bidder participation restrictions in a 
            non-trivial context--timber sales were about $1.5 billion 
            per year in the early 1980s (although now they are about 1/
            10 of that amount).\47\
---------------------------------------------------------------------------
    \45\ As stated in Baldwin, Marshall, and Richard (1997) ``Bidder 
Collusion at Forest Service Timber Sales' ''' Journal of Political 
Economy, 105: 657-699 at page 666, ``Certain other facts regarding 
Forest Service sales are relevant to our study. . . . Second, old-
growth timber is highly heterogeneous. Bidders invest significant 
resources in assessing its value through `cruises.' Cruises are 
analogous to geological reports for offshore oil tract sales.''
    \46\ Athey, Levin, and Seira (2011) ``Comparing Open and Sealed-Bid 
Auctions: Evidence from Timber Auctions,'' Quarterly Journal of 
Economics, 126: 207-257, state that ``the costs of surveying a tract 
can run to several thousand dollars'' and estimate the median survey 
cost to be about $3,000 in the Northern forests and about $5,000 in the 
California forests. The authors also report that the median expected 
profit from winning an auction is roughly $45,000 gross of surveying 
costs. For smaller bidders who tend to win half or a quarter of the 
auctions that are won by a median sized bidder, expected profit would 
tend to be 50 to 25 percent of $45,000 or $22,500 to $11,500. 
Therefore, survey costs for such small bidders would represent a 
relatively large percentage of the overall expected profit from bidding 
in an auction.
    \47\ See historical summary and graph of Forest Service cut and 
sold data, available at http://www.fs.fed.us/forestmanagement/
documents/sold-harvest/documents/1905-2012_Natl_Summ
ary_Graph.pdf.

  (87)  Athey, Coey, and Levin (2013) estimate that, far from 
            increasing revenue, set-asides reduced revenue from U.S. 
            Forest Service auctions by 5 percent between 1982 and 1989 
            (around that time, timber sales were slightly less than $1 
            billion per year) and reduced auction efficiency by 17 
            percent.\48\ Brannman and Froeb (2000) estimate that, 
            between 1974 and 1989, eliminating the set-aside program 
            would have increased auction revenues by 15 percent. In 
            that period, the U.S. Forest Service timber auction 
            revenues were slightly more than $1 billion per year.\49\
---------------------------------------------------------------------------
    \48\ Susan Athey, Dominic Coey, and Jonathan Levin, (2013), ``Set-
Asides and Subsidies in Auctions,'' American Economic Journal: 
Microeconomic, 5(1): 1-27. The authors find that set-asides did 
increase small firms' participation, but argue that bidding subsidies 
targeted at small firms would have increased small firms' profits and 
the U.S. Forest Service revenues with a much more limited 
``efficiency'' cost in terms of reduced quantity harvested.
    \49\ Lance Brannman and Luke M. Froeb, (2000) ``Mergers, Cartels, 
Set-Asides, and Bidding Preferences in Asymmetric Oral Auctions,'' 
Review of Economics and Statistics, 82(2): 283-290. These authors 
concur with the Athey, Coey and Levin (2013) conclusion that a policy 
of granting bidding preference to targeted bidders is superior to set-
asides.

  (88)  Thus, set-asides failed to increase auction revenue and the 
            amounts traded in timber auctions, even though a 
            theoretical argument could be made for large bidders having 
            an advantage over smaller ones in those auctions. It is 
            thus unreasonable to expect that set-asides primarily 
            benefitting large bidders, such as Sprint and T-Mobile, 
            would increase auction revenue (and auction efficiency as 
            well) in the Incentive Auction.
VI. Simulating the effects of bidding restrictions in past spectrum 
        auctions suggests large negative effects on revenue

  (89)  In this section, I describe my simulation analysis and results 
            of the impact of bidding restrictions if they had been 
            imposed on the FCC's AWS spectrum auction (Auction 66) and 
            700 MHz auction (Auction 73). These are two large, 
            relatively recent auctions in which Verizon and AT&T 
            participated. Sprint and T-Mobile participated in the AWS 
            spectrum auction, making that auction of interest for 
            examining how bidding restrictions on Verizon and AT&T 
            might affect those firms. The 700 MHz auction involved low-
            frequency spectrum, similar to the Incentive Auction. Thus, 
            these two auctions provide useful test cases for the 
            effects of bidding restrictions.

  (90)  I simulate the effects of a number of different bidding 
            restrictions, all of which would have a significant effect 
            on the licenses that Verizon and AT&T would be able to bid 
            on in the Incentive Auction:

      a.  outright exclusion of AT&T and Verizon from the auction;

      b.  a 33 percent cap on low-frequency (below 1 GHz) spectrum 
            holdings, applied pre-auction by market, such that a 
            carrier would be excluded from bidding at auction in any 
            market where its pre-auction spectrum holdings exceed 1/3 
            of the low-frequency spectrum in that market;

      c.  a 33 percent cap on low-frequency spectrum holdings applied 
            post-auction by market, assuming that both AT&T and Verizon 
            purchase 20 MHz of spectrum at auction.\50\
---------------------------------------------------------------------------
    \50\ One of the problems with Sprint's and T-Mobile's proposals is 
that it is not clear what amount of to-be-auctioned spectrum would be 
included in the denominator for purposes of determining a bidder's 
share of low-frequency spectrum. Given that the quantity of supply is 
unknown prior to the Incentive Auction, how a spectrum aggregation cap 
affects a participant's ability to bid in a particular market depends 
on how much additional spectrum is cleared in the auction, which is an 
unknown variable in the context of the Incentive Auction. That 
constitutes a significant uncertainty regarding how the cap would be 
applied. In the post-auction share cap exclusion scenarios, I assume 
that a total of 70 MHz is reallocated in the Incentive Auction. In 
other words, I assume the denominator used to calculate the firm's 
share includes the presently-available low-frequency spectrum plus 70 
MHz of to-be-auctioned spectrum. That is consistent with T-Mobile's 
proposal that the FCC adopt a band plan featuring 35x35 MHz of paired 
spectrum.

  (91)  The range of restrictions that I model is designed generally to 
            cover the types of restrictions being proposed that would 
            limit participation by AT&T and Verizon in the Incentive 
            Auction. Differences between past auctions and the 
            Incentive Auction, such as different license sizes (both 
            spectrally and geographically) and different amounts of 
            auctioned spectrum, make it difficult to model precisely 
            some of the specific proposals that have been presented. 
            For example, I understand that Sprint and T-Mobile have 
            proposed that if AT&T or Verizon would be completely 
            excluded from bidding in a particular market under their 
            proposed 1/3 cap on low-frequency spectrum holdings, a 
            ``safety valve'' may be appropriate under which they could 
            bid on a small amount of spectrum (e.g., 10 MHz or 1/6 of 
            the to-be-auctioned spectrum). Although precise modeling of 
            the effects of such a policy is challenging, based on my 
            findings regarding the effects of restrictions that fall 
            short of outright exclusion, it is clear that any measure 
            that materially reduces the demand that AT&T and Verizon 
            bring to the Incentive Auction risks a material reduction 
---------------------------------------------------------------------------
            in auction revenue.

  (92)  Currently, both Verizon's and AT&T's individual shares of low-
            frequency spectrum are at least 33 percent in many of the 
            172 Economic Areas (EAs) into which the United States was 
            divided by the Bureau of Economic Analysis of the U.S. 
            Department of Commerce at the time of the first FCC 
            auctions.\51\ Any Incentive Auction participation rule that 
            prevents a carrier from participating in the bidding if its 
            pre-auction low-frequency spectrum holdings are above the 
            33 percent threshold would be equivalent to excluding AT&T 
            and Verizon, as reported in Figure 10. The calculations are 
            based on 134 MHz of available low-frequency spectrum.
---------------------------------------------------------------------------
    \51\ In 2004 the Bureau of Economic Analysis redefined its EAs, 
increasing their number from 172 to 179. See http://www.bea.gov/SCB/
PDF/2004/11November/1104Econ-Areas.pdf. For the purposes of the AWS and 
700 MHz Auctions, there were 176 EAs (see the band plans in Appendix 
B).
---------------------------------------------------------------------------
Figure 10 The effect of spectrum aggregation caps on Verizon's and 
        AT&T's ability to bid in the Incentive Auction

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    * U.S. EAs only, that is, excluding Puerto Rico (EA 
#173), U.S. territories (EAs #174-175) and Gulf of Mexico EA (#176). 
Note: assumes Verizon's current Lower 700 MHz block B holdings are 
assigned to AT&T and Grain, pursuant to transfer applications recently 
approved by the FCC.
    Source: Calculations based on current spectrum holdings data 
provided by Verizon.

  (93)  Figure 10 also reports how extensive the restraint on Verizon 
            and AT&T would be under apparently less stringent 
            participation rules based on post-auction low-frequency 
            holdings. For illustrative purposes, I assume that the 
            Incentive Auction would reallocate 70 MHz of spectrum. I 
            then report the population in EAs where Verizon or AT&T 
            could not win 20 MHz of spectrum because that additional 
            spectrum would bring them above the 33 percent threshold 
            (that is, above 68 MHz).\52\ Figure 10 highlights how 
            limits, seemingly less stringent than outright exclusion, 
            would still have the effect of preventing Verizon from 
            procuring spectrum to serve over half of the U.S. 
            population.
---------------------------------------------------------------------------
    \52\ If Verizon and AT&T theoretically sought to acquire only a 
single 5x5 license, the proposed cap would exclude Verizon from markets 
representing 50 percent of the population and AT&T would be excluded 
from markets representing 30 percent. Although historical purchasing 
patterns suggest that Verizon might not be interested in making a 5x5 
MHz purchase, I simulated this scenario and found that it would have 
led to revenue reductions in both of the auctions. Even assuming that 
those smaller licenses would have substantial value by themselves (a 
questionable assumption given the fixed costs Verizon and AT&T would 
incur deploying spectrum in a new band class), my analysis indicates 
revenue reductions of up to 25 percent under the simulation methodology 
described below. That reduction likely understates the revenue effect 
because I did not attempt to account for the lower levels of demand 
(i.e., only a 5x5 license instead of the amount actually acquired in 
the past auction) that AT&T and Verizon would have brought to the 
auction under this assumption.
---------------------------------------------------------------------------
VI.A. Procedure

  (94)  For each auction under consideration, I identify the following 
            data:

    1.  The complete set of bid amounts and net bid amounts (the actual 
            paid amount including the bidding credit) submitted by each 
            participant in every round for each license offered in that 
            auction.

    2.  Information on whether particular bids were withdrawn or 
            dropped and the tie-breaking random numbers associated with 
            each bid.

    3.  Information on whether any of the bidders raised their own bid 
            even though they did not need to do so to remain the 
            highest bidder and the provisional winner in a particular 
            round.

  (95)  To determine the ranking of bidders, I first look at the 
            bidders' round-specific highest bids. If there are ties, 
            those are resolved by using the tie-breaking random numbers 
            assigned by the FCC.

  (96)  In my AWS spectrum auction and 700 MHz auction simulations, in 
            order to simulate the effects of bidder participation 
            restrictions, I assume that all bids in the auctions remain 
            as they were submitted, but I remove the bids of AT&T and 
            Verizon as appropriate for the particular restriction 
            scenario. For example, consider the effect of the exclusion 
            of Verizon in the bidding over a particular license. As 
            demonstrated in Figure 11, Verizon wins license AW-REA001-F 
            in round 16 and pays $1,335 million (highlighted in 
            yellow). The provisional winning bid for each round (shown 
            in bold) is defined as the round-specific highest bid (as 
            in round 9). If there are ties, I use the tie-breaking 
            random numbers assigned by the FCC to determine the 
            provisional winning bid (as in rounds 10 or 12). Now assume 
            that Verizon is not permitted to bid. The second-highest 
            bidder, in this case T-Mobile, wins and pays an amount that 
            exceeds the bid submitted by the third-highest bidder or 
            equals the bid of the third-highest bidder but has a higher 
            tie-breaking random number. In this example, T-Mobile pays 
            $644 million (highlighted in green), a bid that exceeds 
            Dolan's $537 million submitted in round 10. I refer to this 
            as the ``As bid'' method. I make adjustments for reserve 
            prices, the absence of other bidders, and ties.
Figure 11 AWS spectrum auction simulation example (license 
        AW-REA001-F)

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: FCC documentation.
    Note: The provisional winning bids for each round are in bold. The 
original win is highlighted in yellow and the simulated win is in 
green.

  (97)  As another example, if Verizon were the second-highest bidder 
            and so determined the price paid by the winner, then, when 
            excluding Verizon, I assume that the same bidder wins but 
            pays only the bid amount that would have been just enough 
            to outbid the third-highest bidder, again adjusting 
            appropriately for reserve prices. For instance, as 
            demonstrated in Figure 12, AT&T wins license WY-CMA167-B in 
            round 26 and pays $3.17 million (highlighted in yellow). If 
            Verizon and AT&T are not permitted to bid, the second 
            highest bidder, in this case MetroPCS, becomes a winner. 
            MetroPCS pays $1.66 million if I use the ``As bid'' method 
            (highlighted in blue) because in round 21 MetroPCS has to 
            overbid Verizon's $1.51 million submitted in round 20. But 
            if Verizon and AT&T are unable to bid, MetroPCS only needs 
            to overbid Alltel, which submitted $0.96 million in round 
            12. Hence, it is enough to bid only $1.15 million submitted 
            in round 13 by AT&T (highlighted in green). I refer to this 
            as the ``Minimum required bid'' method and use it in the 
            analysis that follows. This method is preferable to the 
            ``As bid'' approach because it uses a more accurate model 
            of bidding behavior. In particular, bidders would 
            rationally bid only as much as it is necessary to overbid 
            the preceding highest bid.
Figure 12 700 MHz auction simulation example (license WY-CMA167-B)

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Source: FCC documentation.
    Note: The provisional winning bids for each round are shown in 
bold. MetroPCS wins and pays $1.66 million under the ``As Bid'' 
simulation method (highlighted in blue) and only $1.15 million under 
the ``Minimum required bid'' method (green).

  (98)  This methodology does not provide a perfect measure of the 
            effects of excluding bidders, but it has the advantage of 
            relying on the bids actually submitted at the auction to 
            estimate effects. On the one hand, it will understate the 
            revenue loss from excluding Verizon and AT&T in the 
            following types of cases. Suppose bidder A would like to 
            purchase one of two different licenses, which it views as 
            substitutes, and that in the auction it wins one license 
            and finishes as the second-highest bidder on the other, 
            losing to Verizon. When I reevaluate the bids without 
            Verizon, my methodology will predict that bidder A wins 
            both licenses, when bidder A, who wants only one of the two 
            licenses, might not have bid in such a way as to win both 
            (even though prices are lower in the absence of Verizon). 
            On the other hand, this methodology could theoretically 
            overstate the revenue loss from excluding bidders if the 
            absence of bidders such as Verizon and AT&T causes bidders 
            to win licenses they would not have otherwise, and the 
            acquisition of these licenses increases their value for 
            other licenses due to complementarities, causing them to 
            bid more aggressively on those other licenses. In addition, 
            my methodology could theoretically overstate the revenue 
            loss from exclusion if, for example, knowledge of the 
            exclusion of certain bidders prior to the auction induces 
            additional entry into the auction (in expectation of lower 
            prices) thus increasing the competitiveness of the auction. 
            However, I am not aware of any reason to expect that either 
            the understatement or overstatement effect that is possible 
            in my methodology would dominate.\53\
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    \53\ As discussed in Section V.C above, the empirical evidence 
appears to undercut the suggestion by some parties that bidding 
restrictions on Verizon and AT&T might increase revenue by encouraging 
the participation of other bidders.

  (99)  This approach allows a detailed examination on a license-by-
            license basis of the potential impact of excluding specific 
            bidders in specific markets that I believe is informative 
            as to the likely effects of restrictions on bidder 
            participation. In the absence of Verizon and AT&T, I expect 
            that the bidding of other auction participants would have 
            been largely similar (especially given the anonymous 
            bidding format of 700 MHz Auction). Thus, I view the 
            simulation results as informative as to the revenue 
            reductions that one might expect to observe as a result of 
            restrictions on the ability of Verizon and AT&T to 
            participate.
VI.B. Results--Auction 66--AWS spectrum auction

  (100)  In this section I describe simulation results for the AWS 
        auction. Appendix C describes the band plan for this auction.

  (101)  As previously described, I considered three scenarios: 
        outright exclusion of AT&T and Verizon, a pre-auction 33 
        percent share cap applied to AT&T and Verizon, and a post-
        auction 33 percent share cap assuming purchase of 20 MHz in the 
        market applied to AT&T and Verizon. Simulating the effects of 
        these exclusion scenarios results in a 15 percent to 16 percent 
        reduction in revenue.
Figure 13 Summary of simulated revenue reductions in the AWS spectrum 
        auction

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations based on the FCC data and documentation.

  (102)  As Figure 13 reports for the three scenarios, the simulation 
        estimates a revenue drop of between 15 and 16 percent. This 
        implies that a pre-or post-auction share cap of 33 percent 
        would have had almost the same effect as outright exclusion of 
        Verizon and AT&T in the AWS auction.

  (103)  I simulated the changes in the average price paid by top 
        bidders as a result of the exclusion of Verizon and AT&T. T-
        Mobile enjoys the largest decrease in the average price per 
        MHz*POP as a result of the exclusion--18 percent. SpectrumCo 
        (Sprint) enjoyed a 6 percent decrease in the average price it 
        paid per MHz*POP.

  (104)  Also, I calculated the results of a hypothetical version of 
        the AWS auction in which all of the licenses were auctioned on 
        a CMA basis. This provides a robustness check and offers a way 
        to reduce effects related to the presence of small numbers of 
        large licenses. The results, which are set forth in Appendix D, 
        are similar to the results of the simulation of the actual 
        auction.
VI.C. Results--Auction 73-700 MHz auction

  (105)  I ran a similar simulation in the 700 MHz auction. This 
        auction involved six categories of licenses referred to as 
        Blocks A through F. Appendix C describes the band plan for this 
        auction.

  (106)  I simulate 700 MHz auction results under the same restriction 
        scenarios as in the AWS spectrum auction simulations. Figure 14 
        summarizes my results.
Figure 14 Summary of simulated revenue reductions in the 700 MHz 
        auction

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations based on the FCC data and documentation.

  (107)  In this auction, the revenue drop is even more dramatic. This 
        is likely because of the particularly intense competition 
        between Verizon and AT&T during that auction. In the 700 MHz 
        Auction, AT&T and Verizon often competed against each other 
        when bidding for 12 MHz of Block B CMA-level licenses. AT&T won 
        227 CMA-level licenses and paid $6,637 million. Verizon won 77 
        CMA-level licenses and paid $2,052 million.

  (108)  If, hypothetically, AT&T and Verizon had not bid against each 
        other in the auction,\54\ my analysis of the auction data 
        suggests that they would still have won all 304 CMA-level 
        licenses, but would have paid only $4,453 million instead of 
        $8,689 million. Thus, absent competition between AT&T and 
        Verizon, 700 MHz auction total revenues would be $14,722 
        million instead of $18,958 million--22 percent lower. That 
        result confirms that restrictions on Verizon and AT&T in the 
        Incentive Auction would limit not just the participation of two 
        significant buyers, but two significant buyers who have 
        historically competed aggressively against one another, to the 
        benefit of auction revenues.
---------------------------------------------------------------------------
    \54\ There is no basis to expect, and no party appears to assert 
otherwise, that Verizon and AT&T would risk violating both the FCC's 
bidder collusion rules and the antitrust laws by agreeing to not bid 
against one another.

  (109)  The fact that head-to-head competition between Verizon and 
        AT&T was robust also contradicts the suggestion that Verizon 
        and AT&T were pursuing a foreclosure strategy: they 
        collectively paid over four and a half billion dollars more for 
        their spectrum than they would have had to if their goal had 
        been to keep the spectrum out of the hands of competitors.
VII. Bidding restrictions in a simulated incentive auction

  (110)  In addition to the revenue simulations described above, I also 
        simulate the effects of restricting the participation in the 
        Incentive Auction using a theoretical model of a two-sided 
        auction.\55\ Although the model does not capture all the 
        complexity of the Incentive Auction, it does model the 
        important interaction between supply and demand in a two-sided 
        auction.
---------------------------------------------------------------------------
    \55\ Our model is based on the two-sided auction mechanism of Simon 
Loertscher and Claudio Mezzetti (2013), ``A Dominant Strategy Double 
Auction with Multi-Unit Traders,'' Working Paper, University of 
Melbourne, available at http://www.simonloertscher.net/data/downloads/
12120/LM-DoubAuc3.pdf. This paper introduces a double auction mechanism 
in which buyers and sellers with multi-unit demand and supply have a 
dominant strategy to bid truthfully. The mechanism produces nonnegative 
revenue for the auctioneer and traders never regret participating (ex-
post individual rationality is satisfied). In this Loertscher-Mezzetti 
double auction, the short side of the market trades at a single price, 
while the long side trades at prices determined by the well-known in 
the economics literature Vickrey-Clarke-Groves (VCG) mechanism (with a 
reserve price).

  (111)  The interaction between supply and demand in a two-sided 
        auction makes the problem of designing an incentive auction 
        fundamentally different from the problem of designing a 
        standard auction. The auctioneer does not know how much buyers 
        are willing to pay nor how much sellers would require in order 
        to be willing to sell. The auction mechanism must elicit this 
        information from buyers and sellers, determine the quantities 
        to be exchanged, and determine the amounts to be charged to 
        buyers and paid to sellers, retaining the difference between 
        the total amount received from buyers and the total amount paid 
        to sellers as revenue to the auctioneer. Key ways in which a 
        two-sided incentive auction differs from the standard one-sided 
        auction include: \56\
---------------------------------------------------------------------------
    \56\ The discussion in this paragraph is based on Simon Loertscher, 
Leslie M. Marx, and Tom Wilkening (2013), ``A Long Way Coming: 
Designing Centralized Markets with Privately Informed Buyers and 
Sellers,'' Working Paper, Duke University, available at https://
faculty.fuqua.duke.edu/marx/bio/papers/incentiveauction.pdf.

        (1)  Fully efficient two-sided mechanisms do not generate 
            positive revenue. In a two-sided market, in order to 
            guarantee that goods are reallocated to their highest-value 
            use--in the case at hand, making sure that this one-time 
            opportunity to reallocate broadcast spectrum to higher-
            value wireless services does not go to waste--the market 
            designer must be willing to take a loss in order to induce 
            both sides of the market to reveal their true valuation of 
            the object. In the Incentive Auction, as previously noted, 
            Congress and the FCC seek to generate positive revenue, so 
---------------------------------------------------------------------------
            a fully efficient mechanism is not an option.

        (2)  The revenue-efficiency trade-off is steeper in an 
            incentive auction. In order to maximize revenue, the market 
            designer must give up more in terms of the market's ability 
            to allocate licenses to the highest valuing users than in a 
            standard auction. Parties involved need to appreciate the 
            negative efficiency consequences of demands for revenue on 
            the Incentive Auction.

        (3)  The exclusion of strong buyers can have more severe 
            consequences in an incentive auction. An incentive auction 
            can be more sensitive to the exclusion of a strong buyer 
            than a standard auction. The effect is more pronounced the 
            stronger is the strong buyer and less pronounced as the 
            number of other buyers increases. In addition, in the 
            Incentive Auction, a reduction in the amount of spectrum 
            transacted has broader implications because it means that 
            less spectrum will be reallocated from broadcast use to 
            mobile wireless services and could potentially affect the 
            repacking of the remaining broadcast licenses.

  (112)  The simple two-sided auction model that I present in this 
        section illustrates the trade-offs that the auctioneer faces 
        and how the exclusion of bidders negatively affects the 
        outcomes that the auctioneer may expect to realize. The 
        auctioneer's two conflicting goals are auction revenue 
        maximization on one hand and efficiency maximization on the 
        other (i.e., the goal of facilitating all transactions for 
        which the buyer values the good more than the seller).

  (113)  If the auctioneer knows how much each seller and each buyer 
        values the goods for sale, the auctioneer can achieve both 
        goals by allowing all the trades where the buyer values the 
        good more than the seller, and then requiring that each trading 
        pair surrender the (positive) difference between their two 
        values. However, in real world situations, the auctioneer will 
        not know how much each seller and each buyer values the goods 
        for sale, and therefore the auctioneer needs to design a 
        mechanism to induce them to reveal such private information 
        through their bids. In order to earn revenue, the auctioneer 
        necessarily must reduce the number of trades below the 
        efficient level. The distortion in the number of transactions 
        may be large if the auctioneer seeks to maximize its revenue 
        from the two-sided auction at the expense of efficiency.

  (114)  In what follows, I show how market conditions, including the 
        number of potential traders and their uncertain valuations from 
        the auctioneer's point of view, give rise to a range of 
        possible outcomes. These outcomes reflect the inherent trade-
        off in two-sided markets between auctioneer revenue and the 
        efficiency of the auction. The outcome implemented by an 
        auctioneer will depend on the auctioneer's preferences between 
        the two conflicting goals. I show that the exclusion of bidders 
        can substantially worsen the range of outcomes available to the 
        auctioneer.
VII.A. Procedure

  (115)  I calculate a relatively simple example to illustrate the 
        trade-off between auctioneer revenue and efficiency and the 
        effect of bidder exclusion. Given that this model is purely 
        illustrative and not meant to be a quantitative prediction of 
        the effects of exclusion, I do not attempt to calibrate it to 
        expected parameter values. In my set-up, 10 potential sellers 
        each holding 1 unit of a homogenous good face 5 potential 
        buyers, each interested in purchasing up to 4 units.

  (116)  The auctioneer does not know how much the potential sellers 
        value the units that they own. The auctioneer only knows that 
        the value for any given seller is between $0 and $1 and that 
        values between $0 and $1 are equally likely. Thus, I assume 
        that the auctioneer expects that, on average, an individual 
        seller values her unit at $0.50, but the auctioneer knows that 
        among the 10 sellers some sellers will randomly draw values 
        much less than $0.50 (and hence, relatively more willing to 
        sell) and some sellers will randomly draw values much more than 
        $0.50 (hence, relatively less willing to sell). In particular, 
        the auctioneer expects that, if it could see the valuations and 
        line them up from lowest to highest, there would be a range of 
        seller values spread between $0 and $1.\57\
---------------------------------------------------------------------------
    \57\ I assume that sellers draw values randomly from the uniform 
distribution over the unit interval.

  (117)  Similarly, the auctioneer does not know how much potential 
        buyers are willing to pay for each of the 4 units each buyer is 
        interested in. The auctioneer only knows that the value any 
        given buyer places on a unit is between $0 and $1, but I assume 
        that values greater than $0.50 are relatively more likely so 
        that the auctioneer expects that, on average, an individual 
        buyer will value an individual unit at $0.75.\58\
---------------------------------------------------------------------------
    \58\ More formally, I assumed that each buyer's value for a given 
unit is a random variable with support [$0, $1] and cumulative 
distribution F(x) = x\3\.

  (118)  To illustrate the trade-off between auction revenue and 
        auction efficiency, I consider the outcomes the auctioneer can 
        expect to achieve if it runs a two-sided auction mechanism 
        based on the work of Loertscher and Mezzetti (2013). We can 
        view the mechanism as a two-sided version of a multi-unit 
        Vickrey auction with a reserve price,\59\ which is a multi-unit 
        extension of a second-price auction, in which bidders submit 
        bids and the high bidder wins but pays only the amount of the 
        second-highest bid. In Appendix E, I provide the technical 
        details behind the illustrative simulations results presented 
        in this section.
---------------------------------------------------------------------------
    \59\ See Vickrey, William (1961), ``Counterspeculation, Auctions, 
and Competitive Sealed Tenders,'' Journal of Finance, 16: 8-37. This 
mechanism is sometimes referred to as a Vickrey-Clarke-Groves auction, 
as Clarke and Groves independently reached similar conclusions, see 
Clarke, E.H. (1971), ``Multipart Pricing of Public Goods,'' Public 
Choice, XI, 17-33, Groves, Theodore (1973), ``Incentives in Teams,'' 
Econometrica, 41: 617-31.
---------------------------------------------------------------------------
VII.B. Results

  (119)  A two-sided auction can be designed to emphasize revenue or to 
        emphasize efficiency through the selection of auction design 
        parameters. In the model I use, a design that provides 
        relatively high payments to sellers encourages them to supply 
        more units, which tends to increase efficiency but reduce 
        expected auctioneer revenue. A design that provides relatively 
        low payments to sellers not only lowers the price paid to 
        sellers but also reduces the number of units supplied, which 
        increases competition among the buyers and thus increases the 
        average price buyers pay and the expected revenue to the 
        auctioneer. Therefore, depending on the auction design, the 
        auctioneer can emphasize revenue, efficiency, or balance the 
        two.

  (120)  That trade-off in my model is depicted in Figure 15. (See 
        Appendix E for the details underlying this illustration.) 
        Expected auctioneer revenue is on the vertical axis, and the 
        expected number of units reallocated or traded is represented 
        on the horizontal access, where a larger number of units 
        reallocated implies that the auction is more efficient. The 
        curves in Figure 15 are downward sloping, which indicates that 
        auction designs that produce greater expected revenue also 
        produce a lower expected number of trades.

  (121)  The blue line in Figure 15 shows the combinations of average 
        revenue and numbers of trades that are feasible without 
        exclusion. That is, without exclusion, if the auction is 
        designed to maximize revenue, the auctioneer can expect to earn 
        nearly $2 with an average of 4 units changing hands. If instead 
        the auction is designed to maximize efficiency, the auctioneer 
        will expect to earn less than $0.50 with an average of 
        approximately 7.5 units changing hands. The blue curve between 
        these two extremes represents all of the intermediate 
        combinations of expected revenue and number of trades that are 
        achievable depending on the auction design parameters 
        chosen.\60\ Similarly, the green curve depicts the combinations 
        that are achievable if two of the five identical buyers are 
        excluded.
---------------------------------------------------------------------------
    \60\ These combinations of revenue and numbers of trades are 
achievable in an expected sense. The values of the buyers and sellers 
are random in the model. Therefore, for a given reserve price the 
number of trades and revenue will depend on the actual values drawn. 
The combinations of revenue and numbers of trades are the mean outcomes 
when values are redrawn and auction rerun many times.
---------------------------------------------------------------------------
Figure 15 Expected number of trades and auction revenues in a simple 
        two-sided auction

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations.

VII.B.1. Exclusion of bidders in a two-sided mechanism worsens the 
        choices 
        available to an auctioneer

  (122)  In my illustrative model, the number of units traded are not 
        calibrated to real-world values, so I redraw Figure 15 to 
        express the shift inward of the auction outcomes under 
        exclusion as a percentage of the maximum number of trades 
        achievable under no exclusion--the point representing 
        approximately 7.5 units in Figure 15 corresponds to 100 units 
        in Figure 16 below. Similarly, because auction revenues in the 
        model are not calibrated to real-world values, I redraw the 
        figure so that approximately $2.00 in auctioneer revenues in 
        Figure 15 corresponds to 100 in Figure 16.
Figure 16 Impact of exclusion in a simple two-sided auction (max trades 
        under no exclusion=100; max auctioneer revenue under no 
        exclusion=100)

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations.

  (123)  As shown in Figure 16, exclusion reduces the maximum 
        auctioneer revenue by just under 20 percent. (You can see this 
        in the figure by noting that the maximum revenue value for the 
        green line is just over 80.) Exclusion also reduces the 
        efficiency-maximizing number of trades by approximately 15 
        percent. (The maximum number of trades for the green line is 
        approximately 85.) An auctioneer aiming to find a compromise 
        solution between these two conflicting targets stands to lose 
        more than 20 percent on auction revenue and more than 15 
        percent on efficiency from exclusion. (The green line is more 
        than 20 percent below the blue line, except close to the point 
        of maximum revenue where it is slightly less than 20 percent 
        below, and the green line is more than 15 percent to the left 
        of the blue line.)

  (124)  The set of revenue levels and numbers of transactions that can 
        be achieved in a two-sided mechanism shifts down and to the 
        left (towards lower revenue levels and fewer trades) when 
        buyers are excluded. Bidding restrictions mean that the maximum 
        possible revenue is reduced and the maximum number of 
        transactions that can be achieved is reduced. Furthermore, the 
        feasible set of revenue levels and numbers of transactions is 
        worsened from the perspective of the auctioneer.
VII.B.2. Exclusion of bidders in a two-sided mechanism can cause 
        revenue and transaction goals to be unattainable

  (125)  As described above (see para. (20)), the Incentive Auction 
        must raise a minimum level of revenue in order to succeed in 
        reallocating licenses from broadcast TV to mobile wireless 
        services. In addition, although not required by the authorizing 
        legislation, it is clear that the Incentive Auction is being 
        relied upon to fund the First Responder Network Authority 
        (FirstNet) (see fn. 7).

  (126)  Furthermore, the National Broadband Plan calls for the FCC to 
        take steps to reallocate 120 MHz from the broadcast TV bands as 
        part of the goal of making an additional 300 megahertz between 
        225 MHz and 3.7 GHz available for mobile use by 2015. As 
        described in the National Broadband Plan, ``Incentive auctions 
        can be especially useful where fragmentation of spectrum 
        licenses makes it difficult for private parties to aggregate 
        spectrum in marketable quantities.'' \61\
---------------------------------------------------------------------------
    \61\ National Broadband Plan, Section 5.3, http://
www.broadband.gov/.

  (127)  If minimum thresholds of revenue and quantity transacted are 
        required for the auction to succeed, then the elimination of 
        two buyers can make achieving those thresholds impossible, 
        causing the auction to fail. This case is illustrated in Figure 
        17, which assumes that auction success requires at least 70 
        percent of the maximum number of trades and 60 percent of the 
        maximum revenue achievable under unrestricted competition. The 
        blue-shaded box represents the range of outcomes that satisfy 
        both requirements for auction success. As Figure 17 shows, 
        exclusion results in failure to satisfy either requirement.
Figure 17 Exclusion may cause the illustrative two-sided auction to 
        fail

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations.

  (128)  My understanding is that there are substantial technical 
        challenges associated with configuring a band plan that makes a 
        reasonable amount of paired spectrum available to wireless 
        operators. Specifically, I understand that no party has 
        presented a band plan designed to repurpose paired spectrum if 
        the amount of cleared spectrum is less than 72 MHz in numerous 
        markets because that is the minimum amount needed to configure 
        a 25x25 MHz band plan. Given the potentially drastic result of 
        an outcome where that minimum clearing threshold is not met, 
        imposing restrictions that would materially suppress the 
        quantity of spectrum repurposed would present a particularly 
        acute risk of outright auction failure.

  (129)  Therefore, bidding restrictions on buyers at the Incentive 
        Auction have the potential to create an environment in which 
        the goals for the Incentive Auction of revenue generation and 
        spectrum reallocation cannot be achieved. In this sense, 
        bidding restrictions can cause the Incentive Auction to fail.
VII.C. Proposals for a contingent auction would distort the auction 
        process and 
        potentially contribute to auction failure

  (130)  T-Mobile recently proposed that the FCC apply strict bidding 
        restrictions to Verizon and AT&T, but if certain revenue goals 
        are not met, then the restrictions would be relaxed and the 
        auction rerun, and so on, relaxing the restrictions repeatedly 
        until revenue goals are met.\62\ That proposal would increase 
        the complexity of an already complex Incentive Auction and 
        would increase the risk of auction failure. Rerunning auctions 
        can cause a number of problems from increased risk of 
        coordinated bidding to distorted bidding incentives in an 
        effort to game the system, which in complicated auctions can be 
        difficult to predict and therefore avoid. In addition, even if 
        such a mechanism theoretically allows the auction to achieve a 
        revenue target, bidding restrictions will still decrease the 
        amount of reallocated spectrum. Perhaps the most fundamental 
        problem with the T-Mobile proposal is that it subverts the 
        benefits of a two-sided auction as a means of determining the 
        efficient allocation. The proposal would use a revenue target 
        determined outside of the auction context to determine the 
        amount of spectrum to be reallocated, but there is no way such 
        a revenue target can reasonably be expected to achieve an 
        efficient reallocation. If the auction were to meet the 
        arbitrary set of revenue targets with restrictions on Verizon 
        and AT&T, it is likely that the auction would have reallocated 
        additional spectrum and/or raised more revenue had there been 
        no restrictions.
---------------------------------------------------------------------------
    \62\ See http://apps.fcc.gov/ecfs/document/view?id=7520934888.

  (131)  It has been shown in the economics literature that contingent 
        re-auctions are generally neither efficient nor optimal for the 
        seller.\63\ Strategic bidding in the 700 MHz auction as a 
        result of the contingent re-auction format has been documented 
        in the economics literature.\64\ In order to avoid incentives 
        for strategic bidding in the proposed auction format, detailed 
        and potentially complex and restrictive activity rules would 
        have to be put in place. However, such complicated restrictions 
        would likely reduce the efficiency of the auction and would 
        themselves create additional harmful effects.
---------------------------------------------------------------------------
    \63\ Sandro Brusco, Giuseppe Lopomo, and Leslie M. Marx (2011), 
``The Economics of Contingent Re-Auctions,'' American Economic Journal: 
Microeconomics 3(2), 165-193.
    \64\ Sandro Brusco, Giuseppe Lopomo, and Leslie M. Marx (2009), 
``The `Google Effect' in the FCC's 700 MHz Auction,'' Information 
Economics and Policy 21, 101-114.

  (132)  One such harmful effect is illustrated by T-Mobile's attempt 
        to address potential strategic bidding incentives by imposing 
        an ``activity rule'' under which restrictions would be relaxed 
        only in markets where the restricted bidders are actively 
        bidding. That rule creates an exposure risk because it may 
        require restricted bidders to bid on licenses that in and of 
        themselves are of little value in order to retain and expand 
        their eligibility to bid on the licenses they actually want. 
        Take the example of a restricted bidder whose business plan 
        calls for a 10x10 MHz license in a particular market and who 
        places little value on a single 5x5 license. If the bidder only 
        has ``headroom'' under the cap to bid on a single 5x5 MHz 
        licenses, under T-Mobile's proposal it would need to bid on a 
        license that has little value by itself in order to have a 
        chance of acquiring the license it does want. A firm in that 
        position may choose not to bid on the smaller license because 
        of the risk that it wins it without the ability also to acquire 
        the complementary licenses that are needed for its business 
        plan. That exposure problem is further complicated and 
        exacerbated by the fact that, under the cap, firms will have 
        different levels of headroom in different markets, which 
        introduces an additional layer of complexity for firms 
        interested in acquiring footprint-wide licenses of particular 
---------------------------------------------------------------------------
        sizes.

  (133)  T-Mobile's proposal would also compromise the ability of 
        restricted bidders to move their demand between geographic 
        markets based on price feedback received during the auction. 
        Consider a firm that is interested in acquiring a license in 
        either Milwaukee or Kansas City, but not in both markets. Under 
        a normal auction, that bidder could first seek to acquire a 
        license in Kansas City and see how the bidding proceeds there, 
        and then it may choose to shift its demand to Milwaukee if the 
        Kansas City license becomes too expensive. Auction designs that 
        support the ability of bidders to move demand between markets 
        have been promoted by the FCC. But under the proposal, that 
        strategy would be prohibited because the firm would lose its 
        ability to bid in Milwaukee if it has not been actively bidding 
        there starting in round one. The result is that a rational firm 
        may not acquire any license even though it would have acquired 
        a license in an unrestricted auction.

  (134)  The exposure risks and strategic bidding incentives created by 
        the proposal would not be limited to the restricted bidders. 
        For example, the risk that the proposal leaves money on the 
        table is heightened by the fact that non-restricted bidders 
        would have the incentive to bid strategically to ensure that 
        the revenue is target is met, but not exceeded, in order to 
        avoid letting the restricted bidders have the opportunity to 
        bid on more spectrum, which would increase overall bidding.

  (135)  In sum, my prediction on the auction outcome under T-Mobile's 
        proposal is that Sprint and T-Mobile would raise their bids 
        just enough to meet the revenue target and win the licenses at 
        depressed prices. They and/or other winners at the auction 
        would then have the ability to sell that spectrum on the 
        secondary market to Verizon and AT&T at higher prices.
VIII. Conclusion

  (136)  I have analyzed proposals to restrict the participation of 
        Verizon and AT&T in the Incentive Auction in order to prevent 
        the anticompetitive foreclosure of smaller rivals. The evidence 
        does not support assertions that anticompetitive foreclosure is 
        likely. (1) I have reviewed the outcomes of previous auctions 
        and find no evidence of foreclosure. (2) The evidence from 
        secondary market transactions and previous auctions suggests 
        that Sprint and T-Mobile failed to take advantage of numerous 
        opportunities to purchase low-frequency spectrum. (3) A review 
        of the pricing plans offered by Verizon, AT&T, Sprint, and T-
        Mobile is consistent with the conclusion that the networks of 
        Verizon and AT&T are capacity constrained relative to Sprint 
        and T-Mobile, implying that little would be gained from 
        foreclosing Sprint and T-Mobile. (4) As both Verizon and AT&T 
        would supposedly benefit from foreclosure of Sprint and T-
        Mobile, incentives to free ride on the other's efforts would 
        further reduce any gains from foreclosure. (5) Successful 
        foreclosure is complicated and made more costly by the fact 
        that, in the Incentive Auction, an increase in bid amounts to 
        deny Sprint and T-Mobile spectrum will tend to increase the 
        amount of spectrum supplied to the market. (6) Finally, the 
        market for wireless services does not appear to be sufficiently 
        concentrated to make foreclosure profitable.

  (137)  While not addressing a real problem, proposals to restrict the 
        bidding of Verizon and AT&T conflict with the goals of the 
        Incentive Auction: reallocation of spectrum to higher valued 
        uses and revenue generation. In order to assess the impact of 
        bidding restrictions, I have simulated their impact on Auction 
        66 (AWS) and Auction 73 (700 MHz) and found that restrictions 
        would have significantly reduced the revenue generated in those 
        auctions. In addition, I have simulated the exclusion of two 
        bidders in an illustrative example of a two-sided market 
        similar in structure to the Incentive Auction. The results 
        illustrate the trade-off faced by an auctioneer in a two-sided 
        setting between revenue generation and efficiency. Excluding 
        bidders reduces both the amount of spectrum reallocated and the 
        potential revenue generated.

  (138)  The Incentive Auction represents a unique opportunity to 
        reallocate underutilized spectrum to higher valued uses. It 
        would be particularly unwise to artificially reduce demand in 
        the Incentive Auction through restrictions on the bidding of 
        Verizon and AT&T. Bidding restrictions conflict with the goals 
        of the Incentive Auction by reducing both the amount of 
        spectrum reallocated and the revenue potential of the auction. 
        Such restrictions risk a complete failure of the auction by 
        making the achievement of minimum revenue and spectrum 
        reallocation thresholds impossible to achieve. Despite the 
        evidence I have presented, if the FCC believes that foreclosure 
        by Verizon and AT&T of smaller rivals is a real problem, I urge 
        the FCC to consider other less distortionary policies to 
        address the potential problem, such as build-out requirements 
        and anonymous bidding. Complicated bidding procedures and 
        bidding restrictions on top of an already complicated two-sided 
        auction put at risk the goals of the Incentive Auction. I find 
        such proposals both unnecessary and counterproductive.
                                 ______
                                 
          Appendix A. Curriculum vitae of Leslie M. Marx, PhD
A.1.  Education

      PhD, Economics, Northwestern University

      MA, Economics, Northwestern University

      BS, Mathematics, Duke University
A.2.  Professional experience

      Fuqua School of Business, Duke University, Robert A. 
            Bandeen Professor of Economics, 2013-present

      Fuqua School of Business, Duke University, William and 
            Sue Gross Research Fellow and Professor of Economics, 2012-
            2013

      Fuqua School of Business and Department of Economics, 
            Duke University, Professor of Economics, 2008-2013

      Associate Professor of Economics, Fuqua School of 
            Business, Duke University, 2002-2008

      Chief Economist, U.S. Federal Communications Commission, 
            August 2005-August 2006

      Associate Professor of Economics and Management, W.E. 
            Simon Graduate School of Business Administration, 
            University of Rochester, 2000-2002

      Visiting Associate in Economics, California Institute of 
            Technology, January 2000-June 2000

      Associate Professor of Economics and Management, W.E. 
            Simon Graduate School of Business Administration, 
            University of Rochester, 1999-2000

      Assistant Professor of Economics and Management, W.E. 
            Simon Graduate School of Business Administration, 
            University of Rochester, 1994-1999
A.3.  Teaching

      MBA: Managerial Decision Analysis, Managerial Game 
            Theory, Environmental Economics

      Executive MBA: Managerial Economics, Managerial Decision 
            Analysis, Managerial Game Theory

      PhD: Game Theory, Industrial Organization
A.4.  Publications

      ``Tacit Collusion in Oligopoly'' (with Edward Green and 
            Robert C. Marshall). In Oxford Handbook of International 
            Antitrust Economics, eds. Roger D. Blair and D. Daniel 
            Sokol. Oxford University Press, forthcoming.

      ``Economics and the Efficient Allocation of Spectrum 
            Licenses'' (with Simon Loertscher). In Mechanisms and Games 
            for Dynamic Spectrum Access, eds. Tansu Alpcan, Holger 
            Boche, Michael L. Honig, and H. Vincent Poor. Cambridge 
            University Press, forthcoming.

      ``The Economics of Auctions and Bidder Collusion'' (with 
            Robert C. Marshall and Michael J. Meurer). In Game Theory 
            and Business Applications, 2nd ed., eds. Kalyan Chatterjee 
            and William F. Samuelson. New York: Kluwer Academic 
            Publishers, forthcoming.

      The Economics of Collusion: Cartels and Bidding Rings 
            (with Robert C. Marshall). Cambridge: MIT Press, 2012.

      ``Plus Factors and Agreement in Antitrust Law'' (with 
            William E. Kovacic, Robert C. Marshall, and Halbert L. 
            White). Michigan Law Review 110, no. 3 (2011): 393-436. 
            Winner of the Tenth Annual Jerry S. Cohen Memorial Fund 
            Writing Award given for the best antitrust writing during 
            the prior year.

      ``Bidder Collusion at First-Price Auctions'' (with 
            Giuseppe Lopomo and Peng Sun). Review of Economic Design 
            15, no. 3 (2011): 177-211.

      ``Carbon Allowance Auction Design: An Assessment of 
            Options for the U.S.'' (with Giuseppe Lopomo, David 
            McAdams, and Brian Murray). Review of Environmental 
            Economics and Policy 5, no. 1 (2011): 25-43.

      ``Coordinated Effects in the 2010 Horizontal Merger 
            Guidelines'' (with Wayne-Roy Gayle, Robert C. Marshall, and 
            Jean-Francois Richard). Review of Industrial Organization 
            39, no. 1 (2011): 39‒56.

      ``The Economics of Contingent Re-Auctions'' (with Sandro 
            Brusco and Giuseppe Lopomo). American Economic Journal: 
            Microeconomics 3, no. 2 (2011): 165-93.

      ``Break-Up Fees and Bargaining Power in Sequential 
            Contracting'' (with Greg Shaffer). International Journal of 
            Industrial Organization 28, 451-463 (2010).

      ``Slotting Allowances and Scarce Shelf Space'' (with Greg 
            Shaffer). Journal of Economics & Management Strategy 19, 
            no. 3 (2010): 575-603.

      ``Cartels as Two-Stage Mechanisms: Implications for the 
            Analysis of Dominant-Firm Conduct'' (with Randall D. Heeb, 
            William E. Kovacic, and Robert C. Marshall). Chicago 
            Journal of International Law 10, no. 1 (2009): 213-31.

      ``Individual Accountability in Teams'' (with Francesco 
            Squintani). Journal of Economic Behavior & Organization 72, 
            no. 1 (2009): 260-73.

      ``Quantitative Analysis of Coordinated Effects'' (with 
            William E. Kovacic, Robert C. Marshall, and Steven P. 
            Schulenberg). Antitrust Law Journal 76, no. 2 (2009): 397-
            430.

      ``The `Google Effect' in the FCC's 700 MHz Auction'' 
            (with Sandro Brusco and Giuseppe Lopomo). Information 
            Economics and Policy 21 (2009): 101-14.

      ``The Vulnerability of Auctions to Bidder Collusion'' 
            (with Robert C. Marshall). Quarterly Journal of Economics 
            124, no. 2 (2009): 883-910.

      ``Cartel Price Announcements: The Vitamins Industry'' 
            (with Robert C. Marshall and Matthew E. Raiff). 
            International Journal of Industrial Organization 26 (2008): 
            762-802. Awarded the 2009 Paul Geroski Best Article Prize 
            for one of the best two articles published in the 
            International Journal of Industrial Organization in 2008.

      ``Bidder Collusion'' (with Robert C. Marshall). Journal 
            of Economic Theory 133 (2007): 374-402.

      ``Coordinated Effects in Merger Review: Quantifying the 
            Payoffs from Collusion'' (with William E. Kovacic, Robert 
            C. Marshall, and Steven P. Schulenberg). In Annual 
            Proceedings of the Fordham Competition Law Institute: 
            International Antitrust Law & Policy, ed. Barry E. Hawk, 
            271-85 (Huntington, NY: Juris Publishing, Inc., 2007).

      ``Exploring Relations Between Decision Analysis and Game 
            Theory'' (with Jules van Binsbergen). Decision Analysis 4 
            (2007): 32-40.

      ``Lessons for Competition Policy from the Vitamins 
            Cartel'' (with William E. Kovacic, Robert C. Marshall, and 
            Matthew E. Raiff). In The Political Economy of Antitrust, 
            vol. 282, eds. Vivek Ghosal and Johan Stennek, 149-176 (New 
            York: Elsevier, 2007).

      ``Rent Shifting and the Order of Negotiations'' (with 
            Greg Shaffer). International Journal of Industrial 
            Organization 25 (2007): 1109-25.

      ``Upfront Payments and Exclusion in Downstream Markets'' 
            (with Greg Shaffer). RAND Journal of Economics 38 (2007): 
            823-43.

      ``Bidding Rings and the Design of Anti-Collusion Measures 
            for Auctions and Procurements'' (with William E. Kovacic, 
            Robert C. Marshall, and Matthew E. Raiff). In Handbook of 
            Procurement, eds. Nicola Dimitri, Gustavo Piga, and 
            Giancarlo Spagnolo, 381-411 (Cambridge: Cambridge 
            University Press, 2006).

      ``Economics at the Federal Communications Commission.'' 
            Review of Industrial Organization 29 (2006): 349-68.

      ``Inefficiency of Collusion at English Auctions'' (with 
            Giuseppe Lopomo and Robert C. Marshall). Contributions in 
            Theoretical Economics 5, no. 1 (2005): article 4, http://
            www.bepress.com/bejte/contributions/vol5/iss1/art4.

      ``Opportunism and Menus of Two-Part Tariffs'' (with Greg 
            Shaffer). International Journal of Industrial Organization 
            22 (2004): 1399-1414.

      ``Opportunism in Multilateral Vertical Contracting: 
            Nondiscrimination, Exclusivity, and Uniformity: Comment'' 
            (with Greg Shaffer). American Economic Review 94 (2004): 
            796-801.

      ``The Joint Determination of Leverage and Maturity'' 
            (with Michael J. Barclay and Clifford W. Smith, Jr.). 
            Journal of Corporate Finance 9 (2003): 149-67. Winner of 
            Outstanding Paper in Corporate Finance at the 1997 Southern 
            Finance Association Meetings.

      ``Adverse Specialization'' (with Glenn M. MacDonald). 
            Journal of Political Economy 109 (2001): 864-99.

      ``Insurer Ownership Structure and Executive Compensation 
            as Complements'' (with David Mayers and Clifford W. Smith, 
            Jr.). Journal of Risk and Insurance 68 (2001): 449-63. 
            Winner of Outstanding Paper in Financial Services at the 
            1998 Southern Finance Association Meetings.

      ``Dynamic Voluntary Contribution to a Public Project'' 
            (with Steven A. Matthews). Review of Economic Studies 67 
            (2000): 327-58.

      ``Adaptive Learning and Iterated Weak Dominance.'' Games 
            and Economic Behavior 26 (1999): 253-78.

      ``Odd-Eighth Avoidance as a Defense Against SOES 
            Bandits'' (with Eugene Kandel). Journal of Financial 
            Economics 51 (1999): 85-102.

      ``Payments for Order Flow on Nasdaq'' (with Eugene 
            Kandel). Journal of Finance 54 (1999): 35-66.

      ``Predatory Accommodation: Below-Cost Pricing Without 
            Exclusion in Intermediate Goods Markets'' (with Greg 
            Shaffer). RAND Journal of Economics 30 (1999): 22-43.

      ``Process Variation as a Determinant of Bank Performance: 
            Evidence from the Retail Banking Study'' (with Frances 
            Frei, Ravi Kalakota, and Andrew Leone). Management Science 
            45 (1999): 1210-20.

      ``Efficient Venture Capital Financing Combining Debt and 
            Equity.'' Review of Economic Design 3 (1998): 371-87; 
            Winner of the Koc University Prize for the Best Paper of 
            the Year in Review of Economic Design.

      ``The Effects of Transaction Costs on Stock Prices and 
            Trading Volume'' (with Michael J. Barclay and Eugene 
            Kandel). Journal of Financial Intermediation 7 (1998): 130-
            50.

      ``Cost Effective Use of Muscle Relaxants: A Decision 
            Analysis'' (with Jeffrey S. Rubenstein, Wendy Colin, Darryl 
            Jackson, Craig Lockwood, and Janice Molloy). Pediatrics 100 
            (1997): 451-52.

      ``Nasdaq Market Structure and Spread Patterns'' (with 
            Eugene Kandel). Journal of Financial Economics 45 (1997): 
            35-60.

      ``Order Independence for Iterated Weak Dominance'' (with 
            Jeroen M. Swinkels). Games and Economic Behavior 18 (1997): 
            219-45. ``Corrigendum.'' GEB 31 (2000): 324-29.
A.5.  Working papers

      ``Antitrust Leniency with Multi-Product Colluders'' (with 
            Robert C. Marshall and Claudio Mezzetti), 2013.

      ``A Long Way Coming: Designing Centralized Markets with 
            Privately Informed Buyers and Sellers'' (with Simon 
            Loertscher and Tom Wilkening), 2013.

      ``Monopolization Conduct by Cartels'' (with Robert C. 
            Marshall and Lily Samkharadze), 2013.

      ``Buyer Resistance for Cartel versus Merger'' (with 
            Vikram Kumar, Robert C. Marshall, and Lily Samkharadze), 
            2013.

      ``Buyer Power, Exclusion, and Inefficient Trade'' (with 
            Greg Shaffer), 2009.

      ``Opportunism and Nondiscrimination Clauses'' (with Greg 
            Shaffer), 2002.
A.6.  Grants

      National Science Foundation Grant #SES-0849349, Applied 
            Mechanism Design, 2009-2011

      National Science Foundation Grant #SES-0001903, 
            ``Economic Analysis of Sequential Vertical Contracting 
            Environments,'' 2000-2001

      Emerging Scholar Program Grant from the American 
            Compensation Association, ``Compensation and Control in 
            Entrepreneurial Ventures,'' 1997
A.7.  Selected honors and awards

      Honored as an FCC Woman Leader by The Minority Media and 
            Telecommunications Council, April 2013

      Honored as one of the Global Competition Review Top 100 
            Women in Antitrust, March 2013

      Named Financial Times Business School Professor of the 
            Week, July 2012

      Awarded the 2012 Tenth Annual Jerry S. Cohen Memorial 
            Fund Writing Award, given to the best antitrust writing 
            during the prior year (Awarded for ``Plus Factors and 
            Agreement in Antitrust Law,'' published in the Michigan Law 
            Review)

      Awarded the 2009 Paul Geroski Best Article Prize for one 
            of the best two articles published in the International 
            Journal of Industrial Organization in 2008

      Simon School Teaching Honor Roll, 1999, 2001

      Koc University Prize for the Best Paper of the Year in 
            Review of Economic Design, 1998

      Outstanding Paper in Financial Services at the Southern 
            Finance Association Meetings, 1998

      Outstanding Paper in Corporate Finance at the Southern 
            Finance Association Meetings, 1997

      Alfred P. Sloan Doctoral Dissertation Fellowship, 1993-
            1994

      National Science Foundation Graduate Fellowship, 1989-
            1992
A.8.  Professional activities

      Council Member of Game Theory Society, 2013-present

      Editorial Board of International Journal of Game Theory, 
            12/2009-present

      Editorial Board of Journal of Economic Literature, 2010-
            2012

      Advisory Editor for Games and Economic Behavior, 2010-
            2012

      Editorial Board of American Economic Journal: 
            Microeconomics, 2007-present

      Academic Affiliate of the Center for the Study of 
            Auctions, Procurements and Competition Policy at Penn State 
            University, 2007-present

      Associate Editor, International Economic Review, 2002-
            2005
          Appendix B. Secondary market transactions, all bands
Figure 18 Number of transactions, all bands, January 2007-May 2013 
        (whole and partial licenses)

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations based on FCC data and documentation.
 Appendix C. Band plans for spectrum auctioned in the AWS and 700 MHz 
                                auctions

  (139)  The figures in this appendix provide background information on 
        the band plans used in the AWS and 700 MHz Auctions.
Figure 19 Auction 66 (AWS-1) band plan, reserve price, and minimum 
        opening bids

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: FCC documentation. Note: As for the reserve price, the FCC 
ruled as follows: ``the winning bids (net of bidding credits) in the 
auction must total at least approximately $2.06 billion in order for 
the Commission to conclude the auction and award the licenses.'' (FCC 
06-47, April 12, 2006)
Figure 20 Auction 73 (700 MHz) band plan, reserve prices, and winning 
        bids

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: FCC documentation.
             Appendix D. Results assuming CMA-only licenses

  (140)  In Auction 66, AWS licenses were defined over 734 small 
        Cellular Market Areas (CMA), over 176 larger Economic Areas 
        (EA), and over 12 large Regional Economic Area Groups (REAG). 
        Under the 33 percent share exclusion rule, if the weighted 
        average MHz market share of low-band spectrum for a large REAG 
        were below 33 percent, AT&T and Verizon would be allowed to bid 
        for such a license. However, if the proposed Incentive Auction 
        is conducted at the CMA level, AT&T and Verizon would be 
        excluded from many CMA markets within the REAG. Alternatively, 
        AT&T or Verizon could be excluded from a particular REAG as a 
        result of the 33 percent share exclusion rule, but would have 
        been allowed to bid in many of the CMA markets within the REAG. 
        Therefore, basing exclusion on shares in larger geographic 
        regions may distort the degree of exclusion from the 33 percent 
        share exclusion rule. As a robustness check, we rescale the AWS 
        spectrum auction so that all licenses are over a CMA. I find 
        that my results are generally consistent with my simulation 
        results without this rescaling.

  (141)  In order to account for the circumstances described above, I 
        use the Auction 66 results to create a new set of auction 
        results. For each EA and REAG license, I create a set of 
        artificial licenses associated with each CMA within an EA or 
        REAG. In order to simulate bidding on these artificial CMAs, I 
        assume that the bidders on the artificial CMA licenses are the 
        same as the bidders for the associated EA or REAG, and I 
        allocate the bids on the EA or REAG to the artificial CMA 
        licenses proportionally to the population of the CMA. By 
        creating these artificial CMA licenses, I create an auction in 
        which each CMA has 6 licenses associated with it, one from 
        Block A, which was the original CMA license, and others from 
        Blocks B, C, D, E, and F, represented by the artificial 
        licenses with scaled-down bids.\65\ In this way, I can 
        demonstrate how simulation results change if the 33 percent 
        share cap is applied at the CMA level instead of at the EA or 
        REAG level.
---------------------------------------------------------------------------
    \65\ Counties from one CMA can be included in several EAs or REAGs. 
In such cases, I allocate all of a CMA's counties to an EA or a REAG 
that accounts for the highest population share in this CMA.

  (142)  The results based on the artificial auction with CMA-only 
        licenses do not differ much from the original simulation 
        results. The auction revenue would fall significantly in all 
        scenarios: from 16 percent in the outright exclusion scenario 
        to 8 percent in the scenario in which AT&T and Verizon are 
        excluded from the CMA markets where their post-auction spectrum 
        share would have been above 33 percent had they purchased 10 
        MHz of spectrum. When exclusion is made at the CMA-level, the 
        degree of exclusion (and associated revenue reduction) based on 
        post-auction shares after 10 MHz purchase in the auction is 
        much higher than the exclusion with the actual set of AWS 
---------------------------------------------------------------------------
        spectrum licenses (see footnote 49).

  (143)  Figure 21 and Figure 22 report simulation results of exclusion 
        in an artificial AWS auction with CMA-only licenses. Auction 
        revenue would fall nearly 16 percent in an outright scenario, 
        and 10-14 percent in share capped exclusion scenarios.
Figure 21 Simulated auction revenue change with artificial CMA-only AWS 
        spectrum auction licenses in different scenarios of Verizon and 
        AT&T exclusion

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations based on the FCC data and documentation.

  (144)  The results based on the auction with CMA-only licenses show 
        that Verizon and AT&T, even under capped exclusion, lose the 
        bulk of their MHz*POPs. These MHz*POPs are captured by T-Mobile 
        and SpectrumCo.
Figure 22 Simulated percent change in the MHz*POP with CMA-only AWS 
        spectrum auction licenses in different scenarios of Verizon and 
        AT&T exclusion

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
    Source: Calculations based on the FCC data and documentation.
    Appendix E. Modeling details for the simulated incentive auction

  (145)  In this appendix, I provide an overview of the Vickrey 
        mechanism as applied to the sale of multiple units, where 
        buyers potentially desire more than one unit. I refer to this 
        as the multi-unit Vickrey mechanism. I begin by discussing this 
        mechanism in an environment where the auctioneer owns the items 
        for sale. This is the ``one-sided'' setting. Then I discuss the 
        mechanism in an environment like the Incentive Auction where 
        the auctioneer must provide incentives for sellers to 
        participate. This is the ``two-sided'' setting.

  (146)  Let me first illustrate the multi-unit Vickrey mechanism in a 
        one-sided setting--that is, where the auctioneer owns the items 
        to sell (so the auctioneer does not have to induce sellers to 
        reveal their willingness to pay). In a single-unit case, the 
        auctioneer will open the sealed envelopes and award the item to 
        the highest bidder (provided her bid exceeds the reserve 
        price), but, using the Vickrey mechanism, the auctioneer will 
        charge the winner the amount offered by the second-highest 
        bidder.

  (147)  In the case of multiple units for sale, buyers submit bids 
        consisting of multiple amounts: a bid for the 1st unit, a bid 
        for the 2nd unit, a bid for the 3rd unit, and a bid for the 4th 
        unit. If there are, say, 4 units for sale, the auctioneer 
        awards the items to the bidder(s) who have placed the 4 highest 
        bids (this could be a single buyer whose bids placed in the top 
        four spots in the ranking). The identification of the winners 
        is thus an easy extension of the single-item set-up--the 
        highest bids win.

  (148)  The determination of the amount each winning bidder must pay 
        for each unit she won is slightly more complex when more than 
        one unit is being sold, but still follows quite 
        straightforwardly from the single-unit set-up. In the single-
        unit set-up, the auctioneer can be thought of saying to the 
        winner: ``If you had not participated, I would have given the 
        item to the second-highest bidder. Because she was willing to 
        pay the amount she wrote in her envelope, I am now asking for 
        that amount from you (unless the second-highest bid is below 
        the reserve price, in which case you owe me the reserve 
        price).''

  (149)  In the multi-item set-up, consider for example a bidder who 
        placed 2 of the top 4 highest bids. The auctioneer would say: 
        ``If you had not participated, two lower bids that did not make 
        the top-4 list would have now made the top-4 to replace your 
        bids. As a consequence, I am now charging you those two amounts 
        for the two units you actually won (unless those lower bids 
        that would replace your two bids are below the reserve price, 
        in which case you owe me the reserve price).''

  (150)  Vickrey's mechanism induces the bidders to truthfully bid 
        their valuations because it gives a bidder no incentive to lie 
        about her valuation: by under-reporting her willingness to pay, 
        a potential buyer only hurts her chances to be named the winner 
        (her bid is less likely to make it to the top of the list), but 
        it does not reduce the amount she pays if she wins because that 
        amount does not depend on her bid at all. It depends only on 
        the nonwinning bids of other buyers.

  (151)  Because my illustrative model pertains to a two-sided auction 
        rather than a one-sided multi-unit Vickrey auction, the 
        auctioneer will proceed as follows (see Loertscher and 
        Mezzetti, 2013).

  (152)  First, the auctioneer will call out a reserve price and ask 
        buyers and sellers to bid, that is, to report their willingness 
        to pay or to accept in exchange for the license (which they 
        have an incentive to do). Once both sides have submitted their 
        bids, the auctioneer will count how many sellers have submitted 
        a bid below the reserve price: these are the units available 
        for sale at that reserve price. Similarly, the auctioneer will 
        determine how many units the buyers demand at the reserve 
        price.

  (153)  When the units offered at the reserve price are fewer than the 
        units demanded (suppliers are on the ``short side''), the 
        auctioneer will pay each willing seller the reserve price; the 
        auctioneer will then run a one-sided Vickrey auction to select 
        the winning buyers and determine the price they will pay.

  (154)  Each winning buyer (who could win one or more units) pays a 
        ``personalized'' price for each unit won--as described above, 
        the highest bid(s) that would have made the winning circle in 
        her absence, or the reserve price, whichever is highest.

  (155)  Conversely, when the units offered at the reserve price are 
        more than the units demanded, the buy-side is the short side 
        that determines how many units are traded. The auctioneer will 
        collect the reserve price from each of them. The auctioneer 
        will then run a one-sided Vickrey auction among the sellers to 
        select the winners (those asking for the lowest payments), and 
        pay them ``personalized'' prices--the next-highest request in a 
        winner's absence, or the reserve price, whichever is the 
        lowest.

  (156)  For each possible reserve price that the auctioneer could set 
        between $0.05 and $0.95 (in increments of 5 cents), I have 
        computed the average number of trades and corresponding average 
        auction revenues the auctioneer can expect to realize.\66\ 
        These results are illustrated in Figure 15.
---------------------------------------------------------------------------
    \66\ This is based on 5,000 random draws for the sellers' and the 
buyers' valuations.

  (157)  For the purposes of Figure 15, I have assumed that buyers 
        demand up to 20 units while suppliers will offer only up to 10 
        units. Moreover, I have assumed that buyers are expected, on 
        average, to be willing to pay more for any given unit, $0.75, 
        than the sellers are asking to give it up, $0.50. Under these 
        assumptions, an efficiency-driven auctioneer wishing to 
        maximize the number of efficient transactions will use a 
        reserve price well above $0.50 (about $0.80), inducing all but 
        the extremely high valuing sellers to give up their units. Then 
        the auctioneer will take advantage of high demand (at that 
        reserve price, sellers will still be more likely than not on 
        the short-side, i.e., demand at a price of $0.80 likely exceeds 
        supply) to assign those units to buyers valuing them more than 
---------------------------------------------------------------------------
        the reserve price via the Vickrey mechanism among buyers.

  (158)  An auctioneer can increase expected auction revenue at the 
        expense of efficiency by using a lower reserve price. The lower 
        reserve price reduces the number of trades, but allows the 
        auctioneer to collect higher prices from the buyers, who on 
        average will be on the long-side competing for those fewer 
        sales in most or all of the random draws. In my simulation, the 
        highest expected revenue (the top-left point on the blue curve) 
        that can be achieved occurs when the auctioneer uses a reserve 
        price of approximately $0.40. While only 4 units are sold on 
        average in this case, the ``personalized'' prices that the 
        auctioneer can extract from each buyer--the expected 5th 
        highest valuation, the first unit that does not make the top 
        4--is about $0.90, yielding a $0.50 = $0.90--$0.40 unit margin 
        per sale and $2.00 in auction revenues. By using a high reserve 
        price, the auctioneer acts like a profit-maximizing monopolist 
        that restricts the quantity traded in order to collect high 
        margins.

    Senator Thune. Instead of exploring auction rules to 
arbitrarily limit or benefit certain carriers, the FCC has the 
ability to consider setting a limit on the amount of spectrum 
any single bidder can win in the incentive auction. Such a 
limit applying equally to every bidder would at least allow all 
companies to have a fair shot at acquiring the spectrum they 
need while preventing any single entity from winning all the 
licenses.
    At a minimum, such a proposal should be explored, as it 
seems to make sense and could result in an open and competitive 
auction. I hope our witnesses spend some time discussing this 
and other reasonable ways to find consensus on forward auction 
bidding.
    Another way to encourage more bidder activity and to 
benefit rural areas in particular is to auction licenses in a 
variety of geographic sizes. At a previous hearing, our 
committee heard that offering spectrum licenses covering 
smaller geographic areas can result in more bidders, more 
license winners, more revenue, and better service to rural 
areas. This approach appeared to work quite well in the 700-
megahertz auction that occurred in 2008.
    I would like to hear our panelists' thoughts on how smaller 
license sizes have been used in the past, what the results have 
been, and how they could play a role in the broadcast incentive 
auction.
    Mr. Chairman, the FCC should not be distracted by proposals 
that could lead to less spectrum being made available and less 
auction proceeds being realized for national priorities like 
deficit reduction and FirstNet.
    Thanks again for holding today's hearing, and I look 
forward to hearing from our panelists.
    Senator Pryor. Thank you.
    And, again, I want to thank all the panelists for being 
here. And you all know that your written statements will be 
made part of the record, which we understand will be a more 
complete statement than what you will give here in a few 
moments.
    We would ask that you all, if you could, limit your remarks 
to 3 minutes each. Typically we go 5 minutes, but the rumor 
going around the Senate rumor mill--we don't know if it is ever 
true, but we think we are going to be having votes around 4 on 
the floor. I don't know if we can finish this hearing by then, 
but if we can keep the opening-statement portion shorter, we 
will have a better chance of doing that.
    So let me just run through who is on the panel, and then I 
will recognize Mr. Epstein.
    First we have Gary Epstein, Chair of the Incentive Auction 
Task Force and Special Advisor to the Chairman at the Federal 
Communications Commission.
    Next we have Ms. Joan Marsh, Vice President, Federal 
Regulatory Affairs, AT&T Services, Inc.
    Then we have Mr. Hal Singer, Senior Fellow, Progressive 
Policy Institute.
    Then we have Mr. Steven K. Berry, President and Chief 
Executive Officer, Competitive Carriers Association.
    Then Mr. Preston Padden, Executive Director, Expanding 
Opportunities for Broadcasters Coalition.
    Next is Mr. Rick Kaplan, Executive Vice President, National 
Association of Broadcasters.
    And last and certainly not least, we have Mr. Harold Feld, 
Senior Vice President of Public Knowledge.
    Mr. Epstein?

           STATEMENT OF GARY EPSTEIN, SPECIAL ADVISOR

            AND CHAIR, INCENTIVE AUCTION TASK FORCE,

               FEDERAL COMMUNICATIONS COMMISSION

    Mr. Epstein. Good afternoon, Chairman Pryor and Ranking 
Member Thune and members of the Committee. Thank you very much 
for the opportunity to discuss the Commission's efforts to 
carry out Congress's statutory direction in designing and 
implementing the Broadcast Television Spectrum Incentive 
Auction.
    This voluntary, market-based means of repurposing spectrum 
for mobile broadband is an important part of ensuring that our 
wireless networks are capable of supporting the critical 
economic, public safety, healthcare, and other important 
services which are guided by the four primary principles 
expressed in the Spectrum Act: one, alleviating spectrum 
constraints to economic growth and development by creating a 
market-based process for repurposing the maximum amount of UHF 
spectrum for licensed and unlicensed flexible use; two, 
fulfilling our statutory obligations and congressional 
objectives that include reimbursing repacked broadcasters, 
helping to fund FirstNet, and reducing the deficit; three, 
providing a unique financial opportunity for participating 
broadcasters while preserving a healthy broadcast service for 
those who do not contribute their spectrum; and, four, 
promoting innovation and allowing the U.S. to continue to lead 
the world in a new generation of licensed and unlicensed 
wireless technologies.
    Throughout the proceeding, we have engaged stakeholders and 
the public to promote an open dialogue about how the auction 
should work, listened to the stakeholders, analyzed the complex 
issues, and worked to design and develop the actual software 
systems.
    Stakeholder engagement has been the cornerstone of this 
proceeding. We have released detailed public notices seeking 
comment. We have held six public workshops on topics including 
channel sharing, the band plan, broadcast transition costs, and 
the unlicensed spectrum in the 600-megahertz band, and 
participated in over 300 ex parte meetings. In addition, we 
expect to release additional public notices before we finalize 
our recommendations.
    Our new chairman is at the helm, and we have a full 
commission with the addition of Commissioner O'Rielly. We have 
been conducting extensive briefings on the full range of 
incentive auction issues under consideration.
    As Chairman Pryor noted, Chairman Wheeler recently issued a 
blog on Friday stating that we expect to complete developing 
policy recommendations and to present these policy 
recommendations to the Commission in a proposed report and 
order early next year. This will enable the Commission to vote 
on the report in the spring.
    Following the adoption of the report and order, in the 
second half of the year we plan to release an auction comment 
public notice and procedures public notice. This timeline will 
allow us to conduct the auction in mid-2015.
    Throughout our entire process, we will be researching, 
developing, testing, and retesting the operating system and 
software necessary to conduct the auction. We will ensure that 
the auction operating system and software meet the strictest 
performance requirements and work from the moment the first bid 
is placed until the final broadcast station is repacked.
    We have made significant strides with respect to each of 
the closely interrelated components and plan to make the 
auction a success. We will hold an auction which fulfills the 
statutory objectives and congressional priorities, including 
funding FirstNet, making a substantial amount of spectrum 
available for flexible use, preserving a healthy broadcast 
industry, and promoting innovation.
    Thank you very much.
    [The prepared statement of Mr. Epstein follows:]

    Prepared Statement of Gary Epstein, Special Advisor and Chair, 
    Incentive Auction Task Force, Federal Communications Commission
    Good morning, Chairman Rockefeller, Ranking Member Thune, and 
members of the Committee. My name is Gary Epstein and I am the Special 
Advisor and Chair of the Federal Communications Commission's Incentive 
Auction Task Force. Thank you for the opportunity to discuss the 
Commission's efforts to carry out Congress's statutory direction in 
designing and implementing the Broadcast Television Spectrum Incentive 
Auction.
    This voluntary market-based means of repurposing spectrum for 
mobile broadband is an important part of ensuring that our wireless 
networks are capable of supporting the critical economic, public 
safety, healthcare and other important services on which our Nation's 
citizens rely. In our effort to design and implement the auction, we 
are guided by four primary public interest objectives expressed in the 
Middle Class Tax Relief and Job Creation Act of 2012:

   One, alleviating spectrum constraints to economic growth and 
        development by creating a market-based process for repurposing 
        the maximum amount of UHF spectrum for licensed and unlicensed 
        flexible use.

   Two, fulfilling our statutory obligations and Congressional 
        objectives that include reimbursing repacked broadcasters, 
        helping to fund FirstNet, and reducing the deficit.

   Three, providing a unique financial opportunity for 
        participating broadcasters while preserving a healthy broadcast 
        service for those who do not contribute their spectrum.

   And four, promoting innovation and allowing the U.S. to 
        continue to lead the world in a new generation of licensed and 
        unlicensed wireless technologies.

    Throughout the proceeding, we have engaged stakeholders and the 
public to promote an open dialogue about how the auction should work, 
listened to stakeholders to improve our processes, analyzed the complex 
issues underlying the auction's various components, and worked to 
design and develop the actual software systems that will run the 
auction.
    Stakeholder engagement has been the cornerstone of this proceeding. 
We have released detailed Public Notices seeking comment on band plans, 
the new OET-69 methodology and TVStudy software for predicting and 
analyzing interference among television stations, repacking data of 
permissible channel assignments based on TVStudy, and broadcaster 
relocation costs. We also have held six public workshops on topics 
including channel sharing, the band plan, broadcaster transition costs 
and unlicensed spectrum in the 600 MHz band, and participated in over 
300 ex parte meetings. In addition, we expect to release additional 
public notices on key issues before we finalize our recommendations for 
the Report and Order.
    Our new Chairman is at the helm and we have a full Commission with 
the addition of Commissioner O'Rielly. We have been conducting 
extensive briefings on the full range of incentive auction issues under 
consideration. Chairman Wheeler recently stated that since his arrival 
he has spent more time working on the Broadcast Television Spectrum 
Incentive Auction than any other single issue. While we are still in an 
open proceeding and the Commission has made no final determinations, we 
are confident that the full Commission will provide invaluable 
leadership both in guiding our consideration of policy options and in 
charting a path to a successful auction.
    As Chairman Wheeler announced this past Friday, we expect to 
complete developing policy recommendations and to present these policy 
recommendations to the Commission in a proposed R&O early next year. 
This will enable the Commission to vote on the R&O in the spring.
    Following the adoption of the R&O, in the second half of next year, 
we plan to release an Auction Comment Public Notice and a Procedures 
Public Notice that will provide additional details and seek comment on 
specific parts of the auction. This timeline will allow us to conduct 
an auction in mid-2015.
    Throughout our entire process, we will be researching, developing, 
testing, and retesting the operating systems and software necessary to 
conduct the auction. As with every part of this proceeding, our 
software development process will continue to be open and transparent 
and will involve opportunities for stakeholder input. We will ensure 
that the auction operating systems and software meet the strictest 
performance requirements and ``work from the moment the first bid is 
placed until the final broadcast station is repacked.''
    We have made significant strides with respect to each of the 
closely interrelated components of the incentive auction and have a 
plan to make this auction a success. We will hold an auction that 
fulfills our statutory objectives and Congressional priorities, 
including funding FirstNet, makes substantial amounts of spectrum 
available for flexible use, preserves a healthy broadcast industry, and 
promotes innovation. We recognize that we must get the incentive 
auction right and will spare no effort to ensure that the auction is 
both well designed and well implemented.
    Thank you very much. I would be happy to take any questions you may 
have.

    Senator Pryor. Thank you.
    Ms. Marsh?

           STATEMENT OF JOAN MARSH, VICE PRESIDENT, 
                    FEDERAL REGULATORY, AT&T

    Ms. Marsh. Thank you, Chairman Pryor and Ranking Member 
Thune, for inviting AT&T to join in the discussion today.
    Much has changed since the incentive auction proceeding was 
initiated by the Commission last fall. A once-struggling T-
Mobile has dramatically improved its spectrum portfolio by 
acquiring additional spectrum and, earlier this year, MetroPCS. 
Fortified by its improved spectrum position, T-Mobile has 
completed a robust LTE deployment and now runs ads claiming 
that its network is less congested than AT&T's. And in each of 
the last two quarters, T-Mobile led the industry in postpaid 
phone ads.
    SoftBank/Sprint, for its part, now has by far the largest 
spectrum arsenal in the industry. Indeed, its spectrum holdings 
are so significant that it shocked the wireless industry a few 
weeks ago when it announced it was no longer interested in 
pursuing the H Block at auction, a block of spectrum that it 
had long pursued.
    Against this backdrop of robust competition, the FCC has 
made substantial progress on the incentive auction proceeding, 
and it has built a significant record on a wide range of 
issues. Yet many open issues remain, including the key question 
of who should be permitted to participate at the auction and by 
what rules. That will be the focus of my comments today.
    AT&T continues to believe that an open and unrestricted 
auction will raise the most revenue at auction while producing 
a multiplicity of winners. History shows this is true. In the 
700-megahertz auction, which was open and unrestricted, over 
200 entities qualified to participate and over 100 bidders won 
licenses. While some allege that AT&T dominated that auction, 
the fact is that AT&T bid on and won spectrum in only a single 
block of the five blocks available at auction.
    Nonetheless, some argue that new rules must now be adopted 
for the incentive auction to ensure a multiplicity of winners. 
If that is the goal, the lead proposal for restrictions in the 
auction, the T-Mobile Dynamic Market Proposal, falls far short. 
T-Mobile's proposal would impose dramatic restrictions on AT&T 
and Verizon, while leaving T-Mobile and others free to run the 
table should they so choose. Indeed, if T-Mobile's proposal 
were adopted, AT&T and Verizon would be limited to bidding on a 
single 5-megahertz pair in most major markets, an amount that 
even T-Mobile admits is inefficient for LTE deployment.
    AT&T continues to believe that any restriction that 
disadvantages some bidders to the advantage of others is 
discriminatory, inefficient, and contrary to statutory language 
and objectives. We also believe that such an approach will 
ultimately undermine auction success.
    In stark contrast to T-Mobile's proposal, some countries 
have adopted auction rules that define either by megahertz or 
percentage the amount of spectrum any one bidder can acquire at 
auction. Like any proposals that restrict auction 
participation, these proposals could suppress bidding 
competition and impact auction revenues. But, assuming such 
limits were adopted appropriately, this approach would at least 
ensure multiple winners in a fair and nondiscriminatory manner.
    One final note on scoring. We are convinced by recent 
advocacy that no scoring is the best approach. It is simple and 
transparent, it avoids price discrimination, and perhaps most 
importantly, it will motivate participation. Without willing 
participants, this auction cannot succeed.
    Thank you.
    [The prepared statement of Ms. Marsh follows:]

 Prepared Statement of Joan Marsh, Vice President, Federal Regulatory, 
                                  AT&T
    Thank you, Chairman Rockefeller, and Ranking Member Thune, for 
inviting AT&T to join in the discussion today.
    Much has changed since the incentive auction proceeding was 
initiated by the Commission last year. T-Mobile has substantially 
bolstered its spectrum footprint with additional AWS holdings, and 
earlier this year, it completed its acquisition of MetroPCS. Over the 
last few quarters, T-Mobile has re-emerged as a formidable competitor. 
Indeed, during each of the last two quarters, T-Mobile added more 
branded postpaid phone customers than either AT&T or Verizon.
    SoftBank/Sprint for its part emerged victorious in a battle with 
Dish to solidify its ownership of Clearwire and now has the largest 
spectrum arsenal in the industry. According to Sprint's CEO, this 
spectrum gives Sprint ``competitive parity'' and ``will give us 
extraordinary capacity and some speed and performance advantages in the 
market.'' Indeed, its spectrum holdings are so significant that it 
recently announced it was no longer interested in pursuing the PCS H 
Block at auction, a block that is adjacent to PCS spectrum that Sprint 
already holds and thus uniquely suited to Sprint, and a block Sprint 
had long fought to protect.
    These recent developments underscore the robust and intensifying 
competition that characterizes the mobile wireless services market in 
the United States.According to the FCC's most recent report to 
Congress, the U.S. market remains among the least concentrated in the 
world--over 90 percent of Americans have 4 or more providers from which 
to choose, and more than 99 percent of Americans have access to mobile 
broadband services. Usage continues to skyrocket, with data traffic 
more than doubling every year for the last four years. Capital 
investment by the industry has increased as carriers deploy advanced 
technology and deploy more site density to keep up with demand. And 
despite soaring capital investment, prices have been in steady decline, 
with the average price of a minute of voice usage falling from from 
$0.47 to less than $0.04 over the last 18 years. SMS prices have fallen 
continuously since 2008, and data prices fell from $0.47 per megabyte 
to $0.05 per megabyte, an 89 percent decrease, in just two years.\1\ 
While the FCC has declined in its recent reports to draw any broad 
conclusions about just how intensely competitive the wireless industry 
is, the data in its reports speak volumes: this is an intensely 
competitive market, not one where regulatory intervention is necessary 
to preserve competition.
---------------------------------------------------------------------------
    \1\ 16th Report at  2.
---------------------------------------------------------------------------
    This robust competition has made the U.S. industry the envy of the 
world. U.S. customers use more wireless service than elsewhere, and 
they pay much less for it. We lead the world in LTE deployment and 
adoption. We lead the world in smartphone adoption. The most advanced 
network technologies, smartphones and applications are released in the 
U.S. first. The reallocation of UHF-TV spectrum to mobile wireless use 
will be critically important to ensure that this leadership can 
continue, by affording wireless carriers the opportunity to continue to 
grow, to advance, and to innovate.
    Against the backdrop of all of this competitive activity, the FCC 
has made substantial progress on the incentive auction proceeding and 
has built a significant record on a wide range of issues, including the 
band plan, auction design and repacking. Yet, many open issues remain, 
including the key question of who should be permitted to participate at 
auction and by what rules. That will be the primary focus of my 
comments here today.
    AT&T continues to believe that an open and unrestricted auction is 
the best way forward. First, an open auction is the fairest method to 
assign licenses because it ensures that all applicants have the same 
opportunity to obtain spectrum. Second, an open auction would allow 
market competition, rather than regulation, to allocate spectrum, 
ensuring that it is put to its best and highest use. Third, an open 
auction will raise the most revenue at auction, maximizing the amount 
of spectrum made available for mobile broadband, while raising funds 
for public safety and deficit reduction. Moreover, an open auction will 
produce a multiplicity of winners. History shows this is true. In the 
700 MHz auction--which was open and unrestricted--over 200 entities 
qualified to participate and over 100 bidders won licenses. While AT&T 
is often accused of dominating that auction, the fact is that AT&T bid 
on and won spectrum in only a single block of the 5 spectrum blocks 
available.
    It bears noting that this single block of spectrum, combined with 
additional allocations AT&T acquired on the secondary market, have been 
the foundation for billions of dollars of investment in LTE deployments 
that have helped to make the United States the world leader in mobile 
broadband. By that measure, the 700 MHz auction was an enormous 
success.
    Similarly, the AWS auction in 2006 was an open auction, and it 
attracted 167 different applicants. Notably, T-Mobile, not AT&T or 
Verizon, was the big winner in that auction. What history shows, 
therefore, is that no one ``runs the table'' in an open auction, and--
if there were any lingering concerns about that possibility--the 
heightened scrutiny triggered by the Commission's existing spectrum 
screen is more than sufficient to address those concerns.
    Nonetheless, some argue that new rules must now be adopted for the 
incentive auction to ensure a multiplicity of winners. If that is the 
goal, the lead proposal for restrictions in the auction--T-Mobile's 
Dynamic Market Proposal--falls far short. T-Mobile's proposal would 
impose dramatic restrictions on only two potential bidders--AT&T and 
Verizon--while leaving T-Mobile free to amass as much spectrum as it 
chooses, and at prices depressed by the restrictions on AT&T and 
Verizon. Indeed, if T-Mobile's proposal were adopted, AT&T and Verizon 
would be allowed to bid on only a single 5MHz pair in most major 
markets, an amount that even T-Mobile admits is too little to deploy 
LTE efficiently.
    The purported justification for proposed auction restrictions are 
that a carrier must have some low band spectrum--spectrum below 1 GHz -
in order to compete effectively. If that were, in fact, true it begs 
the question of why T-Mobile and Sprint, which are owned by two of the 
largest telecommunications providers in the world, cannot obtain 
spectrum through an open bidding process. As noted, they have won 
spectrum at prior Commission auctions, even when faced with competing 
bids by AT&T, Verizon and others. But in all events, the argument that 
low band spectrum is a prerequisite to effective competition is 
entirely belied by the facts.
    As an initial matter, the fact that T-Mobile is adding customers 
faster than its competitors, despite the fact that it has no ``low 
band'' spectrum is proof in itself that low band spectrum is not 
essential to compete effectively. Moreover, if low band spectrum were 
as critical as T-Mobile and Sprint now claim, surely T-Mobile and 
Sprint would have made some effort to obtain such spectrum at the only 
recent auction of this spectrum or on the secondary market. In fact, 
neither company even applied to bid at the auction, although over 100 
other carriers bid and won band spectrum at that auction. Likewise, 
while T-Mobile and Sprint have acquired huge amounts of spectrum on the 
secondary market in the past year, they did not pursue low band 
spectrum--despite the availability of such spectrum in the secondary 
market. Instead, T-Mobile chose to acquire AWS spectrum from AT&T and 
Verizon, and bought MetroPCS and its high band spectrum portfolio. For 
its part, Sprint purchased Clearwire and its massive trove of high band 
spectrum.
    The reason T-Mobile and Sprint have not deemed it necessary to 
obtain low band spectrum is because claims regarding the 
indispensability of such spectrum are not true. While it is true that, 
all else being equal, signals can propagate farther over low band 
spectrum, there is no inherent network quality advantage in using low 
frequency spectrum versus high frequency spectrum. As a matter of both 
physics and engineering, a provider can achieve the same coverage with 
either type of spectrum; it is merely a question of how the provider 
builds out its network. Likewise, all providers can address in-building 
penetration challenges with high-frequency spectrum by increasing 
network density and deploying femtocells, picocells, wi-fi offload, and 
other means. To be sure, denser networks cost more to build, but to the 
extent high band spectrum entails higher build out costs, the spectrum 
itself will sell for lower prices in the marketplace. This is critical 
because the cost of provisioning a service includes spectrum costs as 
well as network build out costs. Sprint and T-Mobile's claims about low 
band spectrum simply write spectrum costs out of the equation.
    Beyond that, and in all events, it is no longer the case that low 
band spectrum permits significantly lower build out costs than high 
band spectrum. To the contrary, the explosive growth of mobile 
broadband services has dramatically diminished differences in the real 
world costs of building out low band and high band spectrum, and that 
trend will only accelerate in the coming years. As a result of this 
dramatic growth, the industry faces what former FCC Chairman Julius 
Genachowski referred to as a ``looming spectrum crisis,'' under which 
the principal challenge facing wireless providers today is meeting 
rapidly escalating demand for bandwidth. What that means is that in 
today's broadband world, unlike the voice world of yesterday, network 
deployments are driven by network capacity needs, not coverage. 
Regardless of whether a carrier is using high band or low band 
spectrum, it must build dense networks in all but the most rural areas 
where network congestion is not an existing or looming challenge. And 
to optimize building penetration, they must deploy small cells as well. 
Indeed, the superior propagation of low band spectrum leads to certain 
relative disadvantages in the form of increased interference between 
cells, particularly in densely populated cities.
    The restrictions T-Mobile proposes thus are not about ensuring that 
Sprint and T-Mobile get access to an essential input--they are 
pretextual. They are intended to ensure that AT&T and Verizon are 
effectively excluded from the auction, and that T-Mobile itself has an 
easy path to winning as much spectrum as it would like--at bargain 
prices. This proposal is not pro-competitive; it is not consistent with 
the intent of the authorizing legislation; it is not fair; and it is 
not a reflection of informed public policy.
    In stark contrast to T-Mobile's proposal, some countries have 
adopted auction rules that define either by MHz or percentage the 
amount of spectrum any one bidder can acquire at auction. Like any 
proposals that restrict auction participation, these proposals could 
suppress bidding competition and impact auction revenues. But assuming 
the limits adopted permitted all winners to obtain at least a 10 x 2 
paired allocation, this approach would at least ensure multiple winners 
in a fair and nondiscriminatory manner--unlike the T-Mobile proposal, 
which pretends to be fair, but which in reality tries to preclude 
Verizon and AT&T from effective participation.
    As to broadcaster participation, AT&T continues to believe that 
broadcasters who come to auction are not selling a broadcast business. 
They are relinquishing their rights to 6 MHz of spectrum much needed 
for mobile wireless use. Indeed, as AT&T continues to study this 
problem it is becoming more apparent that the issue that matters the 
most is how difficult a broadcaster is to repack.
    If a broadcaster that presents significant repacking challenges 
agrees to surrender its spectrum, that deal should be struck, even if a 
premium is necessary. Any valuation mechanisms adopted in the reverse 
auction should be consistent with that reality and opening bid prices 
should be set at a level that will encourage the broadest 
participation.
    Finally, a word on timing. This is by far the most complex auction 
proceeding ever undertaken anywhere in the world. The Commission must 
persuade two different sets of auction bidders to participate in two 
separate but inter-related auctions. While those auctions proceed, the 
Commission must conduct a dynamic repacking analysis that protects and 
repacks the broadcasters that remain. The enormous complexity of this 
task cannot be overstated. While AT&T is eager to see these new 
allocations brought to market as soon as practical, we appreciate the 
enormity of the task the Commission faces and believe that time must be 
taken to get it right.
    In conclusion, AT&T remains confident that under Chairman Wheeler's 
leadership, the Commission will ultimately conduct a successful auction 
that maximizes participation, raises significant revenue and achieves 
all the attendant benefits Congress envisioned.

    Senator Pryor. Thank you.
    Mr. Singer?

 STATEMENT OF HAL J. SINGER, Ph.D., SENIOR FELLOW, PROGRESSIVE 
                        POLICY INSTITUTE

    Mr. Singer. A key policy issue facing this committee is 
whether to impose asymmetric limits on the amount of spectrum 
that a bidder may acquire at the auction depending on the 
location of the bidder's spectrum holdings--that is, whether to 
impose an asymmetric spectrum cap.
    In April of this year, the Department of Justice advocated 
for policies that would support an asymmetric spectrum cap 
designed to favor bidders that lacked so-called low-frequency 
spectrum. And at his first major policy speech at Ohio State 
last week, Federal Communications Commission Chairman Tom 
Wheeler cited the DOJ's letter in support of such limits.
    I want to make three simple points about the wisdom of an 
asymmetric spectrum cap from the perspective of an economist 
concerned with promoting consumer welfare.
    First, as a condition of slanting the auction rules in a 
way to favor certain bidders, one must establish empirically 
that carriers without access to low-frequency spectrum are 
impaired in their ability to compete effectively. Although this 
particular input is not distributed uniformly across carriers, 
it is hard to detect any impairment in the output market.
    Despite its lack of low-frequency spectrum, Sprint's net 
additions for contract customers were up 18 percent in 2012. 
And during the third quarter of 2013, Sprint's postpaid service 
revenues and average revenue per unit hit record levels.
    T-Mobile, another carrier that relies largely on high-
frequency spectrum, enjoyed its biggest growth spurt in 4 years 
in the second quarter of 2013, adding 1.1 million new 
subscribers. In July, T-Mobile was gaining two subscribers from 
AT&T for every one it lost to AT&T. This evidence is hard to 
square with the notion of impairment.
    If access to low-frequency spectrum were essential to 
compete effectively, as the DOJ implies in its comments, then 
AT&T and Verizon would be running away with the wireless prize. 
But U.S. wireless concentration, as measured by the FCC, has 
held steady since 2008. And if Sprint and T-Mobile continue to 
grow faster and steal customers from AT&T and Verizon, wireless 
concentration could actually decline in the coming years.
    Perhaps the alleged impairment has manifested itself in the 
form of rising wireless prices? Not here. With one exception in 
2009, when prices held steady, U.S. wireless prices have 
declined every year since the Bureau of Labor Statistics began 
tracking them in 1998. According to a recent survey by Wall 
Communications commissioned by the Canadian telecom regulator, 
U.S. mobile broadband prices were within a few dollars of 
comparable offerings of 5-gigabits-per-month plans in Canada, 
the U.K., and in Japan.
    Second, given the nascent and growing substitution between 
wireless and wireline broadband services, regulators should not 
narrowly focus on promoting wireless broadband competition. 
Instead, they should be focused on promoting broadband 
competition in any form.
    According to the FCC's latest deployment data, 62 percent 
of U.S. households had three or more broadband providers 
capable of supporting download speeds of 6 megabits per second. 
Adding one more broadband pipe to the remaining homes served by 
one or two providers by stimulating investment by a large 
nationwide wireless carrier will generate significantly greater 
consumer benefits than promoting de novo wireless entry.
    Third, and my last point, less restrictive remedies than 
asymmetric spectrum caps can address any alleged impairment 
leading to competition concerns. For example, if regulators do 
not like the outcome of an unconstrained auction, they have the 
power to compel ex-post divestiture under existing law.
    And if regulators insist on going down the path of spectrum 
caps, symmetric auction-specific caps that are agnostic to pre-
auction spectrum holdings and treat all bidders equally would 
protect against the remote possibility that any single bidder 
acquired too much spectrum at auction.
    Thank you.
    [The prepared statement of Mr. Singer follows:]

      Prepared Statement of Hal J. Singer, Ph.D., Senior Fellow, 
                      Progressive Policy Institute
    The key policy issue facing this Committee is whether to impose 
asymmetric limits on the amount of spectrum that a bidder may acquire 
at the auction depending on the location of the bidder's spectrum 
holdings--that is, whether to impose an ``asymmetric spectrum cap.'' In 
April of this year, the Department of Justice (DOJ) advocated for 
policies that would support an asymmetric spectrum cap designed to 
favor bidders that lack low-frequency spectrum. And at his first major 
policy speech at Ohio State last week, Federal Communications 
Commission (FCC) Chairman Tom Wheeler cited the DOJ's letter in support 
of such limits. I want to make four simple points about the wisdom of 
an asymmetric spectrum cap from the perspective of a competition 
economist concerned with promoting consumer welfare.
    First, as a condition of slanting the auction rules in a way to 
favor certain bidders, one must establish empirically that carriers 
without access to low-frequency spectrum are impaired in the ability to 
compete effectively. Although this particular input is not distributed 
uniformly across carriers, it is hard to detect any impairment in the 
output market. Despite its lack of low-frequency spectrum, Sprint's net 
additions for contract customers were up 18 percent in 2012, and during 
the third quarter of 2013, Sprint's postpaid service revenue and ARPU 
hit record levels. T-Mobile, another carrier that relies largely on 
high-frequency spectrum, enjoyed its biggest growth spurt in four years 
in the second quarter of 2013, adding 1.1 million new subscribers. In 
July, T-Mobile was gaining two subscribers from AT&T for every one it 
lost to AT&T. This evidence is hard to square with the notion of 
impairment.
    If access to low-frequency spectrum were essential to compete 
effectively, as the DOJ implies in its comments, then AT&T and Verizon 
would be running away with the wireless prize: But U.S. wireless 
concentration as measured by the FCC has held steady since 2008. And if 
Sprint and T-Mobile continue to grow faster than and steal customers 
from AT&T and Verizon, wireless concentration could decline in the near 
future.
    Perhaps the alleged impairment has manifested itself in the form of 
rising wireless prices? With one exception in 2009, when prices held 
steady, U.S. wireless prices have declined every year since the Bureau 
of Labor Statistics began tracking them in 1998. According to recent 
survey by Wall Communications commissioned by the Canadian telecom 
regulator, U.S. mobile broadband prices were within a few dollars of 
comparable offerings of 5 Gb per month plans in Canada, the U.K., and 
Japan.
    Second, although there may have been a role for smaller wireless 
carriers in the past, given the massive and growing economies of scale 
associated with providing nationwide wireless networks capable of 
supporting bandwidth-intensive applications like streaming video, it 
makes no sense to steer scarce spectrum away from companies with large 
customers bases that have invested heavily in LTE networks in favor of 
smaller companies that are ill-suited for this colossal undertaking. In 
the presence of such economies, promoting small carriers is an 
invitation for higher costs. U.S. consumers take pride in supporting 
small businesses like cafes, brew pubs, restaurants, and boutiques, but 
when it comes to wireless services, they want their provider to blanket 
the country in LTE coverage.
    Third, given the nascent and growing substitution between wireless 
and wireline broadband services, regulators should not narrowly focus 
on promoting wireless broadband competition. Instead, they should focus 
on promoting broadband competition in any form. According to the FCC's 
latest deployment data, 62 percent of U.S. households had three or more 
broadband providers capable of supporting download speeds of 6 Mbps: 
Adding one more broadband pipe to the remaining homes served by one or 
two providers by stimulating wireless investment will generate 
significantly greater consumer benefits than promoting entry among 
wireless providers.
    Fourth, less restrictive remedies than asymmetric spectrum caps can 
address any alleged impairment leading to competition concerns. For 
example, if regulators do not like the outcome of an unconstrained 
auction, they have the power to compel ex-post divestitures under 
existing law. And if regulators insist on going down the path of 
spectrum caps, symmetric spectrum caps that are agnostic to pre-auction 
spectrum holdings but instead treat all bidders equally would protect 
against the remote possibility that any single bidder acquired ``too 
much'' spectrum at the auction.
    In sum, proponents of asymmetric spectrum caps have failed to meet 
their evidentiary burden of establishing any evidence of impairment 
among carriers that lack low-frequency spectrum. This Committee should 
ask the FCC: How has this alleged impairment manifested itself? With 
persuasive evidence of impairment leading to supra-competitive price or 
reduced output, it would be reasonable to consider asymmetric spectrum 
caps. But in its absence of such evidence, this policy appears designed 
solely to benefit certain competitors at the expense of broadband 
consumers and taxpayers.
Suggested Reading

The FCC's Incentive Auction: Getting Spectrum Policy Right, Progressive 
Policy Institute Paper (2013), co-authored with David Balto.

Is the U.S. Government's Internet Policy Broken? Review of Susan 
Crawford's ``Captive Audience,'' 5 Policy and Internet 340-63 (2013), 
co-authored with Robert Hahn.

Avoiding Rent-Seeking in Secondary Market Spectrum Transactions, 65 
Federal Communications Law Journal (2013), co-authored with Jeffrey 
Eisenach.

Assessing Competition in U.S. Wireless Markets: Review of the FCC's 
Competition Reports, 64 Federal Communications Law Journal (2012), co-
authored with Gerald Faulhaber and Robert Hahn.

    Senator Pryor. Thank you.
    Mr. Berry?

  STATEMENT OF STEVEN K. BERRY, PRESIDENT AND CHIEF EXECUTIVE 
           OFFICER, COMPETITIVE CARRIERS ASSOCIATION

    Mr. Berry. Thank you, Chairman Pryor and members of the 
Committee. Thank you for allowing me to testify.
    I am here on behalf of CCA, the Nation's leading 
association of competitive wireless carriers. Our association 
is made up of over 100 competitive carriers, ranging from 
small, rural providers serving less than 5,000 consumers to 
regional and national providers serving millions of consumers.
    The entire mobile ecosystem is dependent on vibrant 
competition in the wireless industry, and access to spectrum is 
a critical element in supporting competition. CCA's diverse 
membership is bound together by a shared goal of a competitive 
regulatory framework and a shared concern over the growing 
market power of the ``Twin Bells.'' We do not need an industry 
marching toward a duopoly.
    I know several members of this committee, as well as the 
FCC, DOJ, and the Small Business Administration, have voiced 
similar concerns about the increasing consolidated nature of 
the industry. The incentive auction provides a unique 
opportunity to promote competition and allow carriers of all 
sizes access to a limited resource that meets consumer demand. 
CCA members are prepared to invest, to innovate, and to create 
jobs, but competitive carriers must have a fair opportunity to 
acquire the resources to compete. And the FCC has one shot to 
get it right.
    A successful incentive auction must attract sellers and 
buyers alike, maximizing participation in both the reverse and 
forward auctions.
    In the forward auction, the FCC must provide all carriers a 
meaningful opportunity to bid for spectrum, focusing on four 
critical areas. This will increase competition, and we also 
believe it will enhance revenues. All carriers, including the 
largest carriers, must have an opportunity to bid on spectrum 
where needed. One or two carriers should not be allowed to walk 
away with the entire pie. Spectrum must be made available in 
sufficiently small geographic areas to allow participation by 
rural, regional, and nationwide carriers.
    The 600-megahertz spectrum must be interoperable. This will 
ensure open ecosystem access via every carrier. And I commend 
the members of this committee for their work to restore 
interoperability in the lower 700-megahertz band. And let's 
learn from the past: Interoperability is essential.
    Finally, policymakers should reject bidding packages that 
keep smaller carriers from accessing spectrum.
    And on the reverse-side auction, broadcasters must show up, 
they must participate for a successful auction. The whole 
purpose of the auction is to reallocate valuable, underutilized 
spectrum to a higher, more efficient use--i.e., mobile 
broadband. Failure could have significant consequences for 
competition and consumers.
    And under the statute, the Committee was wise. The proceeds 
of the H Block, the AWS-3, and the incentive auction all will 
fund FirstNet, a public emergency responder network. While the 
reclaimed 600 megahertz is critical to the funding sources, the 
incentive auction is one of several streams established under 
the Spectrum Act to fund the creation of FirstNet.
    So, fortunately, the goals of promoting competition and 
raising revenue are not mutually exclusive. Auctions with the 
greatest number of bidders are typically the ones that raise 
the most revenue.
    In summary, to meet these complex, multifaceted goals, CCA 
proposes the FCC take steps to give every carrier the 
opportunity to participate and possibly win in this much-needed 
low-band spectrum for mobile broadband. And after a decade of 
consolidation, a successful incentive auction is vital to 
promote sustainable competition for the digital age.
    Thank you for the opportunity.
    [The prepared statement of Mr. Berry follows:]

 Prepared Statement of Steven K. Berry, President and Chief Executive 
               Officer, Competitive Carriers Association
    Chairman Rockefeller, Ranking Member Thune, and Members of the 
Committee, thank you for inviting me to testify regarding the 
implementation of the first-ever incentive spectrum auction. I am here 
today on behalf of Competitive Carriers Association (``CCA''), the 
Nation's leading association of competitive wireless carriers. Our 
association is made up of over 100 competitive carriers ranging from 
small, rural providers serving fewer than 5,000 customers to regional 
and national providers serving millions of customers. We also represent 
over 200 Associate Members--small businesses, vendors and suppliers 
that provide products and services to carriers of all sizes and employ 
your constituents. The entire mobile ecosystem is dependent on vibrant 
competition in the wireless industry at all levels, and access to 
finite electromagnetic spectrum is critical to supporting this 
competition.
    CCA's diverse membership is bound together by the shared goal of a 
competitive regulatory framework and the shared concern over the 
growing market power of the ``Twin Bells''--AT&T and Verizon. Through a 
steady stream of acquisitions of both competitive carriers and 
spectrum, these two dominant carriers have turned what once was a 
robustly competitive wireless marketplace into an industry marching 
towards duopoly. I know several members of this Committee, as well as 
the Federal Communications Commission (``FCC'' or ``Commission''), the 
Department of Justice (``DOJ''), and Small Business Administration have 
voiced similar concerns about the increasingly consolidated nature of 
the industry.
    The incentive auction presents a unique opportunity to promote 
competition in our consolidating industry. Carriers of all sizes 
require increasing access to limited spectrum resources to provide the 
services consumers demand. As the DOJ has noted, ``spectrum is a scarce 
resource and a key input for mobile wireless services.'' Allowing all 
carriers, and particularly competitive carriers, to access adequate 
spectrum resources promotes competition. With an appropriate framework 
for access to spectrum and other critical inputs, competitors are 
prepared to invest, innovate, and create jobs to deliver significant 
benefits to consumers and the economy. Like DOJ Antitrust Division 
Assistant Attorney General William Baer recently stated, ``When you 
have feisty rivals whose survival depends on innovating and 
differentiating, they can gain market share and loosen the oligopoly.''
    Amidst consolidation in our industry, the incentive auction 
represents the only near-term opportunity for competitive access to 
critical low-band frequencies. CCA commends Congress, and particularly 
the leadership shown by this Committee, for authorizing the FCC to 
conduct a voluntary incentive auction to reallocate licensed spectrum 
for mobile broadband use through the Middle Class Tax Relief and Job 
Creation Act of 2012 (``Spectrum Act''). We are also pleased with the 
Commission's efforts, to date, to implement the Spectrum Act with a 
watchful focus on the importance of competition. The upcoming incentive 
auction is unique in many ways, including authorizing the FCC to 
conduct only one reverse auction and repacking of broadcast television 
spectrum. With one shot to complete this effort, it is vital that the 
auction is structured to provide maximum benefits to competition and 
consumers.
    A successful incentive auction must attract sellers and buyers 
alike, maximizing participation in both the reverse and forward 
auctions. In the forward auction, the FCC must provide all carriers 
with a meaningful opportunity to bid for needed spectrum. No one or two 
carriers should be able to aggregate all the reclaimed spectrum and 
effectively exclude rivals and potential rivals from access to low-band 
frequencies. Consistent with the Spectrum Act, all carriers, including 
the two largest carriers, must have an opportunity to bid on spectrum 
where needed; however, no one should be allowed to foreclose 
competitors' access. In addition to reasonable aggregation limits, 
spectrum must be made available in sufficiently small geographic areas 
to allow participation by rural, mid-size, and regional carriers, as 
well as national providers. The 600 MHz spectrum also must be 
interoperable, so that the largest carriers cannot use their massive 
market power to prevent competitors from gaining access to the 
necessary equipment to provide service using spectrum in the 
reallocated band. Finally, policymakers should reject bidding packages 
and blind bidding that may prevent competitive carriers from accessing 
spectrum even if these other conditions are met, and include bidding 
credits as appropriate. Beyond creating a successful forward auction, 
appropriate incentives, outreach, and regulatory certainty are needed 
for broadcasters to fully consider their options to maximize 
participation. If broadcasters do not show up to participate in the 
reverse auction, there will be no forward auction.
    These goals and policies will not only promote competition and 
benefit consumers, but will raise significant revenue for using 
taxpayer-owned spectrum resources. Proceeds from the incentive auction 
to fund the First Responder Network Authority (``FirstNet''), a 
nationwide interoperable broadband network for public safety users, 
must come from revenue generated in auctions of spectrum identified in 
the Spectrum Act. While the broadcasters' reclaimed 600 MHz spectrum is 
included, the incentive auction is one of several funding streams 
established through the Spectrum Act that will fund the creation and 
deployment of FirstNet. Revenue will also support deficit reduction, 
911 services, and research and development. Fortunately the goals of 
promoting competition and raising revenue are not mutually exclusive--
auctions with the greatest number of bidders are typically the ones 
that generate the most revenue.
    As a result of Congress's direction to the FCC to conduct 
competitive spectrum auctions, competition was introduced, and many of 
CCA's members entered the wireless market. After a decade of 
consolidation, a successful incentive auction is vital to promote 
sustainable competition for the digital age.
Benefits for Competition
    Not all spectrum is created equal, which is why the incentive 
auction of low-band spectrum is critical to restoring competition in 
the wireless market. With its excellent propagation characteristics, 
low band spectrum (or spectrum below 1 GHz) travels greater distances 
and penetrates into buildings. As AT&T CEO Randall Stephenson stated 
last year, low-band spectrum ``propagates like a bandit.'' This makes 
low-band spectrum important for expanding coverage in all areas, urban 
and rural. Carriers must be able to provide services responsive to 
consumer demands, or they do not have a competitive offering. It is 
more difficult and costly for a competitor to provide service absent 
low-band spectrum. Low-band spectrum has superior in-building 
penetration and its broader coverage results in significant deployment 
cost savings by requiring fewer towers to serve a larger area.
    It is important to note that AT&T and Verizon hold the majority of 
sub-1 GHz spectrum, and that much of this spectrum was given to the two 
largest companies for use before the FCC had spectrum auction 
authority. Early commercials for Verizon's 700 MHz LTE touted its 
capabilities for ``the most consistent speeds indoors or out and 
obviously astonishing throughput,'' and AT&T claimed that T-Mobile 
``customers [would] enjoy improved coverage, including superior in-
building and in-home service, because of the denser grid and access to 
850 MHz spectrum'' as a benefit to its since abandoned takeover attempt 
of T-Mobile.
    The incentive auction is the only near-term opportunity for 
increased access to low-band spectrum through FCC auctions. While 
existing mobile spectrum licenses may be bought on the secondary 
market, this process is largely controlled by the two largest carriers. 
For example, in 2012, AT&T and Verizon accounted for nearly 55 percent 
of all secondary market transactions, and 70 percent of all 
acquisitions involving spectrum below 1 GHz. For many smaller carriers, 
the secondary market is not working. This only serves to underscore the 
importance of gaining access to critical low-frequency spectrum 
resources through the upcoming incentive auction.
    The incentive auction also has significant benefits for rural 
America. Some have claimed that there are no benefits to rural America 
in the incentive auction, and that it is an urban-focused or ``New 
York'' auction. This is not the case. With its superior propagation 
characteristics, the 600 MHz spectrum that will be made available 
through the incentive auction is exactly what is needed to blanket 
rural America with next generation mobile broadband coverage. On that 
note, I would also like to dispel the myth that rural Americans, and 
the carriers that serve them, are not on the cutting-edge of mobile 
broadband technology and use. In fact, a recently CCA-commissioned 
study found that 80 percent of rural Americans that plan to purchase a 
new device within the next three months, plan to purchase smartphones. 
Specifically, almost 70 percent of individuals surveyed that earn 
$25,000 a year or less plan to purchase a smartphone, and 34 percent of 
rural smartphone owners use wireless exclusively to access the 
Internet. The benefits of mobile broadband use for mHealth, education, 
public safety, and economic innovations are magnified in rural areas. 
Yet close to 40 percent of rural wireless consumers feel they have less 
choice when it comes to devices and service plans when compared to 
their city-dwelling neighbors. Increased access to low-band spectrum 
for competitive carriers will help bridge this gap, yielding 
significant benefits for rural America.
    Current 600 MHz operations in rural areas also provide auction 
efficiencies through inclusion in the incentive auction. There are more 
``white spaces'' in the current broadcast band in rural parts of the 
country. Accordingly, fewer existing broadcasters will need to 
relinquish spectrum in rural areas, and when remaining broadcasters are 
repacked following the auction, it will be easier to reach clearing 
thresholds for the newly reallocated band plan. This means that through 
the reverse auction, the FCC will need to ``buy back'' fewer broadcast 
licenses, while still compensating rural broadcasters that elect to 
participate, in order to make the same or greater amounts of spectrum 
available in the forward auction for mobile broadband use. The funds 
generated from spectrum in rural America will contribute to higher 
revenue amounts with lower incentive and relocation costs, helping the 
FCC reach higher clearing thresholds in urban areas as well. While the 
benefits of increased mobile broadband service in rural America alone 
are significant, rural carriers also play an important function in the 
success of the incentive auction overall. It is important, however, 
that the forward auction is structured so that all competitors have a 
meaningful opportunity to bid for, win, and provide service using this 
spectrum.
Priorities for the Forward Auction
    Congress has provided the FCC with the necessary tools to structure 
and conduct a forward auction that incents the maximum number of 
participants and supports competition while meeting its obligation to 
promote the dissemination of licenses among a wide variety of 
applicants, including small businesses and rural operators. 
Specifically, the Spectrum Act reaffirms FCC authority to ``adopt and 
enforce rules of general applicability, including rules concerning 
spectrum aggregation that promote competition.'' The FCC should utilize 
these tools to structure a competitive auction that allows all carriers 
to bid on licenses they need and provide services to meet consumers' 
ever increasing demands for mobile broadband access. Specifically, the 
FCC must prevent spectrum aggregation, right-size spectrum licenses, 
require interoperability and adopt procompetitive auction procedures.
Prevent Spectrum Aggregation
    An auction that cements the two largest carriers' dominance of low-
band spectrum holdings would be detrimental to wireless competition. 
The FCC can easily prevent this by adopting clear, ex ante aggregation 
limits. The auction's structure has an enormous impact on whether and 
how competitive carriers can participate. As Chairman Pryor noted about 
the 700 MHz auction in 2008, ``[h]istory will show that the way the FCC 
structured the auction basically helped the two big wireless companies 
to the detriment of competition in this country.'' Let's not make the 
same mistake. It is vital that the FCC structure the forward auction in 
a manner that supports competition nationwide.
    No one, including CCA and its members, has advocated for excluding 
AT&T or Verizon from participating in the forward auction. As stated 
above, consistent with the Spectrum Act, all carriers should have the 
opportunity to participate. Policymakers must ensure, however, that the 
largest two carriers cannot leverage their tremendous resources to 
aggregate all reclaimed spectrum in the auction and foreclose 
competitors from access to the 600 MHz band while they stock their 
spectrum warehouses. As Chairman Wheeler recently noted, ``A key goal 
of our spectrum allocation efforts is ensuring that multiple carriers 
have access to airwaves needed to operate their networks.'' 
Accordingly, the FCC must set clear ex ante rules that signal to 
competitors that they will have a realistic opportunity to win spectrum 
if they participate in the auction, and that the largest two will not 
be allowed to dominate and foreclose their rivals. The FCC has in the 
past successfully used auction rules to foster competition while 
exceeding revenue projections, and should again seek to accomplish both 
goals through pro-competitive measures.
    Some have claimed that smaller competitors seek generally 
applicable aggregation rules to tilt the playing field in their favor. 
But it is the opposite: having no aggregation limits in the auction 
would dramatically tip the scales in favor of the largest incumbents 
that already control an enormous portfolio of low-band spectrum. Well-
crafted auction rules are necessary, not to favor competitors, but to 
ensure that there can be a dynamic market for competition.
    Beyond the incentive auction, the FCC should take steps to prevent 
excessive spectrum aggregation generally, and I urge the FCC to 
complete its pending Mobile Spectrum Holdings proceeding and update the 
broken spectrum screen. More specifically, since the incentive auction 
is the only near-term opportunity to gain access to low-band spectrum, 
the importance of effective aggregation rules that promote competition 
are underscored. Although the incentive auction is the first of its 
kind in many respects, policymakers should not rely on theoretical 
analysis alone to understand the impact of spectrum aggregation 
restraints in low-band spectrum auctions. The experiences of many 
international regulatory bodies have not only shown the rural and in-
building coverage benefits and cost savings of low-band spectrum, but 
also have demonstrated that appropriate, up-front aggregation limits 
promote further competition in auctions and in the market and yield 
higher revenues.
Right-Sized Spectrum Licenses
    Spectrum licenses must be made available in geographic sizes that 
allow competitors of all sizes to bid for, access and use new licenses 
won at auction. This is a threshold issue that must be resolved; 
otherwise competitive carriers will face a barrier to participation. 
Right-sized spectrum licenses permit smaller carriers to bid for 
spectrum that matches their current service footprint, while allowing 
larger carriers to piece together the licenses they need, up to 
nationwide coverage. This promotes increased carrier participation in 
the forward auction.
    Cellular Market Areas (``CMAs'') are the best geographic license 
size to promote competition, to raise revenue and to protect the public 
interest. As a recently CCA-commissioned study demonstrated, CMAs would 
allow smaller carriers to bid on smaller spectrum licenses without 
being forced to bid for spectrum they cannot efficiently use. Without 
smaller geographic license sizes, many smaller carriers will be 
foreclosed from bidding altogether, putting auction participation and 
ultimately auction revenues unnecessarily at risk. These smaller 
license sizes also increase opportunities for market variation in areas 
where lower amounts of spectrum is reclaimed, and helps mitigate 
problems regarding coordination along our borders. CMAs also support a 
more dynamic secondary market for years after the auction has closed. 
By making more spectrum available for mobile broadband use by reducing 
the number of licenses with potential encumbrances, CMAs maximize 
available spectrum and likely increase overall auction revenues. Any 
auction that does not include sufficiently small license sizes to allow 
for all carriers to have a meaningful opportunity to bid amounts to 
regulatory exclusion of smaller carriers. In previous auctions, smaller 
licenses sizes have raised greater revenue per MHz/POP. For example, in 
Auction 73, the lower 700 MHz B Block, licensed using CMAs, generated a 
price twice as high as the larger EA sized lower A Block.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Because the FCC seems focused on using larger Economic Area 
(``EA'') size licenses, CCA is also currently evaluating the potential 
for a middle-ground compromise. While we are still vetting the 
possibilities and socializing ideas among CCA's members, subdividing 
EAs into Partial Economic Areas (``PEAs''), may preserve some of the 
benefits of using CMAs. Along with appropriate spectrum aggregation 
limits, right-sized geographic licenses, whether CMAs or PEAs, will 
help to maximize the spectrum available and encourage auction 
participation by carriers of all sizes.
Require Interoperability
    While interoperability was once a shared need, continuing 
consolidation now requires an up-front requirement that devices 
utilizing the same technology and operating within the same spectrum 
band interoperate across all networks using the same technology and 
band. Interoperability helps ensure nationwide service coverage and 
preserves consumers' choice of service provider, and the FCC has 
historically promoted interoperability of other service bands. CCA 
commends Chairwoman Clyburn and her staff, the FCC's Wireless Bureau, 
and Members of Congress, including several members of this Committee, 
for their work to restore interoperability to the Lower 700 MHz band. 
Competitive carriers bid aggressively in Auction 73, including nearly 
$2 billion in winning bids from CCA members, under the assumption that 
the spectrum, like all spectrum before, would be interoperable. It was 
not until after Auction 73 closed that AT&T created a boutique band 
class, stranding the Lower A Block without access to devices. After 
four years, with the help of Chairwoman Clyburn, the industry finally 
reached an agreement to restore interoperability. During those four 
years, consumers, especially in rural America, were not able to realize 
the benefits of expanded mobile broadband service. Precious resources 
were expended as capital was stranded on spectrum that could not yet be 
used and expansive testing and investment focused on restoring 
interoperability instead of deploying coverage.
    I am pleased to report that these carriers are now moving forward 
to deploy services, and that many competitive carriers are refocused on 
participating in upcoming spectrum auctions. But it is important that 
this mistake is not repeated in the incentive auction. An up-front 
requirement for interoperability in the 600 MHz band is critical to 
provide the certainty needed for competitive carriers to participate in 
the incentive auction. Interoperability is necessary to support 
technological compatibility for consumers to continue to receive 
service when roaming outside of their carrier's network coverage, a 
critical element for less-than-national carriers to provide access to 
the nationwide services consumers demand. A clear rule stating that 
interoperability will be required is necessary for competitors to raise 
capital, develop business plans, and invest to provide new services.
Package Bidding and Blind Bidding
    As already noted, spectrum aggregation limits, right-sized 
licenses, and interoperability are critical to the incentive auction's 
success. But the benefits of an auction that includes these elements 
may be lost if other practices, such as package or combinatorial 
bidding and blind bidding, are allowed to undo these competitive 
safeguards. CCA understands the largest carriers' desires to bid for a 
large spectrum footprint at once; however, these packages will not 
change a carrier's incentives to bid on particular markets and may 
curtail or eliminate participation by smaller carriers and may reduce 
the revenues generated in the auction. Large packages 
disproportionately burden rural and regional carriers, and may 
undermine the benefits of auctioning spectrum using right-sized 
geographic units.
    Additionally, policymakers should avoid blind bidding practices 
that distort competition in auctions, and support pro-competitive 
bidding credits to foster a diverse group of bidders. Blind bidding 
adds unnecessary complexity to the process of valuing spectrum, and may 
impact the availability of devices and roaming partners. Accordingly, 
the use of blind bidding has disproportionate adverse effects on 
smaller carriers. Conversely, the appropriate use of bidding credits 
promotes participation by small businesses.
Funding Targets and Public Safety Benefits
    While previous spectrum auctions have returned significant benefits 
to taxpayers to the tune of billions of dollars to the Treasury, the 
incentive auction is again unique in providing particular targets for 
funds raised through this auction. Among these targets, the Spectrum 
Act dedicates funding for creating and deploying FirstNet, a nationwide 
interoperable mobile broadband network for public safety.
    Congress wisely provided several funding streams for this important 
goal, including not only the incentive auction but also several other 
auctions that will likely be completed and raise billions of dollars 
before the incentive auction begins. These auctions include the H 
block, which will be auctioned in January, and the yet-to-be-scheduled 
AWS-3 auction. CCA commends Congress, the FCC, National 
Telecommunications and Information Administration and the Department of 
Defense for recent developments to reallocate the 1755-1780 MHz band to 
be paired with the 2155-2180 MHz band for auction. This pairing will 
maximize the use and potential revenue generated from its upcoming 
auction, and provides another important opportunity for competitive 
carriers to access needed spectrum in a globally harmonized LTE 
equipment ecosystem. Based on various estimates, it is likely that 
these auctions will fully fund the Spectrum Act's $7 billion obligation 
to FirstNet before conducting the incentive auction.
    FirstNet's success is not only dependent on obtaining this funding, 
but also on public-private partnerships with the wireless industry to 
make nationwide mobile broadband coverage a reality. FirstNet benefits 
from competition among commercial wireless carriers through having 
additional potential partners for deployment and roaming, as well as 
having a greater number of potential buyers of excess capacity on 
FirstNet on a secondary basis. Partner carriers, particularly in rural 
areas, will require spectrum below 1 GHz to efficiently cover large 
land masses with low populations. If these carriers cannot gain access 
to needed spectrum through the incentive auction, either due to 
aggregation efforts of the largest two carriers or because they were 
foreclosed from participating due to the size of licenses offered, they 
will not be able to form partnerships with FirstNet for the benefit of 
the new nationwide interoperable broadband public safety network.
Broadcaster Incentives
    The entire incentive auction process hinges on sufficient 
participation by broadcasters, and policymakers must ensure that 
broadcasters are equipped to fully evaluate their options in the 
incentive auction. This includes not only education and outreach to all 
potential reverse auction participants, but also the regulatory 
certainty to evaluate future valuations of broadcast business plans. 
Pending rulemakings must be completed where possible, as they may have 
significant impact on how broadcasters approach their decision to 
relinquish or share some or all of their existing spectrum. 
Accordingly, the FCC must be open and transparent regarding post-
auction broadcaster flexibility, both in terms of repacking and the 
regulatory regime.
Other Efforts to Promote Competition
    I would be remiss if I did not acknowledge other efforts led by 
members of this Committee to promote competition in the wireless 
industry. I commend Senators Klobuchar and Fischer for their work to 
ensure that unused spectrum is available for use by smaller and rural 
carriers. While this does not replace the need for access to spectrum 
through auctions, their recently introduced legislation could help 
smaller carriers access spectrum on the secondary market. Additionally, 
I support Senator Ayotte's focus on Universal Service Fund issues, and 
look forward to working with her on making sure that support is 
competitively neutral. CCA appreciates the opportunity to work with 
Senators on these and several other issues before the Committee.
Conclusion
    The FCC faces many challenges in pioneering the first incentive 
auction, but also has the potential to reinvigorate mobile broadband 
competition while generating significant revenue for use of a finite, 
taxpayer-owned resource. I support Chairman Wheeler's announcement and 
milestones to conduct the auction in a way that ensures we get it 
right. I urge policymakers to view a successful auction as one that not 
only generates revenue, but also reallocates the maximum amount of 
spectrum to meet our Nation's growing mobile broadband demands, ensures 
that carriers of all sizes have a meaningful opportunity to bid, and 
bolsters competition by providing more carriers access to critical sub 
1 GHz spectrum. In turn, a competitive mobile broadband industry will 
yield untold dividends to consumers for years to come. The FCC should 
use the tools provided by Congress to conduct an auction that delivers 
not only revenue but also competition to allow continued growth and 
innovation in the wireless industry under a light touch regulatory 
regime.
    CCA appreciates the Committee's oversight and focus on this 
important issue, and I thank you for the opportunity to testify before 
you today. I welcome any questions.

    Senator Pryor. Thank you.
    Mr. Padden?

        STATEMENT OF PRESTON PADDEN, EXECUTIVE DIRECTOR,

       EXPANDING OPPORTUNITIES FOR BROADCASTERS COALITION

    Mr. Padden. Thank you, Mr. Chairman.
    I serve as Executive Director of a group of more than 70 TV 
stations who are open to voluntary participation in the 
incentive auction under the right circumstances and are 
committed to making the auction a success.
    Consumer demand for wireless broadband is increasing like a 
hockey stick. Given the dearth of other sources of additional 
spectrum, the FCC should seek to reallocate the full 120 
megahertz specified in the National Broadband Plan.
    Unfortunately, the FCC has not attracted the critical mass 
of spectrum sellers that will be necessary to have a successful 
auction. Without sufficient TV spectrum sellers, there will be 
no auction. From this point forward, every issue much be 
evaluated through the prism of whether it will help or hinder 
the effort to attract TV spectrum sellers.
    According to analysis by recognized auction expert Dr. 
Peter Cramton, the FCC's proposal to score stations will not 
improve the efficiency of the auction unless the FCC somehow 
knows the secret reserve price in the mind of every 
participating broadcaster, which is obviously impossible, and 
unless the FCC adjusts its scoring dynamically between every 
round of the auction, which would add enormous complexity to an 
already complex auction.
    T-Mobile and Sprint are lobbying for bidding restrictions 
because they want to get this spectrum for less than they would 
have to pay if they have to bid against AT&T and Verizon. But 
Fred Campbell, the former chief of the FCC's Wireless Bureau, 
has conducted a thorough analysis of bidding restrictions in 
past auctions and concluded that they dramatically reduce 
revenue--revenue needed in this auction to attract a sufficient 
number of TV spectrum sellers.
    If the FCC hopes to recover significant broadcast spectrum, 
it must permit and even encourage innovative, out-of-the-box 
channel-sharing proposals by TV stations. Stations should be 
free to relocate within their market, to change their City of 
license, and to share a channel with any other station in their 
market provided the result is to free up spectrum for the 
auction.
    In a letter to the FCC, some Senators expressed a concern 
that the incentive auction might interfere with broadcast 
service to rural viewers by translator stations. Recently, our 
coalition prepared an analysis of the Minneapolis, Minnesota, 
market and concluded that rural consumers will continue to have 
access to translator service after the incentive auction.
    Before stations can decide to participate in the auction, 
they need to know the starting level of prices the FCC will 
offer, they need to know when they will be paid, and they need 
to know when they will be expected to cease broadcasting 
operations. The sooner the FCC can make this information 
available, the sooner more stations will be seriously able to 
evaluate auction participation.
    In closing, I want to reiterate the enormous respect and 
appreciation we have for the professionalism, dedication, and 
openness of the FCC's Incentive Auction Task Force, led by Mr. 
Epstein.
    Thank you.
    [The prepared statement of Mr. Padden follows:]

  Prepared Statement of Preston Padden, Executive Director, Expanding 
                Opportunities for Broadcasters Coalition
    Chairman Rockefeller, Ranking Member Thune, and Members of the 
Committee, my name is Preston Padden. I had a long career in television 
including many appearances before this Committee. I retired from the 
Walt Disney Company in 2010, taught Communications Law for three years, 
and now serve as Executive Director of the Expanding Opportunities for 
Broadcasters Coalition. Our Coalition is comprised of more than 70 TV 
Stations weighted toward the largest markets. These Stations are open 
to voluntary participation in the Incentive Auction under the right 
circumstances.
    Our Coalition is committed to working with the FCC to make the 
Incentive Auction a success. We believe that if it adopts the right 
rules and policies, the FCC can achieve the Congressional goals of 
reallocating 120 MHz of spectrum from broadcasting to wireless 
broadband, raising $7 billion to fund FirstNet, and raising additional 
monies to contribute to deficit reduction
    The FCC's Incentive Auction Task Force has great leadership and is 
doing a terrific job. All parties interested in the Auction have 
enjoyed extraordinary access to the dedicated professionals who 
comprise the Task Force. The process has been open, constructive, and 
collaborative. If fact, as someone who has been around the FCC for 40 
years, I have never seen a more impressive administrative effort.
    Graphs of increased consumer demand for wireless broadband look 
like a ``hockey stick.'' And, consumer embrace of online video, 
including wireless video, has dramatically increased the importance of 
supplemental downlink to support asymmetric network architecture. Given 
the dearth of other sources of additional spectrum, the FCC should 
press to reallocate the full 120 MHz specified in the National 
Broadband Plan.
    Unfortunately, the FCC has not yet attracted anything approaching 
the critical mass of TV Station volunteers that will be necessary to 
have a successful auction. The ``Canary-In-The-Coalmine'' of this 
Auction is the fact that a top FCC media bureau official, whose 
responsibilities included outreach to broadcasters, just resigned to 
take a job with the broadcasting company most opposed to the auction. 
Without sufficient TV Station volunteers, the FCC will have no spectrum 
to auction, consumers will get no relief from dropped calls and 
spinning pinwheels, and there will be no money for FirstNet or for 
deficit reduction.
    Our Coalition believes that the case can be made to convince TV 
Stations to participate in the auction. The key is the ``Spectrum Value 
Gap'' identified by the FCC in its Omnibus Broadband Initiative (OBI) 
Technical Paper # 3. The opportunity to monetize a Station's spectrum 
based on the higher values present in the wireless industry is the 
incentive to bring TV Stations in the front door of the auction. But, 
broadcasters do have alternatives. Just one of those alternatives is to 
wait for a new digital transmission standard and then to deploy the 
Tower Overlay system that was demonstrated successfully this past 
August at the International Broadcasting Convention. This system would 
enable TV Stations to embed LTE transmissions to wireless devices in 
their broadcast transmissions, potentially earning an ongoing revenue 
stream from wireless carriers. Some stations find this potential route 
to monetize their spectrum compelling.
    Going forward, the FCC's number one priority must be to convince 
more broadcasters that the Incentive Auction is a more attractive and 
more immediate opportunity to monetize their spectrum. The FCC has 
spent a lot of time thinking about a band plan. But if enough 
broadcasters don't walk through the front door of the Auction, there 
will be no need for a band plan. And, the FCC has spent a lot of time 
debating bidding restrictions. But without enough broadcast volunteers, 
there will be no need to restrict bidding because there will be nothing 
for any wireless carrier to bid on.
    From this point forward, every issue, every rule, and every 
procedure must be evaluated by the Commission through the prism of 
whether it will help or hinder the effort to attract a critical mass of 
TV Stations. No matter how compelling other considerations might be, 
the FCC simply cannot afford to make decisions or to adopt policies 
that will discourage broadcaster participation. Let me offer a few 
examples.
    Scoring: The FCC's Notice of Proposed Rulemaking for the Auction 
proposes to ``score'' stations based on population covered or some 
other station characteristic. This proposal is contrary to the 
statutory directive that payments to stations should be based on the 
market forces of an auction. Stations are selling 6 MHz of spectrum, 
not TV station businesses. The only legitimate basis to distinguish 
between stations is their relative contribution to repacking the 
broadcast band and to clearing spectrum. For this purpose, scoring is 
unnecessary because the Commission's auction design automatically will 
freeze hard-to-repack stations at early, higher-priced rounds of the 
auction.
    Recognized expert auction economist Peter Cramton recently 
presented a deck to the FCC's Staff demonstrating that scoring would 
produce inefficiencies in repacking and clearing spectrum. That deck is 
attached to my testimony as Exhibit No. 1. Professor Cramton explains 
that scoring TV Stations in the Auction cannot be effective unless: (1) 
the FCC knows the reserve price of every TV Station in the Auction, 
which is impossible; and (2) the scoring weights are dynamically 
adjusted between Auction rounds, which would add unacceptable 
complexity and delay to what already is the most complex auction ever 
attempted by human kind. Most importantly, the prospect of some 
arbitrary and opaque scoring mechanism is breeding distrust among 
broadcasters and is driving them away from the Auction. Scoring is an 
example of a proposal that the FCC must evaluate through the prism of 
whether it will help or hinder the effort to attract to the Auction a 
critical mass of broadcasters.
    Bidding Restrictions: There has been vigorous advocacy among the 
carriers regarding bidding restrictions on AT&T and Verizon. Our 
Coalition, which receives no funds from any carriers, strongly opposes 
such restrictions. The wireless market is at least workably 
competitive. T-Mobile is coming on strong and actually beat AT&T and 
Verizon in subscriber growth in recent quarters. Sprint is now 
controlled by Softbank--a company that has enjoyed enormous competitive 
success in Japan's wireless market.
    T-Mobile and Sprint's claims about the superiority of lower band 
spectrum are overstated, and it would be perverse to reward these two 
companies for their decision to not bid in the 700 MHz auction. Fred 
Campbell, former Chief of the FCC's Wireless Bureau, conducted a 
thorough analysis of bidding restrictions in past auctions and 
concluded that they dramatically reduce auction revenue. His analysis 
is appended to my testimony as Exhibit No. 2. Reduced auction revenue 
would leave the FCC without the funds necessary to attract a sufficient 
number of TV station spectrum sellers. Whatever the perceived benefits 
of bidding restrictions, those benefits must be weighed against the 
very real danger of inadequate revenue to buy the spectrum necessary 
for a successful auction.
    Channel Sharing: The FCC has a legacy of strict rules regulating a 
TV Station's City of license, changes in City of license, and signal 
coverage over that City of license. In the Incentive Auction Notice of 
Proposed Rulemaking, the FCC proposed to adhere to these legacy rules 
by, for example, requiring that a station that surrenders its channel 
and then shares another station's channel continue to place a city 
grade signal over every square inch of its current City of license. 
But, in this new world, with a statute that encourages stations to 
simply go out of business and to serve absolutely no one, strict 
adherence to City of license regulation simply makes no sense. If the 
FCC hopes to recover significant broadcast spectrum, it must permit, 
and even encourage, innovative ``out-of-the-box'' channel sharing 
proposals.
    Specifically, stations should be free to relocate within their 
market, to change their City of license, and to share a channel with 
any other station in their market provided that the result is to free 
up spectrum for the Commission. The stations that are co-located at a 
market's central ``antenna farm'' typically will take up only one 
channel in the repack of the TV band while stations scattered elsewhere 
in a market each are likely to take up three channels because of 
adjacent-channel interference. This engineering fact means that channel 
sharing, City of license changes, and moves to a central ``antenna 
farm'' can be critical to clearing sufficient spectrum for reallocation 
to wireless. A decision to continue to require compliance with legacy 
City of license regulation is an example of a decision that would work 
against the goal of a successful auction.
    TV Translators: In a letter to the FCC, some Senators expressed a 
concern that the Incentive Auction could interfere with broadcast 
service to rural viewers by translator stations. However, translators 
are used to bring broadcast service to viewers in areas that primary 
broadcast transmissions do not reach. By definition, translator areas 
are not areas characterized by spectrum scarcity. Recently our 
Coalition prepared an analysis of the Minneapolis, Minnesota market and 
concluded that rural consumers will continue to have access to 
translator service after the Incentive Auction. A copy of that analysis 
is appended to my testimony as Exhibit No. 3.
    Auction Pricing: TV stations are ongoing businesses with building 
leases, equipment leases, programming contracts, and employment 
agreements--all of which need to be renewed from time to time. Before 
stations can decide to participate in the auction they need to know the 
level of starting prices the FCC will offer; they need to know when the 
auction will be held; and they need to know when they will be expected 
to cease broadcasting operations. The sooner the FCC can make this 
information available, the sooner more stations will be seriously able 
to evaluate auction participation.
    * * *
    In closing I want to reiterate the enormous respect and 
appreciation we have for the professionalism, dedication, and openness 
of the FCC's Incentive Auction Task Force. Although our Coalition does 
not always agree with their current views on every critical issue, we 
absolutely are committed to the success of the Incentive Auction and 
will do everything possible to help to achieve that result.
                                 ______
                                 
    Mr. Padden also submitted the following documents, which can be 
found on-line.

  1.  Peter Cramton, Professor of Economics, University of Maryland, 
        ``Scoring in Reverse Auction'' [slides], December 4, 2013. 
        http://apps.fcc.gov/ecfs/document/view?id=7520960932

  2.  Fred B. Campbell, Adjunct Professor of Law, University of 
        Nebraska Space, Cyber, and Telecom Program and former Chief of 
        the Wireless Telecommunications Bureau, Federal Communications 
        Commission, ``Maximizing the Success of the Incentive 
        Auction,'' prepared for the Expanding Opportunities for 
        Broadcasters Coalition and the Consumer Electronics 
        Association, November 4, 2013. http://www.ce.org/CorporateSite/
        media/Government-Media/GLA/auction-whitepaper-10-31-2013-FINAL-
        revised-v2.pdf

  3.  Letter dated November 21, 2013 to Marlene Dortch, Secretary, 
        Federal Communications Commission, from Preston Padden, 
        Executive Director, Expanding Opportunities for Broadcasters 
        Coalition, Re: Expanding the Economic and Innovation 
        Opportunities of Spectrum Through Incentive Auctions, GN Docket 
        No. 12-268 http://apps.fcc.gov/ecfs/document/view?id=7520959122

    Senator Pryor. Thank you.
    Mr. Kaplan?

 STATEMENT OF RICK KAPLAN, EXECUTIVE VICE PRESIDENT, NATIONAL 
                  ASSOCIATION OF BROADCASTERS

    Mr. Kaplan. Good afternoon, Mr. Chairman, Ranking Member 
Thune, and members of the Committee. Thank you for inviting me, 
on behalf of the National Association of Broadcasters, to 
testify before you today.
    At the outset, NAB would like to commend Chairman Wheeler 
on his recent decision to step back and take a deep breath and 
appreciate the enormous complexity of the incentive auction. He 
clearly understands that there are a number of critical 
unresolved issues that are going to take more work before we 
give ourselves the best chance for a successful auction.
    We at NAB believe there are at least three essential 
ingredients necessary to craft a successful auction.
    First, the FCC should take public engagement to an all new 
level. This means providing as much information to the outside 
world as possible and demanding the best fact-based data from 
all of us along the way. This could entail further notices on 
issues such as the new band plan, co-channel interference, or, 
as Commissioner Rosenworcel has suggested wisely, a series of 
en banc hearings.
    Second, the FCC must preserve broadcasters' coverage areas 
and populations served. This directive from Congress is not as 
much about broadcasters as it is about viewers, your 
constituents, who rely on us for essential news and 
information. The notion is simple: If their stations remain on-
the-air broadcasters, the constituents should continue to 
receive them.
    Third, as Chairman Wheeler acknowledged, this auction is 
exceedingly complex. There are many i's to be dotted, t's to be 
crossed. Members of this committee have noted a few. For 
example, Senators Begich, Fischer, Heller, and Klobuchar have 
asked, what are the effects of different policy decisions on 
the future of translators and low-power television in rural 
America? This must be studied and understood by the FCC.
    And with the leadership of Senator Klobuchar, Senators 
Klobuchar, Ayotte, Blumenthal, Boxer, and Johnson have 
recognized how critical it is to secure agreements with Canada 
and Mexico. Without them--I want to be clear about this--the 
auction will raise hundreds of millions, if not well over a 
billion dollars less, harming FirstNet and other congressional 
priorities. It will also make subsequent repacking and a future 
unified band plan nearly impossible.
    So thank you again for the opportunity to appear here 
today, and I very much look forward to answering your 
questions. Thank you.
    [The prepared statement of Mr. Kaplan follows:]

Prepared Statement of Rick Kaplan, Executive Vice President, Strategic 
             Planning, National Association of Broadcasters
    Good afternoon, Chairman Rockefeller, Ranking Member Thune and 
members of the Committee. Thank you for inviting me, on behalf of the 
National Association of Broadcasters (NAB), to testify before you 
today.
    Broadcasting, unlike any other medium, reliably offers local and 
national news, emergency information, sports and entertainment without 
charge to Americans throughout our great country. We connect people to 
their communities--wherever they may live--provide them with critical, 
lifesaving information, and embrace public service obligations that are 
unique to our industry. While new technologies have come and gone, 
broadcasting has long endured because local stations are indelibly 
woven into the fabric of American society.
    NAB is committed to doing everything we can to ensure that the 
broadcast television incentive auction has the best chance for success. 
If done correctly, the auction could benefit consumers, public safety 
through FirstNet funding, and the U.S. Treasury in the form of deficit 
reduction. We believe there are at least three elements essential to 
achieving these aims.
    First, as NAB has recently demonstrated, when parties engage 
constructively, where there is a respect and healthy appreciation on 
all sides for the value of various communications services, and where 
decisions are based on facts and data, almost anything can be 
accomplished. When we began working with the Department of Defense 
(DOD) this summer on sharing the broadcast auxiliary spectrum (BAS) at 
2025-2110 MHz, very few observers were optimistic about the chances of 
reaching agreement, especially in the short time available. However, 
both DoD and NAB came to the table constructively, made a genuine 
attempt to understand the key concerns of the other party, and grounded 
our decisions in facts and data, rather than clinging to unyielding 
demands about the need for exclusive-use spectrum. All parties to the 
incentive auction proceeding, including the Federal Communications 
Commission (FCC), should take a page from that book, and proactively 
and constructively engage with an eye towards fostering consensus among 
the stakeholders wherever possible, and to base their positions and 
decisions, respectively, on facts and not merely desired outcomes.
    Second, not only does the Spectrum Act require it, but common sense 
and consumer welfare also dictate that the FCC make all reasonable 
efforts to preserve non-auction participants' coverage areas and 
populations served. While television viewers may inevitably lose a 
favorite station or link to certain news or information because a 
particular station volunteers for the auction, TV viewers should not 
lose access to channels that remain on the air as a result of an 
untested, sub-optimal repacking software and band plan.
    Third, ``crafting a successful auction'' means a number of things. 
It certainly means that the FCC should make it as simple as possible to 
participate in the auction (although it does not mean actively 
encouraging or coercing broadcasters into participating). Crafting a 
successful auction also means developing a good, long-term band plan, 
and ensuring that rural and underrepresented consumers do not lose 
essential television service as a result of discounting rural or 
diversity concerns. Moreover, it undoubtedly means taking the time to 
maximize auction revenue (and thus being able to fund FirstNet) by 
ensuring that broadcasters along the border regions can be repacked.
Constructive Engagement
    Everyone at this table understands that the voluntary broadcast 
incentive auction and repacking process is extremely complex. It has 
been called ``first in the world,'' ``unprecedented,'' ``unique,'' 
``groundbreaking,'' and a host of other adjectives that make it clear 
we are venturing into unexplored territory. Despite the challenges of 
this novel enterprise, I can say with confidence that if we all work 
together--Congress, the FCC, stakeholders--there is a sweet spot where 
the auction can be a success for all involved.
    NAB has been at the forefront in working collaboratively and 
solving problems in the incentive auction process. In this proceeding, 
we have worked closely with AT&T, T-Mobile, Verizon Wireless, Sprint, 
Google, Shure, NCTA, CTIA, Qualcomm, Microsoft, Intel and members of 
the public interest community to try to find areas of common ground. In 
our view, such collaboration is essential to a successful auction.
    Where we identify a problem or concern, we propose solutions. We 
are always looking for areas of agreement and compromise and have been 
an open book for other industries and the FCC. We have shared widely 
our extensive data and analyses--as well as any assumptions that 
underlie them--and have done everything we can to listen and understand 
the ideas of others and share our views on the various paths to 
success.
    As I noted earlier, this approach led us to remarkable progress in 
an unrelated spectrum proceeding. Despite the fact that NAB and its 
members had little to gain, we nonetheless worked hard to find a way, 
based on facts and data, to arrive at a framework with DoD officials to 
help free up 50 megahertz of spectrum that will benefit the wireless 
industry and, we hope, the greater good. This effort to help Congress, 
the Administration and the FCC achieve their spectrum goals 
demonstrates NAB's commitment to constructive engagement, and 
hopefully, can serve as a model for other industries, including the 
wireless industry, in the future.
Protecting Viewers
    Along with many others, I have worked tirelessly on this auction 
for well over a year. What has surprised me most during this time is 
that lost in the debates over competitive rules, band plans, and 
unlicensed versus licensed spectrum, are the tens of millions of over-
the-air television viewers.
    It was not that long ago--less than five years, in fact--that 
Congress was so alarmed about the impact of the digital television 
(DTV) transition on viewers, it extended the transition deadline and 
put significant resources into ensuring that viewers could still 
receive their invaluable free television services. Congress recognized 
that millions of consumers could lose access to channels that were 
critical to their everyday lives. Even with the delay and a renewed 
emphasis on informing every consumer, I am sure those of you on this 
Committee who served in Congress at the time are well aware of the many 
challenges your constituents nevertheless faced.
    Unfortunately, the DTV transition will be a walk in the park 
compared to the repacking process that is part and parcel of this 
auction. The final channel changes of the DTV transition involved the 
FCC repacking only about 100 stations. Both viewers and broadcasters 
had more than five years to prepare for the change, and each station 
had a second channel on which to ensure a smooth transition. In the 
post-auction repacking, it is likely that many more stations will be 
repacked--perhaps in excess of 500--and stations will be required to 
``flash cut'' to their new channel--meaning there is no second channel, 
and stations will have to quickly move from one frequency to another, 
resulting in a bumpy ride for consumers.
    It must be the FCC's job to minimize the negative impact of the 
auction on the tens of millions of Americans who rely on free, over-
the-air TV--especially those who are most vulnerable, such as senior 
citizens, lower-income viewers and the underserved. This entails 
preserving the service areas and people served by stations that remain 
on the air. And despite representing broadcast companies, I recommend 
that the FCC view this process through the eyes of the consumer, not 
just the station owner. If a full-power or Class A station remains on 
the air--and the vast majority of them will--a consumer should continue 
to receive that station. Some of the FCC's proposals, however, suggest 
that viewers are fungible--meaning that as long as the station retains 
the same net number of viewers, everything is fine. But it's the 
viewers that matter most, and consumers should have access to the 
stations they receive today after the auction, provided those stations 
remain on the air.
    Under another proposal currently being developed, the Commission 
would use a ``proxy'' channel to calculate a station's service area 
during the auction process, instead of the station's actual channel. 
Thus, rather than measuring the actual interference a station will 
receive from another station on the channel it will operate on after 
repacking, the FCC will choose a different ``proxy'' channel to measure 
interference. This kind of approximation, however, cuts corners, and 
could result in a service loss or gain in a significantly large number 
of instances.
    As it moves toward this auction and repacking, the Commission 
should not forget what has been, and will continue to be, the backbone 
of our communications system for local news and emergency information. 
Broadcast television has been there every step of the way to support 
your constituents, and survey after survey demonstrates that broadcast 
television is still what they rely upon most. It is imperative to 
protect viewers in this process. Let's think about it this way: Your 
constituents will have no idea whether their wireless provider acquired 
an extra 10 megahertz in the auction to add to its 135 megahertz in 
their market; but I can guarantee they will start dialing your phone 
numbers when they are suddenly no longer able to receive the broadcast 
television stations they've relied upon for years, if not decades.
Getting It Right
    A number of critical auction issues remain far from resolved. Each 
of these must be dealt with fully, and before an auction order is 
released by the FCC, for the auction to have a realistic chance to 
succeed. If unresolved or unduly rushed, any one of these issues 
threatens the success of the auction and, in turn, the quality of 
broadcast and broadband services for the American people going forward.
    Many members of this Committee and the Senate as a whole have 
raised the question of how the auction will impact broadcast stations 
along our borders with Canada and Mexico, and what spectrum for 
wireless broadband will be foregone if the auction fails to account for 
agreements with our neighbors. As a result of long-standing agreements 
with Canada and Mexico, the U.S. cannot repack any stations along the 
borders without undertaking a formal consultation process. If the 
current agreements are left in place and new ones not reached, there 
are at least two damaging outcomes for the auction. First, the 
Commission will find it nearly impossible to reclaim sufficient 
spectrum within 250 miles of the Canadian border and 150 miles of the 
Mexican border, because it will be relying solely on buying out 
stations, as it will be unable to move them through repacking. Second, 
if the Commission approves an auction order without these agreements 
and does not deal with the border areas at this time, it will almost 
certainly never be able to repack stations there. Once the post-auction 
repacking takes place, there will be few, if any channels in the future 
to which border stations can be moved. The television band will already 
be tightly packed, essentially guaranteeing different band plans in the 
north and south as well as the center of the country for decades. The 
result would undeniably be a jigsaw, suboptimal approach.
    The reality here is that without the ability to repack stations 
along the border, the Commission would be foregoing hundreds of 
millions, if not more than a billion dollars of potential revenue. So 
it makes little sense to forge ahead with an order, without first 
coming to an agreement with our neighbors. An agreement allows for a 
coherent repacking of television stations throughout the country, 
including the border regions, and, consequently, for money to flow to 
FirstNet and the U.S. Treasury for deficit reduction.
    The impact of the auction on rural America is another important 
concern. We all know this auction is designed to ameliorate the alleged 
spectrum challenges in a handful of heavily urban markets, such as New 
York, Los Angeles and Chicago. No one claims, however, that rural 
America is facing a spectrum crunch. But what's at stake in this 
auction for rural America is the elimination of television translators 
and low-power television stations (LPTVs) that provide service to areas 
otherwise unreached. In a number of markets, especially in the West, if 
the FCC elects to reclaim 120 megahertz of television spectrum, rather 
than 60 or 84 megahertz, hundreds of translators and LPTVs will be 
forced to go off the air. This is a serious issue that deserves serious 
study and consideration before the FCC makes its various policy 
choices.
    There is one final thought I would like to offer. When Congress 
authorized the FCC to conduct a voluntary broadcast incentive auction 
in the Spectrum Act, it grounded that process in market-based 
principles. The authors of the National Broadband Plan believed that, 
in many cases, television spectrum would be more valuable in the hands 
of wireless carriers than broadcasters. The FCC's job in the upcoming 
auction is to see if this claim is true. If the auction is truly 
market-based, the FCC will do this on a voluntary, non-coercive basis. 
Some, however, have encouraged the Commission to twist its authority to 
try to force broadcasters off the air. They see no problem with 
decimating an industry that accounts directly and indirectly for well 
more than a million jobs and helps drive the local and national 
economies, but that also is the lone communications service statutorily 
designed to serve the public. The Commission does not have the 
authority to do this under the Spectrum Act; such actions also would be 
unwise and severely harm the American people. To be clear: The 
Commission's directive is not to push broadcasters to participate in 
the auction; but rather, to make it as easy as possible for them to 
participate if the economics make sense. That is the auction Congress 
intended, and that is the auction NAB will work tirelessly to help come 
to fruition.
    We thank the Committee for assuming its oversight function in this 
process. This role is essential to ensuring that the Commission 
faithfully adheres to the statute this body crafted so carefully to 
achieve a balance between broadcast and broadband. I urge this 
Committee to continue to hold such hearings, as it sheds a much needed 
light on the auction process and will ultimately lead to a better 
result. Thank you again for inviting me here today. NAB is anxious to 
see a successful incentive auction and will play an active role in 
ensuring that happens. I look forward to answering your questions.

    Senator Pryor. Thank you.
    Mr. Feld?

    STATEMENT OF HAROLD FELD, SENIOR VICE PRESIDENT, PUBLIC 
                           KNOWLEDGE

    Mr. Feld. Thank you for inviting me to testify.
    I have repeatedly urged that a well-structured incentive 
auction could be a rare policy trifecta, a win-win-win that 
provided more licensed spectrum and more efficient access to 
unlicensed spectrum in this extremely useful set of 
frequencies. In addition to raising revenue for an 
interoperable public safety network, now called FirstNet, the 
auction of licenses in this band for mobile broadband could 
also enhance competition to the benefit of consumers.
    The last 2 years have proved the importance of unlicensed 
access, especially in the TV bands. In particular, TV white 
spaces has seen rapid growth and development in the last year. 
The Gigabit Libraries Network is using TV white spaces in 10 
pilot programs to extend free public Wi-Fi into the local 
community. Gig.U is using TV white spaces in partnership with 
the University of West Virginia to bring high-speed broadband 
access to homes and businesses around their campus. It seems 
that nearly every month brings announcement of another new 
product or new investment both here and abroad.
    The last 2 years have also shown the value of regulatory 
steps to promote competition. Regulatory intervention to make 
spectrum available to competitors has led directly to billions 
of dollars in new investment and a resurgence of competition. 
No longer starved for spectrum, rival carriers have forced what 
had become a complacent duopoly to upgrade their networks. And 
for the first time in years, consumers are seeing real 
innovation in pricing plans, such as Sprint's lifetime 
unlimited and T-Mobile's international roaming and equipment 
upgrade plans.
    All of this highlights the importance of getting the rules 
for this incentive auction right. The Department of Justice has 
identified access to low-band spectrum as critical for 
competition. This spectrum is highly valued for its ability to 
travel long distances and penetrate buildings and trees. 
Companies looking to invest in unlicensed, such as Comcast, 
Google, and Microsoft, have likewise identified the broadcast 
band as critical for developing the next generation of 
unlicensed services.
    What does getting it right mean? First, we must stop 
creating false choices and pushing the FCC to choose sides. 
Congress passed a compromise bill that gave the FCC authority 
to use the auction to enhance unlicensed and promote 
competition but within limits. We should collectively embrace 
this compromise rather than re-fighting old battles. The 
priorities of this auction must work together, not push against 
each other and fly apart.
    We should recognize that well-structured guard bands will 
both provide adequate spectrum for unlicensed use and increase 
the value of the service as a whole.
    Finally, we need to make sure that we have enough 
participation in the auction to make it worth holding. The best 
way to ensure that enough bidders show up is what I call a no-
piggies rule. Don't ban anyone from the auction, but limit the 
number of licenses that any one company can win.
    Opponents of a no-piggies rule argue that we need to have 
AT&T and Verizon in the auction. I agree. But the beauty of the 
no-piggies rule is it lets AT&T and Verizon participate and I 
believe it is consistent with what Senator Thune suggested and 
what I am now hearing from AT&T. It just makes sure that there 
are enough licenses to make it worthwhile for competitors like 
Sprint and T-Mobile and DISH to show up as well. An auction 
with only AT&T and Verizon will be just as much a failure as an 
auction that banned AT&T and Verizon.
    To conclude, key to a successful incentive auction is a 
balanced approach, and we get there by continuing our current 
deliberative process. We can still achieve a public policy 
trifecta, a win-win-win for mobile broadband competition, 
unlicensed access, and public safety. It would be a shame to 
miss this chance by fighting old battles instead of working 
together.
    Thank you, and I look forward to your questions.
    [The prepared statement of Mr. Feld follows:]

       Prepared Statement of Harold Feld, Senior Vice President, 
                            Public Knowledge
    Good morning, Chairman Rockefeller, Ranking Member Thune, and 
members of the Committee. I am Harold Feld, Senior Vice President at 
Public Knowledge, a public interest nonprofit dedicated to the openness 
of the Internet and open access for consumers to lawful content and 
innovative technology. I am pleased to have the opportunity to appear 
before you once again to discuss the implementation of the FCC's first 
ever spectrum incentive auction.
Executive Summary
    A little over 2 years ago, I testified before the House Energy and 
Commerce Subcommittee on Communications and Technology about what was 
then a proposal to consider giving the FCC authority to conduct 
incentive auctions. As I said at the time, the incentive auction 
provides a rare case for a `win-win-win' in public policy. Done 
thoughtfully, the incentive auction could provide new low-band spectrum 
licenses for wireless carriers to meet expanding demand and enhance 
competition, provide revenue to pay for a national wireless network for 
first responders, and enhance the efficiency of the unlicensed TV white 
spaces service while preserving free over-the-air television.
    I still believe we can do this. But we cannot succeed if we rush 
heedlessly forward out of impatience to hold an auction however ill-
designed. Nor will we achieve this by forcing false choices between 
licensed and unlicensed spectrum, or between enhancing competition and 
paying for FirstNet. To the contrary, efforts to follow what seems like 
the straightforward path to maximizing revenue by minimizing guard 
bands or refusing to adopt rational spectrum aggregation limits are 
likely to make this auction a failure rather than a success.
Background
    Congress' inclusion of Title VI in the Middle Class Tax Relief and 
Job Creation Act of 2012 was a groundbreaking and critical step forward 
for U.S. communications policy and the advancement of new and 
innovative technology in the 21st century. It was groundbreaking 
because of the creation of the FCC's authority to create and execute a 
two-sided incentive auction for the first time in history. This 
mechanism for fairly repurposing spectrum that is already allocated 
uses market based principles to encourage more efficient use of this 
valuable public resource and make room on the spectrum allocation for 
new uses and technologies to develop. The legislation was a critical 
step because it opened up spectrum to allow for greater growth and 
competition in the licensed wireless broadband market, while preserving 
a commitment to unlicensed spectrum to be used for new innovative 
services, some of which may not even have been invented yet. The 
legislation also balances the priorities of repurposing spectrum for 
new uses with the goals of funding an interoperable public safety 
wireless network in accordance with the recommendations of the 9/11 
Commission.
    I continue to believe that all these goals remain possible. 
Certainly it takes patience and a well developed record to find the way 
to balance these competing goals. I commend the FCC for working so 
diligently to get the numerous details right so that all these working 
parts will mesh together, rather than fly apart. Chairman Wheeler's 
recent blog post \1\ outlining a schedule for how the FCC will make its 
decisions and a target date for the auction is realistic, and provides 
important transparency for the industry.
---------------------------------------------------------------------------
    \1\ Tom Wheeler, ``The Path To A Successful Incentive Auction,'' 
FCC Blog (December 6, 2012), available at: http://www.fcc.gov/blog/
path-successful-incentive-auction-0
---------------------------------------------------------------------------
    Conversely, I find it very unfortunate that some continue to try to 
create artificial choices among the goals Congress created. We are well 
aware that the final language of the Act represented a compromise 
between Members and stakeholders with very strongly held opinions on 
the appropriate policy to follow. Rather than refight these battles 
again and again, we should embrace the compromise. Rules that ignore 
the compromise struck by Congress, pretending that one faction 
triumphed over the other when it did not, do more than violate the 
language of law. Such efforts threaten to unbalance the complex 
machinery Congress dictated for running the auction, potentially 
dooming all these efforts.
Allow the FCC to do its job
    Perhaps most importantly, Congress should remember that every 
economist that testified on incentive auctions--regardless of political 
affiliation--urged that the FCC must have maximum discretion to design 
and run the auction. Certainly Congress must maintain oversight. But 
Members should also recognize both the tremendous skill and experience 
the FCC has brought to bear on this complex problem and the FCC's 
history of success since Congress authorized spectrum auctions 20 years 
ago. It is entirely appropriate to require the FCC to explain its 
choices. It is counter-productive to tell the FCC before it even makes 
choices that it has chosen wrong.
    Since passage of the Act, the FCC has moved quickly to design this 
first-ever incentive auction to reflect the several goals of the 
legislation and with the input of all critical stakeholders. In order 
for the incentive auction to be successful two things are necessary. 
First, all stakeholders and FCC staff need to work in a transparent, 
participatory way to determine the various aspects of auction design, 
band plan options, and repacking processes. Second, the FCC must enact 
rules that respect and balance the various goals of the legislation 
rather than bowing to pressure from one interest in favor of another.
    Most importantly for those following from outside, the structure 
created by Congress depends on maximizing the difference between what 
it has to pay broadcasters and what it can persuade wireless carriers 
to pay. If the FCC recovers 120 MHz of spectrum, but ends up giving 90 
percent of the proceeds to broadcasters to facilitate recovering that 
much spectrum, the auction cannot pay for FirstNet. By contrast, an 
auction that recovered somewhat less spectrum, but where the Federal 
Government kept much more of the revenue, would potentially produce far 
more revenue for the government. As a result, the FCC must strike a 
balance between providing real incentive to broadcasters to return some 
or all of their spectrum use rights--particularly in constrained 
markets--while not proving so generous that the government fails to 
meet its revenue goals.
    This means that, invariably, some stakeholders will not get the 
rules they want. Furthermore, because the interest of the Federal 
Government is somewhat at odds with the interest of both wireless 
carriers (who would prefer to acquire licenses as cheaply as possible) 
and broadcasters (who would prefer to sell for the highest value 
possible), any so-called ``industry consensus'' requires very careful 
examination.
    At the same time, as the agency narrows its focus, all stakeholders 
must begin to abandon their opening positions and seek real consensus 
wherever possible. In particular, I am hopeful that unlicensed users 
and secondary licensees such as wireless microphone operators and LPTV 
operators can reach a consensus on how to coexist within the newly 
reconfigured broadcast band. Clearly there is much to be gained by 
finding a way to accommodate all the existing stakeholders rather than 
forcing the FCC to choose among them, and I hope that policymakers 
supportive of these interests will encourage the parties to work 
together rather than against each other.
Balanced Goals
    Returning to substance over process, we must likewise remain 
focused on the statute as written. Since the Middle Class Tax Relief 
Act was passed, many folks have worked to reframe the goals of the law. 
The statute however is clear and provides for a variety of goals and 
outcomes that, if implemented well, should all be attainable.
    As an initial matter, the Middle Class Tax Relief Act preserved 
existing FCC authority both generally, and specifically with regard to 
implementation of the TV ``white spaces'' service, unless explicitly 
altered by statute.\2\ The statute did nothing to alter the overall 
goals of the FCC's auction authority to promote the public interest by 
adopting rules that encourage innovation \3\ and that ``avoid excessive 
concentration of licenses.'' \4\ Congress also retained the prohibition 
on consideration of auction revenue as a public interest benefit.\5\
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    \2\ Sec. 6403(i)
    \3\ 47 U.S.C. Sec. 309(j)(3)(A).
    \4\ 47 U.S.C. Sec. 309(j)(3)(B).
    \5\ 47 U.S.C. Sec. 309(j)(7)(B). By implication, Congress clearly 
intended that the combination of revenue from the incentive auction and 
the additional auctions required by Section 6401, but there is a 
considerable difference between an expectation expressed in the statute 
that a combination of spectrum auctions would raise $7 billion to cover 
FirstNet's construction costs and a command to maximize auction revenue 
for the incentive auction in direct violation of 47 U.S.C. 
Sec. 309(j)(7)(B).
---------------------------------------------------------------------------
    Congress did make several specific alterations with regard to both 
unlicensed operation in spectrum recovered from broadcasters and with 
regard to limits on participation in the incentive auction. These 
explicit provisions provide the outlines of the balanced path the FCC 
must follow to actualize the goals Congress included in the Middle 
Class Tax Relief Act provisions on spectrum.
Funding for FirstNet
    I recognize the importance of this auction for generating revenue 
to establish a national, interoperable public safety broadband network, 
as recommended by the 9/11 Commission. While I agree that funding 
FirstNet is important, I also want to remind Senators that there are 
multiple opportunities to raise revenue for FirstNet beyond the 
incentive auction of the 600 band. The recently announced 1755 MHz/AWS-
3 auction alone could easily clear $10 billion and pay for FirstNet, 
which needs to raise $7 billion in funding.\6\ Additionally, the H-
block auction scheduled for January 2014 is estimated to automatically 
clear at a minimum of $1.56 billion.\7\
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    \6\ This 1755 MHz/AWS-3 auction is one that while hoped for, was 
uncertain. Furthermore, the 1755 band is not only in a decent bandwidth 
range and compliments the AWS footprints of the larger national 
carriers but this spectrum is also harmonized for LTE internationally. 
The amount of money carriers would save in equipment costs for that 
band is substantial. See FierceWireless, T-Mobile CTO: 1755-1780 MHz is 
prime spectrum for LTE, February 27, 2013, http://
www.fiercewireless.com/tech/story/t-mobile-cto-1755-1780-mhz-prime-
spectrum-lte/2013-02-27.
    \7\ FierceWireless, Analysts: Sprint, T-Mobile ditched H Block to 
focus on other spectrum, avoid Dish complications, November 13, 2013, 
http://www.fiercewireless.com/story/analysts-sprint-t-mobile-ditched-h-
block-focus-other-spectrum-avoid-dish-co/2013-11-13.
---------------------------------------------------------------------------
    Finally, those concerned that adoption of a spectrum aggregation 
limit will reduce auction revenue should consider that the Government 
Accountability Office (GAO) estimated that the Incentive Auction could 
raise $20 billion. Some private sector estimates placed the value even 
higher. The H Block auction will raise approximately $1.5 Billion, 
leaving only $5.5 billion to pay for FirstNet.
    Even those who believe that preventing AT&T and Verizon from 
foreclosing competitors from these licenses would reduce auction 
revenue, a claim I and others dispute, no one can seriously suggest 
that adoption of a modest limit on how many licenses AT&T and Verizon 
can win will deprive the incentive auction of over $15 Billion in 
revenue. Assuming that the earlier estimates of how much an Incentive 
Auction could earn are at all correct, the allegation that a ``No 
Piggies Rule'' of the kind proposed below would jeopardize the ability 
to pay for FirstNet flies in the face of reality. Given that those most 
loudly claiming that any restriction on AT&T and Verizon's ability to 
win all the licenses offered would put funding for FirstNet in danger 
were among those claiming that the auction would earn in excess of $20 
billion, these doomsday predictions should be viewed with considerable 
skepticism.
Nurturing Continued Innovation In Unlicensed
    As members of Congress and FCC Commissioners across the political 
spectrum have repeatedly stated, unlicensed spectrum remains one of our 
great spectrum innovations. The United States became the first country 
in the world to authorize flexible access to spectrum through a simple 
certification mechanism that dramatically lowered barriers to entry and 
innovation. Simply try to imagine a world today without such everyday 
devices such as garage door openers or free Wi-Fi in public buildings, 
from coffee shops to the halls of Congress. Bluetooth technology which 
operates over unlicensed spectrum has made phone conversations in cars 
safer with hands free technology, and the automobile industry is 
already testing the use of unlicensed spectrum to move the idea of auto 
piloted cars from science fiction to reality.
    In particular, authorization to use TV white spaces (TVWS) under 
Republican FCC Chairman Kevin Martin, and subsequent modifications 
under Democratic Chairman Julius Genachowski, have opened the door to 
dramatic advances in hared spectrum technology. Earlier this year, West 
Virginia University announced that it would utilize TVWS to provide 
wireless broadband for its entire campus and surrounding neighborhoods, 
including free Wi-Fi on public transit. In Cape Town, South Africa 
Google is piloting wireless broadband connectivity using TVWS to rural 
areas that lack electricity using solar powered devices. With the large 
reserve of TVWS in rural areas of the U.S., many communities will look 
to TVWS networks as a possible solution to the economic challenge of 
rural broadband deployment. It is too early to know if this will 
succeed, but initial projects on college campuses through Air U. and in 
small cities like Wilmington, NC will help answer these questions over 
the coming years.
    Congress knew that the incentive auction could either enhance the 
efficiency of TVWS and encourage new investment, or wipe out this 
promising new technology altogether. Congress opted for the first 
course, instructing the FCC to structure the incentive auction in a way 
that compensated for the loss of spectrum in some markets by creating 
the potential for meaningful use in all markets through unlicensed in 
the 600 MHz guard bands.
    The final version of the Act rejected both the initial House 
approach of restricting TVWS use solely to the surviving broadcast 
bands, and the Senate approach of authorizing a direct allocation for 
exclusive unlicensed use if the FCC recovered more than 84 MHz of 
spectrum from broadcasters. The compromise version explicitly preserved 
the use of the remaining broadcast service for TVWS, while permitting 
the FCC to authorize unlicensed use in the 600 MHz guard bands.\8\ At 
the same time, the use of unlicensed spectrum should not undermine 
licensed use of the 600 MHz band either by causing harmful interference 
\9\ or by inflating the guard bands beyond what is ``technically 
reasonable.'' \10\
---------------------------------------------------------------------------
    \8\ See Sec. Sec. 6403(i); 6407.
    \9\ Sec. 6407(e).
    \10\ Sec. 6407(b). By adopting this language, Congress explicitly 
rejected the alternative--and more restrictive--language that guard 
bands be no bigger than `technically necessary.' The word `reasonable' 
denotes discretion (albeit bounded discretion), especially when 
combined with the Commission's responsibility (unaltered by the 
statute) to encourage innovation and flexibility. See, 47 U.S.C. 
Sec. Sec. 303(g); 309(j)(3)(A).
---------------------------------------------------------------------------
    This compromise illustrates the necessary balance the Commission 
should adopt. Congress clearly intended to foster the further 
development of unlicensed technology and TVWS in particular. The FCC 
may consider how to facilitate this development through the use of 
guard bands, and may certainly take the impact of its decisions on the 
development of the TVWS into account. At the same time, consideration 
for unlicensed use alone cannot drive the Commission's decision making.
    In short, according to the Middle Class Tax Relief Act, unlicensed 
remains an important part of the wireless ecosystem. But it is only one 
part. The size of guard bands can--and should--reflect, among other 
things, a desire to ensure sufficient national access to unlicensed 
spectrum to encourage investment and deployment in urban markets as 
well as rural markets. At the same time, concerns over unlicensed use 
cannot so dominate the Commission's thinking that they actively 
undermine the viability of licensed services.
    On November 8, the FCC held a workshop to highlight the important 
role TVWS is already playing in providing needed broadband services in 
rural areas and urban areas alike.\11\ Chairman Wheeler became the 
latest FCC Chairman to reaffirm the importance of unlicensed spectrum 
and TVWS stating, ``Unlicensed spectrum has been, and must continue to 
be, the catalyst of innovation. Therefore, we must make sure that 
unlicensed spectrum is a key part of whatever decisions that we make.'' 
\12\
---------------------------------------------------------------------------
    \11\ A video archive of the event is available at http://
www.fcc.gov/events/learn-workshop-discuss-unlicensed-spectrum-issues.
    \12\ Id. at 8:30-8:51.
---------------------------------------------------------------------------
    Witnesses at the workshop included Elizabeth Bowles, president of a 
WISP based in Little Rock Arkansas, who described how the availability 
of unlicensed spectrum--and TVWS in particular--allowed her to bring 
broadband to schools, small businesses, and others who could not 
otherwise afford access. Others described use of the TVWS for higher 
education projects, and to bring affordable broadband to poor urban 
neighborhoods, and to create economic opportunity for women and 
minority owned businesses. Witnesses described innovative new devices 
already available from such retailers as Amazon.com, and how other 
countries are actively looking to develop their own TVWS technology.
    In short, the value of the TVWS is well established. Beyond the 
contribution to the economy, unlicensed lowband spectrum empowers 
traditionally marginalized communities to take part directly in the 
emerging wireless future. The power of unlicensed to give these 
communities new opportunities is a social good that cannot be measured 
in dollars, but is utterly critical to the American spirit.
    Public Knowledge believes the FCC should issue a further public 
notice at the January meeting where, under Chairman Wheeler's recently 
proposed schedule, key policy decisions will be outlined. This will 
allow stakeholders to come together around a common sense, consensus 
framework that promotes a robust TVWS on a national basis. Until 
details can be filled in, Public Knowledge continues to support calls 
from a broad range of stakeholders such as Comcast, Broadcom, The 
Wireless ISP Association (WISPA), and Google--along with public 
interest organizations such as Free Press, Consumer Federation of 
America, and the New America Foundation--to create a 20 MHz contiguous 
block of spectrum for unlicensed in the ``duplex gap'' between the 
uplink and downlink paired spectrum. Based on previous experience with 
duplex gaps, and in light of the propagation characteristics of the 600 
MHz spectrum, this size would represent the optimum trade-off for 
licensed services to build inexpensive handsets that minimize internal 
filters and potential self-interference while providing adequate 
spectrum on a national basis for broadband in both urban and rural 
settings.
    Critically, the 20 MHz duplex gap is not the only way to provide 
adequate unlicensed spectrum to meet urban and rural needs. This is why 
a further public notice is imperative. As Chairman Wheeler stressed at 
the November 8 FCC Workshop, now is the time for parties to focus on 
practical proposals rather than insist that ``the world will end'' if 
they do not get exactly what they want.
Opportunity for Other Players to Come to the Table for a Deal
    Since multiple users will operate in the spectrum between 470 MHz 
and 796 MHz this presents an opportunity for other players besides the 
wireless carriers and broadcasters to come to the table for a deal. 
Potential stakeholders that could benefit from participating in these 
auction discussions include owners of wireless microphone equipment. 
Public Knowledge is part of the Public Interest Spectrum Coalition 
(PISC) whose members believe the FCC has an opportunity to facilitate 
innovation and investment in unlicensed technologies while still 
preserving the use of wireless microphones. When the FCC adopted orders 
allowing unlicensed use of TVWS it reserved two channels for the use of 
wireless microphones. Because unlicensed devices cannot use channels 
used by broadcasters in neighboring TV markets, even low-power 
unlicensed devices are not allowed to operate in the majority of vacant 
TV channels in each local market.
    Conversely, wireless microphones have been successful in operating 
on the same channel as broadcast stations in distant or neighboring 
markets. The additional channels that are not available for use by 
unlicensed devices include unoccupied TV channels below Channel 21 and 
the larger category that includes channels where microphones have 
historically operated co-channel to broadcast stations in distant media 
markets. Incentive auction rule changes should include policies that 
ensure both wireless microphone operators and unlicensed broadband 
networks and devices have a sufficient amount of low-band spectrum 
available nationwide.
    PISC has also provided proposals that would protect LPTV operators 
that provide service to their local community, while also accommodating 
use of the TVWS for unlicensed users. I am pleased that in recent days 
representatives from the LPTV community have begun to reach out to PISC 
members to begin discussion for a possible way forward.
    These negotiations will work best if policymakers urge all parties 
to focus on coexistence and reasonable spectrum sharing. As 
demonstrated by the recent agreement between the Department of Defense 
and broadcasters to share the 2021-2110 MHz band,\13\ and the recent 
voluntary agreement between the 700 MHz licensees and DISH to promote 
interoperability,\14\ spectrum sharing must become the norm in an 
increasingly crowded spectrum world. Parties that insist on standing on 
what they believe is their due under the law should recall that the 
Communications Act unequivocally states that no one has any right to 
use spectrum. Accordingly, the best results can be achieved by genuine 
consensus among stakeholders realistically assessing their needs, 
rather than by forcing the FCC to chose among stakeholders.
---------------------------------------------------------------------------
    \13\ Letter of Karl Nebbia, Associate Administrator, Office of 
Spectrum Management, National Telecommunications Information 
Administration (NTIA), to Julius Knap, Chief, Office of Engineering and 
Technology, filed in GN Docket No. 13-185 (November 25, 2013), 
available at http://apps.fcc.gov/ecfs/document/view?id=7520959441
    \14\ See Promoting Interoperability in the 700 MHz Commercial 
Spectrum, WT Docket No. 12-69; Request for Waiver and Extension of 
Lower 700 MHz Band Interim Construction Benchmark Deadlines, WT Docket 
No. 12-332, Report and Order and Order of Proposed Modifcation, 
(October 29, 2013), available at http://transition.fcc.gov/
Daily_Releases/Daily_Business/2013/db1101/FCC-13-136A1.pdf.
---------------------------------------------------------------------------
The Myth of ``Inflated'' Guard bands
    Opponents of unlicensed use have repeatedly stated that the law 
prohibits the use of unlicensed in the guard bands. Some have even gone 
so far as to argue that the law prohibits guard bands entirely, or 
requires the FCC to confine them to some arbitrary minimum. As noted 
above, this ludicrous claim violates the plain language of the statute, 
which not only explicitly preserves FCC authority to create band plans 
with guard bands but which rejected the more restrictive ``technically 
necessary'' for the more flexible ``technically reasonable.''
    The alternative argument of opponents of unlicensed use is the 
effort to create a false choice between guard bands and auction 
revenue. This ignores that well managed guard bands enhance the value 
of licensed portions of the spectrum by lowering the cost of equipment 
design. Similarly, the increasing synergistic use between licensed and 
unlicensed spectrum, notably in the development of ``Wi-Fi offload'' 
and ``carrier grade Wi-Fi,'' show how permitting Wi-Fi in the guard 
bands would actually enhance value and thus increase auction revenue.
    To illustrate this point, consider the following analogy. The 
development firm of Henry and Anna decide to develop some prime real 
estate for residential use. They build houses with lawns and driveways 
so that people can invite guests and hold parties while protecting the 
neighbors from each other's noise. They leave some open common space 
for playgrounds and to enhance the feeling of community. They use some 
land for green space to set the houses back from the main road. They 
end up building 20 houses.
    Fred and Greg, rival developers who hold a similar plot of land, 
can't believe how much money they think Henry and Anna are leaving on 
the table with all this ``wasted'' space. They build townhouses jammed 
up as close to each other as possible, with the bare minimum number of 
parking spaces. By leaving no common space or open area, they cram in 
30 houses.
    But a funny thing happens. Henry and Anna can sell their houses for 
$500,000 a house, because they have all this space and it makes a very 
nice community. Fred and Greg can only get $150,000 for their houses, 
because no one wants to pay as much for houses jammed on top of each 
other, with everyone hearing their neighbor's business, no place for 
friends or relatives to park when they visit, and houses flush against 
the street.
    At the end of the day, Henry and Anna make $10,000,000, while Fred 
and Greg make only $4,500,000. Despite all the wasted ``green space,'' 
Henry and Anna end up making $5,500,000 more than Fred and Greg.
    The same logic holds true with guard bands. Maximizing the number 
of MHz auctioned by having licenses piled one on top of the next with 
no guard bands does not mean more revenue from the auction any more 
than maximizing the number of houses in a development automatically 
means more money for the developer.
Competition: Spectrum Aggregation/Band Plan
    Perhaps the most important goal to consumers in the construction of 
a balanced incentive auction implementation is the assurance that the 
rules will promote competition in the mobile broadband industry. 
Following the dominance of the 700 MHz Auction in 2008 by AT&T and 
Verizon, it became conventional wisdom that the overwhelming advantage 
of AT&T and Verizon in low-band spectrum meant a long, slow slide to 
duopoly. Only aggressive action by the Commission in 2011 and 2012--
adoption of data roaming rules, blocking AT&T's effort to acquire T-
Mobile, and pressure on Verizon to divest spectrum to T-Mobile as part 
of the Spectrum Co. Review--created any expectation that competition 
remained viable.
    The benefits of competition have become increasingly visible since 
the FCC and the Department of Justice Antitrust Division (DoJ) took 
steps to ensure that the market would contain at least 4 national 
firms. Billions of dollars of new investment flowed into the market as 
both T-Mobile and Sprint attracted new interest. AT&T began a process 
of ``refarming'' it's 2G spectrum for 4G use and, spurred by 
competitive pressure, has moved rapidly to deploy LTE nationally. A 
revitalized T-Mobile has offered major innovations in handset upgrades 
and data plan pricing, forcing AT&T and Verizon to respond.
    It is no coincidence that this dynamic market action follows 
regulatory action to promote competition, whereas the market remained 
virtually moribund from 2008-2012 when competition appeared dead. Only 
competition forces companies to invest in network improvements and pass 
along efficiencies of scale to customers rather than shareholders. By 
contrast, when competition declines, the surviving dominant firms can 
afford to decrease capital expenditures on network improvements because 
frustrated customers have nowhere else to go.
    AT&T and Verizon continue to enjoy dominance in part because of 
their superior holding of spectrum below 1 GHZ, aka ``low band 
spectrum.'' These companies acquired this advantage in substantial part 
from free low band licenses distributed to the incumbent local exchange 
carriers (ILECs) before the Commission began to auction spectrum in 
1993. To pretend that this market distorting regulatory largess 
constitutes a free market triumph that regulators should respect is 
therefore quite disingenuous.
    Likewise, the claim that AT&T and Verizon need additional spectrum 
because of their large customer base profoundly misstates the facts. To 
the contrary, as noted above, it is competition that forces companies 
to become efficient and pass those efficiencies on to their customers. 
As both the Department of Justice and the FCC transaction team found in 
the AT&T/T-Mobile transaction, AT&T in particular has used spectrum 
acquisitions to support a profoundly inefficient network architecture. 
Indeed, the fact that Verizon supports more customers with less 
spectrum demonstrates that the problem for AT&T is not a spectrum 
shortage to meet demand, but a refusal to reengineer its network to 
provide more efficient coverage.
    The DOJ has emphasized the importance of getting low band spectrum 
into the hands of competitors. Because the incentive auction represents 
the last chance to put valuable low band spectrum in the hands of 
competitors, the FCC should adopt rules of general applicability--as 
permitted by the Middle Class Tax Relief Act of 2012--to prevent AT&T 
and Verizon from capturing the lion's share of the licenses.
This Auction is about Future Spectrum Needs, and the Future of 
        Competition
    My fellow witness Dr. Hal Singer has submitted a paper to the FCC 
with David Balto arguing that T-Mobile's recent revitalization shows 
that the DoJ is wrong in its concern that competitors require access to 
lowband spectrum.\15\ Setting aside other objections to Balto & 
Singer's analysis, and the irony that T-Mobile enjoys its current 
success to from antitrust enforcement of the kind Balto & Singer object 
to here, the paper misses a key point about the Incentive Auction. 
Since its initial proposal as part of the National Broadband Plan, the 
Incentive Auction has been about meeting the future demand for 
spectrum, the so-called ``spectrum crunch.'' The relevant question is 
therefore not merely whether T-Mobile and Sprint have sufficient 
spectrum to compete today, but whether they will have sufficient 
spectrum--particularly lowband spectrum--to remain competitive going 
forward. Indeed, under the logic proposed by Singer and Balto, it does 
no harm to AT&T and Verizon to be entirely excluded from the Incentive 
Auction because they currently have the best performing 4G networks.
---------------------------------------------------------------------------
    \15\ See David Balto and Hal Singer, ``The FCC's incentive Auction, 
Getting Spectrum Policy Right,'' Progressive Policy Institute 
(September 2013), available at http://www.progressivepoli
cy.org/wp-content/uploads/2013/09/09.2013-Balto-and-Singer_Getting-
Spectrum-Policy-Right
.pdf
---------------------------------------------------------------------------
    Unlike the DoJ merger review, which looks to see whether a 
transaction is likely to substantially reduce competition, the FCC is 
required by law to consider how to use auctions to promote competition 
and avoid excessive concentration of licenses.\16\ Even if Balto & 
Singer were correct that T-Mobile's recent performance alleviates 
competitive concerns in today's spectrum environment (a claim subject 
to considerable dispute), the failure of Balto & Singer to address 
adequately how foreclosure would impact future need leaves their 
analysis fatally flawed.
---------------------------------------------------------------------------
    \16\ See 47 U.S.C. Sec. 309(j)(3)(B).
---------------------------------------------------------------------------
The ``No Piggies'' Rule
    The FCC can promote these competition goals in two ways. First, it 
can adopt a total limit on the amount of spectrum, particularly low 
band spectrum, a single company can hold. The Commission had such a 
hard ``spectrum cap'' until 2003. Not coincidentally, elimination of 
the spectrum cap initiated a period of steady consolidation and a 
dramatic decline in competition to the detriment of consumers.
    Alternatively, the Commission could adopt an auction specific rule 
that would prohibit any one company from capturing too many licenses in 
the 600 MHz auction. This ``No Piggies'' rule would permit AT&T and 
Verizon to participate, while leaving significant spectrum on the table 
to attract many smaller bidders.
No Piggies Means More Auction Revenue
    Auction experts will tell you that maximizing revenue requires two 
things. First, lots of bidders need to show up. Second, they cannot 
collude to divide the licenses among each other.\17\ To achieve step 
one requires creating a set of rules that encourages as many bidders as 
possible that they can actually win enough licenses they need to make 
showing up worth the expense of playing. Participating in an auction 
costs a great deal of money. Companies go to capital markets to arrange 
for both the large ``up fronts'' needed to participate and to be able 
to pay for the licenses if they win. The companies set up huge ``war 
rooms'' with auction experts to track and advise them. Failing to win 
licenses, not only means the vast expenditure of money and resources is 
wasted. Publicly traded firms will lose significant stock value if they 
fail to win licenses deemed critical to their future growth, or if they 
are deemed to have been forced by AT&T and Verizon to significantly 
overpay.
---------------------------------------------------------------------------
    \17\ See, e.g., Paul Klemperer, ``Using and Abusing Economic 
Theory,'' Journal of the European Economic Association, 2003, 1, 272-
300.
---------------------------------------------------------------------------
    Unless a firm believes it has some chance of success in the auction 
that will justify the cost and the potential risk of market backlash 
for a failed auction attempt, it will do better to sit on the 
sidelines.
    Without the No Piggies Rule, there is every reason to believe that 
AT&T and Verizon will repeat their success from 2008 700 MHz auction. 
No matter how much T-Mobile or Sprint (or other competitors) may need 
the spectrum in absolute terms, it is not worth the risk if they cannot 
win.
    A simple analogy illustrates the problem. My neighborhood 
association sponsors a basketball tournament with a $10 entry fee and a 
$500 prize. Should I enter? Well, if we pretend I am a decent amateur 
player, then it would make sense. The entry fee is relatively small, 
and even if I am not the best basketball player in the neighborhood, I 
am close enough to my neighbors that I believe I have a chance to win.
    Now pretend that instead of playing my neighbors, I have the option 
to participate in a basketball tournament against the 1985-86 World 
Champion Boston Celtics. The entry fee is $50,000, but the prize is $10 
million! This is a much higher potential return on my investment than 
the previous example, albeit for a much higher upfront cost and with a 
much reduced (i.e., non-existent) chance of winning. Should I enter?
    Unless I'm in the market for a divorce, the obvious answer is no. 
This bet makes absolutely no sense despite the potential return on 
investment. I would need to mortgage my house and go into crippling 
debt simply to enter the competition, fully aware I would have no 
chance of winning against Larry Bird today, never mind when he was at 
the peak of his career.
    Similarly, in the absence of a No Piggies Rule, it makes no sense 
for T-Mobile or Sprint to spend millions of dollars to enter the 
spectrum auction because they have virtually no chance of winning 
enough licenses to justify participation. Sadly, spectrum auctions are 
not Disney movies. Failure is always a (very painful) option, and the 
need to win does not make winning any more likely than not really 
needing to win. The fact that these companies really need the spectrum 
does not, oddly enough, make it any more likely they will win or make 
it cheaper for these companies to get the necessary capital. To the 
contrary, the fact that they need the spectrum to remain competitive 
but are unlikely to win it drives up the cost of capital and increases 
the backlash when they lose.
    Even without a No Piggies Rule to encourage smaller players to 
participate, the number of potential bidders has dropped significantly 
since the 700 MHz auction in 2008. Alltel and MetroPCS no longer exist. 
Leap may not exist by the time the auction takes place.
    Opponents of the No Piggies Rule like to paint a stark picture of 
the auction failing if AT&T and Verizon do not participate. But an 
auction limited to AT&T and Verizon is equally likely to fail. The FCC 
must bring all potential bidders to the table, something only a No 
Piggies Rule can hope to accomplish.
Band Plan, Bidding Rules and Other Factors
    Numerous other factors impact the likely success of the auction. 
With regard to bidding rules and other factors such as repacking, we 
lack a good sense of the FCC's current thinking. These matters will, 
hopefully, becomes the subject of future public notices to further 
develop the record.
    With regard to the band plan, the one thing agreed upon by nearly 
all competitors agree upon is that the band plan should optimize paired 
spectrum. Inclusion of supplemental downlink (SDL) spectrum below 
Channel 37 appears more likely to increase competition problems in 
light of the difficulties in integrating spectrum below Channel 37 with 
other low band spectrum below 1 GHz. Furthermore, based on the current 
experience with 700 MHz A & 700 MHz B block spectrum, it seems unlikely 
that manufacturers will develop equipment for supplemental downlink 
unless AT&T and/or Verizon capture significant SDL licenses.
Market Variability
    Finally, the Wireless Bureau's May Band Plan Public Notice raised 
the question of ``market variability.'' This would give the FCC 
flexibility to recover more spectrum in some markets than in others. 
Market variability potentially resolves the problem of holdouts in the 
most constrained markets. Without such flexibility, the FCC is limited 
in every market to the spectrum available in the most constrained 
market. This could essentially starve the auction for spectrum.
    At the same time, too much variability creates significant 
problems. It is highly unlikely that equipment will be developed for 
markets where large amounts of spectrum can be recovered given that the 
largest markets are most likely to be constrained. Commenters have also 
noted significant interference potential if there is too much 
variability in the band plan caused by market variation.
    To balance these concerns, the Commission needs a uniform core with 
flexible edges. The Commission should establish a clear limit on the 
potential variation from the uniform core set by the most constrained 
market. This would reduce the value of holding out in the most 
constrained markets, without introducing so much uncertainty in the 
band plan as to undermine the ability of potential bidders to 
adequately assess the value of the licenses.
    Thank you to the members of the Committee for your time and I look 
forward to the opportunity answer your questions.

    Senator Pryor. Thank you.
    We are going to do 5-minute rounds here and follow the 
Committee's normal early bird rule.
    Ms. Marsh, let me start with you. I would like to hear from 
AT&T on this. I know that your company's preference is for no 
restrictions, but you also talked about some possibilities in 
your opening statement--I wrote it down. This approach would at 
least ensure multiple winners.'' And it is a little bit of 
follow up on what Mr. Feld was just talking about.
    So are there any bidding limits, I guess I could say, or 
parameters that might be imposed in a neutral fashion that you 
think your company could support?
    Ms. Marsh. Thank you, sir.
    You are correct; we support an open and unrestricted 
auction, because we think that is the format that will raise 
the most revenue. And given the important revenue targets in 
this auction, we think that that has to be taken into careful 
consideration. What we have said, and no such proposal has been 
put on the record to date: If there is to be a limit, we think 
it has to be applied neutrally and fairly to all participants.
    There has been discussion of what those limits might look 
like. I think you have to take care, because if those limits 
are too restrictive, you could undermine the efficiency of the 
spectrum. For example, every bidder must be able to get to a 
10-by-2 allocation to be able to do efficient LTE deployment. 
And so you have to take care about how such limits are 
expressed.
    But, certainly, if the goal is to ensure multiple winners, 
we think it should be a rule that applies to all bidders in a 
very fair and neutral way.
    Senator Pryor. OK.
    Mr. Berry, let me dive in with you, if I can, and that is, 
you know, we have all talked about the consequences of this 
auction, both good and bad. And so, what are the consequences 
for your members if they are not able to purchase any spectrum 
in the auction?
    Mr. Berry. Well, for our competitive carriers, I think it 
would be disastrous.
    We haven't had an auction since the launching of the 
iPhone. And the data consumption by consumers, as Preston just 
said, goes up like a hockey stick. Our carriers need access to 
low-band spectrum. It propagates extremely well in rural 
America but also reaches the inner sanctums of this hearing 
room and other in-building penetration.
    It is important to be able to serve the customers and the 
consumers in the way in which they use your device. And the way 
they use their device now is inside and outside. So it would be 
extremely difficult for our members to build the 4G LTE network 
and stay competitive without access to the spectrum.
    And I am encouraged by AT&T's statement that Randall 
Stephenson made today, that there may be some rules and 
restrictions on how much spectrum any one carrier could acquire 
at the auction. Maybe we are making some progress on finding 
solutions that the entire wireless industry can benefit. We 
need multiple winners for sure in the auction.
    Senator Pryor. One little bit of housekeeping here is that 
I said earlier that the rumor was we were going to have votes 
around 4. Now it looks like they are going to be around 5. So 
we do have a little bit more time.
    Senator Thune?
    Senator Thune. Does that mean they can give their full 
statement now?
    Senator Pryor. Yes, I will go back and give you another 2 
minutes. Thank you.
    [Laughter.]
    Senator Thune. No. No.
    Mr. Padden. I think you just proved we can do it in 3.
    [Laughter.]
    Senator Thune. Yes, that was impressive. This was a good 
exercise for us.
    Dr. Singer, like you, I do not believe anyone should be 
restricted from bidding in the incentive auction. In your 
testimony, however, you suggest, and I quote: ``If regulators 
insist on going down the path of spectrum caps, that so-called 
`symmetric spectrum caps' would protect against the remote 
possibility that any single bidder acquired too much spectrum 
at the auction.''
    Now, knowing that is not the ideal outcome for a truly 
market-based auction, can you explain why this idea may 
nonetheless provide a sort of middle-ground resolution of the 
competing perspectives of some of the other witnesses today?
    Mr. Singer. Sure.
    I have heard many arguments that have expressed a concern 
that one single bidder would gobble up all the spectrum in the 
auction. And if that is a concern, that could be addressed in 
less restrictive ways than the proposals that have been put out 
by T-Mobile and Sprint.
    I actually don't think that one bidder has a very good 
chance of gobbling up all of the spectrum, in light of a good 
and fair competition. But if people are genuinely concerned 
about that contingency, a cap that hit all bidders equally--
that is, that didn't treat bidders differently depending upon 
their coming into the spectrum auction--would mitigate that 
concern.
    Senator Thune. OK. Thank you.
    Mr. Berry, we both agree that smaller geographic spectrum 
licenses can attract more bidders to an auction and may 
increase revenue. And, indeed, you specifically mention in your 
testimony the 700-megahertz Lower B Block sold for much more 
than other blocks auctioned with larger license areas.
    It is my understanding, however, that AT&T and Verizon 
Wireless were both very active bidders for B Block licenses. So 
my question is, could you explain why you expect their presence 
in future auctions will reduce revenue when their presence in 
the previous B Block auction instead resulted in very high 
returns?
    Mr. Berry. There was a lot of interest in the B Block in 
the lower Band 12. Many of our members, as you know, the 
smaller carriers, did come out and bid in very high ratios.
    If you look at the C Block, which was the Verizon large 
aggregated REAG area, it didn't receive as much revenue as the 
lower block of spectrum. And I think what you see in that is, 
with the smaller geographic areas and the desire to bid, one of 
the larger carriers have already bought the C Block. And, as 
you know, the lower Band 12 brought in over twice as much in 
terms of revenue per pop per meg.
    So I believe that this is unusual, in the sense that this 
is the first opportunity for a greenfield 600-megahertz low-
band spectrum. It may be the last opportunity we have in over a 
decade. And if the small carriers do not have access and if 
they don't have an opportunity to bid without being sort of 
purchased out from under them by the largest carriers, then I 
think you are going to have a consolidation, further 
consolidation, in the industry, because you will not be able to 
compete as a small carrier without getting to a 4G LTE.
    And remember, this spectrum is efficient in and of itself, 
especially in rural areas. One cell site, one tower can cover 
the distance of four or five towers in a higher--in a spectrum 
band at 1-2.5. And it is critical that our smaller carriers and 
literally every carrier has an opportunity to get access to 
this.
    You know, if you already own 80 percent of the low-band 
spectrum, which Verizon and AT&T do, it is a lot easier to be 
noncommittal about how much spectrum the small carriers should, 
in fact, be able to bid on.
    Senator Thune. But do you think, going back to the B Block 
auction for just a moment, that the B Block would have sold for 
more if AT&T and Verizon had not been bidding on those 
licenses?
    Mr. Berry. No, I don't think it would have sold for more 
had AT&T not been bidding. But we are not suggesting that AT&T 
and Verizon not bid. As a matter of fact, I want them to bid. I 
want them to bid in every market and every opportunity, because 
we get into the same ecosystem. We want handsets, we want 
devices. We want partners, and we want partners that have the 
same bands in their devices so that we can roam and we can 
have, you know, partners to serve our customers.
    So we want them to bid. I have never, ever said we didn't 
want AT&T and Verizon to bid. I just don't want them to be able 
to walk away with the entire pie, one, two, or three carriers.
    Senator Thune. Mr. Chairman, my time has expired, and we 
have other colleagues who want to ask questions. So, thank you.
    Senator Pryor. Thank you.
    Senator Booker?

                STATEMENT OF HON. CORY BOOKER, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Booker. Thank you, Senator.
    First of all, this is obviously very exciting to me. I 
think there are a lot of wins we can be achieving here--added 
wireless capacity, funding FirstNet, helping local broadcast 
affiliates make some money, which is not a bad thing indeed, 
and of course helping bring more revenue for deficit reduction 
or other needs.
    There is one area of all this, actually, that we are not 
discussing that I just want to pull out a little bit. There are 
television white spaces, or guard bands, that have just begun 
to offer new exciting access and innovation opportunities for 
our economy. It is unclear what is going to become of them 
after this auction when it is all said and done.
    And so, the unlicensed spectrum in higher ranges has 
already brought us incredible innovations, from Wi-Fi, 
Bluetooth, cordless phones, RFID, and wireless microphones, to 
name a few. And now white spaces in and near this auction's 
range offer greater reach and penetration that some have even 
dubbed ``super Wi-Fi.''
    These characteristics promise, again, new innovations and 
access potential that really excites me, as I am concerned with 
disadvantaged populations. And we are just beginning to see the 
research in this space and how it is really offering real great 
opportunities for increased investment in new technology.
    But this is going to be hampered if there is uncertainty. 
So I want to see these spaces protected as we repack the 
spectrum, and predictability, which is so important for 
investment, is provided to innovators and investors.
    So, really, to start out, to Harold Feld, I was Mayor of 
Newark and became really concerned about the digital divide. 
And there is this powerful democratizing force going through 
our society that is allowing poor folks, disadvantaged folks to 
connect into, using the Internet, opportunities that we never 
once even imagined, from Kickstarter and Kiva, access to 
capital, to many other things.
    And so I am really concerned about this phenomenon of the 
digital divide really hampering us in education and social 
mobility and other things. It was interesting; the Wall Street 
Journal ran an article about children actually even needing to 
go to McDonald's just to get access to do what they need for 
education.
    Your testimony talked about a pilot program by libraries to 
extend their Wi-Fi into communities using these TV white 
spaces, which really excites me. Assuming the E-Rate statute 
would allow it, could public schools use TV white spaces to 
provide access to schoolchildren when schools are closed?
    And, more importantly, are there other ways this technology 
could make Wi-Fi connectivity abundant instead of scarce? What 
are your concerns regarding the potential impacts of this 
incentive auction on those TV white spaces?
    Mr. Feld. Thank you.
    And, yes, one of the most exciting things about the TV 
white spaces, as we have seen with other forms of unlicensed, 
is once you make this available and start making this an 
equipment purchase rather than a multibillion dollar license 
purchase, it really frees the potential in innovation. There 
are many people who have commented, this is the innovation 
band. And that means down at every level of society.
    We are looking at a world where, through TV white spaces, 
schools would be able to extend their connectivity from the 
school out into the neighborhood. The propagation 
characteristics allow you to set up line-of-sight and even non-
line-of-sight links connecting to people's homes so that Wi-Fi 
could follow your kid home so that you could actually do your 
homework at home and not at McDonald's.
    I also need to add that the FCC had a workshop in which we 
had representatives from a number of communities who pointed 
out that one of the biggest issues is getting knowledge of this 
resource out to minority entrepreneurs, having them be informed 
of what is available, have that reliability to invest, and that 
they have discovered that once people make this discovery of 
what is available, it is really just phenomenal to see how 
access to the resource and imagination allows for much greater 
participation for both economic opportunities and educational 
opportunities.
    Senator Booker. Great. And I would just add that that 
entrepreneurialism is not going to happen if people are 
uncertain about what is going to happen in this space.
    And so, in the little bit of time I have remaining, to Joan 
Marsh, what is AT&T's position on protecting unlicensed 
spectrum in TV white spaces through this process?
    Ms. Marsh. So, certainly, sir, there would be a lot of 
white spaces left in the 500-megahertz band because only the 
upper part of the TV broadcast bands are likely to be 
reclaimed. And given the distances that are necessary to 
separate broadcasters, to protect them from each other, you 
will see the continuation of white space availability through 
500.
    We also think unlicensed can live in the 600-megahertz 
band, consistent with statutory direction. And that direction 
was to build the guard bands as technically necessary, and 
then, once those guard bands are built consistent with 
technology requirements, at that point there is the possibility 
that unlicensed uses could live in a guard band.
    Of course, we would want to make sure it doesn't create 
interference for the neighboring wireless allocations. Because 
introducing interference into the band, once built, would be a 
big negative. But, certainly, we would be happy to consider any 
unlicensed uses that do not create interference.
    Senator Booker. Thank you.
    Thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    Senator Markey?

               STATEMENT OF HON. EDWARD MARKEY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Markey. Thank you, Mr. Chairman, very much.
    You know, spectrum is the oxygen of the wireless system, 
and parts of it are now gasping for air. So we are obviously 
having a discussion now, as this whole phenomenon unfolds, to 
make sure that we do provide more spectrum. But at the same 
time, you know, we have to balance the various interests that 
we have here.
    So back in 1993, when I was the chairman of the 
telecommunications committee in the House, what we did as part 
of the deficit-reduction package of President Clinton, on a 
bipartisan basis, we added in an auction of 200 megahertz of 
spectrum that created the third, fourth, fifth, and sixth 
license in each market. Because the two incumbents were both 
analog--names going unmentioned right now--and they were 
charging 50 cents a minute, and no one had a cell phone in 
their pocket because it was the size of a brick.
    By 1996, with the third, fourth, fifth, and sixth license, 
it had dropped to under 10 cents a minute; everyone started to 
buy a device in their pocket. That is the year you bought your 
device. And all of a sudden we had a revolution that has 
everyone here today with one device in their pocket but many 
people have two. You know, so that is a tremendous change that 
took place.
    And what we said at that time was, while we wanted to 
maximize the revenues in the auction for deficit reduction in 
1993, we didn't want to do it at the expense of innovation and 
consumer protection. Because think of it from a consumer 
perspective, the difference between 50 cents a minute and 10 
cents a minute. So it is not just deficit reduction; it is also 
what are the benefits for consumers and saving money and having 
more services.
    So we have to think that part of it through, as well, in 
terms of who can bid for which part of this new spectrum that 
is going to be out there to make sure we get it right, to 
balance everything that we are trying to achieve, including 
innovation.
    So let's go to white spaces, if we can, in terms of what 
that means. And maybe, Mr. Feld, briefly you can talk about 
what white spaces can mean economically. We might not make as 
much money in the short term, but what could happen in the long 
term, in terms of devices, applications, and other new economic 
investment?
    Mr. Feld. Thank you.
    I would like to say first, I don't think there is a 
conflict between maximizing auction revenue and being 
reasonable. And I must correct Ms. Marsh. The statute speaks 
not of guard bands that are only technically necessary but 
technically reasonable. Congress actually looked at, if you 
need to trade a couple of megahertz over here----
    Senator Markey. Can you deal with my question, please----
    Mr. Feld. But, yes. But your----
    Senator Markey.--deal with my question, please, sir?
    Mr. Feld. Yes.
    Senator Markey. Thank you.
    Mr. Feld. Unlicensed, as we have seen, is generating 
enormous amounts of income throughout the value chain. We are 
seeing it is a device generator which generates both retail 
sales and other sales of new devices for a variety of new 
purposes. It creates wholly new services. It allows for the 
expansion of existing services.
    In rural communities and in some urban communities, it is 
the method by which cheap broadband access is available and 
customized to terrestrial use as opposed to what is available 
for mobile use. It is essentially the glue that binds together 
wireline and wireless.
    Senator Markey. Mr. Epstein, do you agree with that, in 
terms of the economic benefits that could flow from having 
licensed and unlicensed spectrum out there?
    Mr. Epstein. Yes, the Commission is on record as agreeing 
with the tremendous benefits of the use of unlicensed spectrum.
    And, you know, we are implementing I think as Chairman 
Pryor and Ranking Member Thune said is the bipartisan 
compromise between licensed and unlicensed spectrum in this 
particular proceeding. And it is quite clear that, given under 
the statutory constraints that Congress put before us, which 
have to do with guard bands, the Commission clearly does 
believe in the benefits of unlicensed spectrum.
    Senator Markey. OK.
    And let me ask you this. We have heard concerns that as a 
result of repacking and the TV stations then potentially have 
to upgrade their transmitters or towers, that a number of FM 
radio stations, including WBUR in Boston, that currently 
collocate their transmitters with TV stations may be negatively 
impacted.
    What is the FCC going to do to deal with that issue for 
that station but for others all across the country?
    Mr. Epstein. The issue of broadcaster transition, Senator, 
is one which is pretty complex. We have spent a lot of time on 
it already. We have had a workshop, we have hired an outside 
consultant, we have had a number of different studies, because 
we are very concerned about viewer disruption and the ability 
of stations actually to make the transition with respect to 
collocation of towers and other matters.
    The transition will be complex, will take some period of 
time. And it is one we know we have to take into account in the 
transition. So we are concerned about it. And that station, I 
can assure you, ``Wait, Wait, Don't Tell Me,'' we will make 
every effort----
    [Laughter.]
    Senator Markey. Well, we are trying to tell you, though----
    [Laughter.]
    Senator Markey [continuing]. So that you get it right. And 
it is really an important issue for us.
    Mr. Epstein. Yes, sir.
    Senator Markey. And we want to deal--I think we all want to 
deal with all of the legitimate issues that each of you have 
raised. We have been able to do that in the past. And I think 
that as long as we listen to each of you and we understand the 
engineering issues and we are respectful of them simultaneously 
while also trying to create a robust marketplace with many 
participants, then I think we will get the right answer.
    Thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    Senator Klobuchar?

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you, Mr. Chairman, for holding 
this hearing.
    And I guess, Mr. Epstein, if Senator Markey gets ``Wait, 
Wait, Don't Tell Me,'' I get the Garrison Keillor Lake Wobegon 
show, right?
    [Laughter.]
    Senator Klobuchar. OK.
    I did want to thank Senator Markey for his years of 
leadership in this area. Actually, when I was practicing 
regulatory law and involved in very complicated rate hearings, 
a telecommunications one, I remember Senator Markey has been 
doing this for a long time. So I am glad he is in the Senate.
    I just wanted to lead with one of the rural questions. Mr. 
Berry, thank you so much for your support of the bill I 
introduced with Senator Fischer, the Rural Spectrum 
Accessibility Act. I think you know that rural carriers need to 
be part of any solution to make sure that consumers, no matter 
where they live or work, are able to connect to their families.
    How do you view this bill as complementing what your 
members would like to see from the auction?
    Mr. Berry. Thank you.
    And, yes, we do appreciate and support what you are trying 
to do. I think you are going to allow smaller carriers, 
especially in rural areas of service, provide service to the 
consumers in that area with high-speed LTE service by being 
able to reclaim some of the spectrum that heretofore is not 
accessible.
    You know, the build-out restrictions in the rules that are 
currently in place, if we could increase the flexibility, which 
your bill provides for, I think we can squeeze out more 
capability in the rural areas for spectrum that is desperately 
needed.
    And I think your bill and Senator Fischer's bill is a great 
way to approach a real problem in a very practical fashion. And 
I am hoping that our members will deliver results for you.
    Senator Klobuchar. Thank you very much.
    I want to thank, Ms. Marsh, AT&T for helping us in a rural 
area. The Governor and Senator Franken and I were down in 
Hills, Minnesota, probably not the first town on your mind 
right now, during an ice storm where they lost all their trees. 
And all they wanted to talk about was how they didn't have cell 
phone service. And I got involved, and you guys have been very 
helpful in building out down there. They literally couldn't use 
cell phones in the middle of an emergency. So I thank you for 
that.
    I had some questions that I will actually put on the record 
about AT&T's work on making sure that rural customers have--
that spectrum is effectively utilized to reach them in an 
auction.
    I wanted to move to something else that, actually, Mr. 
Kaplan raised with you, Mr. Epstein, which is some of the 
concerns regarding spectrum coordination along the northern and 
southern borders and that the FCC is handling in advance of the 
auction.
    Where is the FCC in the process of its coordination efforts 
with Canada and Mexico?
    Mr. Epstein. The commission has recognized since day 1 the 
act's requirement to coordinate with Canada and Mexico. We have 
had more than over the last 6 months a series of technical 
meetings with Canada and more recently with Mexico, who has 
recently had a substantial change in both its constitutional 
and statutory foundation for its regulator.
    We are really pleased to report that both countries have 
publicly recognized the significant advantages of a common band 
plan with the U.S., both from the Canada standpoint and Mexico 
in a recent conference has stated that.
    We have placed hugely high priority upon these meetings 
about achieving some sort of, you know, technical solution with 
respect to Canada and Mexico's border. Acting Chairwoman 
Clyburn made this such a high priority that she traveled----
    Senator Klobuchar. I know that.
    Mr. Epstein.--to Canada, helped make a great breakthrough. 
Chairman Wheeler has already met with both Canadian and Mexican 
representatives.
    We have a strong charge to the International Bureau to push 
as quickly as we can because we recognize the need for 
certainty with respect to both the Canadian and Mexican 
borders. So it is extremely high on our----
    Senator Klobuchar. OK.
    Mr. Epstein.--list for the----
    Senator Klobuchar. Thank you.
    Mr. Epstein.--reasons that Mr. Kaplan stated.
    Senator Klobuchar. Appreciate that. Thank you.
    And then, Mr. Padden, I know the broadcasters are very 
concerned about the method that the FCC is going to use to 
place monetary value on the spectrum. How will the calculation 
method that the FCC uses impact the potential revenues of the 
auction as a whole, and how will it impact the decisions of 
broadcasters who are interested in participating?
    Mr. Padden. Well, thank you very much for that question.
    The FCC is buying 6 megahertz of spectrum; they are not 
buying broadcasting businesses. And in their notice, they 
propose to score stations based on some characteristic of their 
broadcasting operation. We think that doesn't have anything to 
do with what the FCC is buying. It is creating distrust among 
broadcasters and driving them away from the auction.
    And as Professor Cramton discussed with the FCC just last 
week, the scoring is not going to improve the efficiency unless 
somehow the FCC knows the secret bottom line in the mind of 
every broadcaster, which is clearly impossible, and unless they 
dynamically change their scoring weights between each round, 
which would add enormous complexity to what is already going to 
be the most complex procedure in the world.
    So we think they should not score the stations; they should 
hold a straight-up auction. And we think that is what the 
statute provides for.
    Senator Klobuchar. OK. Thank you.
    I am out of time, but, Mr. Kaplan, I will follow up on the 
record with some questions about the eligible expenses issue, 
which I know is important, as well as, in general, Mr. Epstein, 
about some antitrust--I am head of the Antitrust Subcommittee 
in the Judiciary Committee--and on some of the competition 
issues.
    So thank you very much. And thank you all for your work on 
this important topic.
    Thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    Senator Blunt?

                 STATEMENT OF HON. ROY BLUNT, 
                   U.S. SENATOR FROM MISSOURI

    Senator Blunt. Thank you, Mr. Chairman.
    Mr. Padden, will eligibility in the auction have any impact 
on your coalition members? Is that an area that----
    Mr. Padden. Are you talking about bidding restrictions in--
--
    Senator Blunt. Yes.
    Mr. Padden.--the forward auction?
    Senator Blunt. Yes.
    Mr. Padden. Yes. We--and I want to be clear--we talk money 
from no carriers at all. We are entirely funded by 
broadcasters. We are as pure as the driven snow.
    [Laughter.]
    Senator Blunt. At least somebody in here can say that. That 
is good.
    [Laughter.]
    Mr. Padden. All we care about is maximizing the revenues 
generated by the forward auctions so that there is money to get 
the spectrum in the first place.
    I would note that most of the questions here have been 
about how to divide up this spectrum.
    Senator Blunt. Right.
    Mr. Padden. But unless enough broadcasters come forward, 
there is not going to be any spectrum to divide up. You won't 
have to have fights over bidding restrictions because there 
won't be anything to bid on.
    And we think the FCC needs to get very serious about 
sharing information with stations like what the prices are 
going to be. I have a house that has been on the market for 
quite a while. The broker just called me and said, ``Good news, 
we have a contract.'' The first question I asked is, How 
much?'' And the FCC needs to start telling broadcasters what 
kind of price range they are going to be looking at, or else 
they are not going to get the participation and all these folks 
won't need to fight with each other because there won't be 
anything to fight over.
    Senator Blunt. And how is that price range going to be 
determined, as best you understand it?
    And then I will ask Mr. Epstein to weigh in.
    Mr. Padden. Well, the statute calls for an auction, and the 
question is where the auctioneer begins. And at the moment, we 
have no information about that.
    Senator Blunt. And would the amount of the auction then go 
to the broadcaster that released that spectrum in total? Or how 
would that be determined?
    Mr. Padden. The broadcasters can either release their 
spectrum in total or they can bid to release their spectrum and 
share a station with another station or they can offer to move 
from a UHF to a VHF channel.
    Senator Blunt. All right. Mr.----
    Mr. Padden. But one important fact: the FCC is only going 
to be buying spectrum in a limited number of markets, but they 
are going to be getting the forward auction revenue from every 
market in the country, which is going to give the FCC plenty of 
financial leverage to pay what they need to pay to get the 
broadcast stations in the few markets where they need to buy 
them.
    Senator Blunt. And is there any understanding between the 
broadcasters and the FCC as to how that price is going to be 
arrived at?
    Mr. Padden. At the moment, no, sir.
    Senator Blunt. Mr. Epstein?
    Mr. Epstein. Yes, Senator, thank you.
    The construct that Congress set up and that we are 
implementing is a reverse auction, OK? So that means you start 
high and you say, how many are in, how many will sell your 
station or share your station or move from U to V at a very 
high price. OK? And then it will tick down.
    And we established this proposed mechanism--the Commission 
ultimately must rule on it--to make it easy for broadcasters. 
All they have to know is when they want to stop out.
    The key thing that Mr. Padden is talking about, and I agree 
with him, is: what price do we start at? What is the price that 
we first offer to broadcasters to make this attractive? And my 
instructions from the Chairman, the prior Chairman, and the 
Commissioners are exactly as he stated. We won't have an 
auction unless the broadcasters participate.
    So we are looking at mechanisms to start with a very high 
reserve price, not based upon the fair-market value of 
broadcast stations but based upon potentially a number of 
different factors which the Commission will have to determine, 
including things like the per-pop price of spectrum in an 
auction.
    So the key is to attract broadcasters, the key is 
potentially to have an auction which is simple for broadcasters 
to use, and to start at an attractive price to make the auction 
a success.
    Senator Blunt. Well, it obviously is the key element to all 
of this working.
    Mr. Berry, are there things besides spectrum that are going 
to relieve some of the crunch--better towers, fast siting, 
other things I don't understand? Are we going to constantly 
need to look for more space rather than better use of the space 
we have?
    Mr. Berry. Thank you for the question.
    I would say, over the past few decades, the capacity has 
been increased by technology. And I fully expect technology to 
continue to move us forward. But I think we are going to need 
additional spectrum throughout the United States.
    But, yes, we are getting new technologies. The LTE, long-
term evolution, technology is going to increase speeds. Sprint 
just rolled out the Spark product, which is advanced LTE, and 
they are going to get speeds, you know, maybe as much as 10 
times higher.
    So there is always that evolutionary impact to bring more 
speed and more capability to the network on the spectrum you 
currently have. I mean, Verizon just announced an opportunity 
to compress, you know, video over wireless broadband which is 
five times greater than what was available last month.
    So we are going to see both, but we definitely need 
spectrum, and especially in rural areas, if we are going to 
stay up with the demand that consumers expect.
    Senator Blunt. I thank the Chairman.
    Senator Pryor. Thank you.
    Senator Blumenthal?

             STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. Thank you, Mr. Chairman.
    Thank you all for being here today and for all your good 
work on this very complex, profoundly significant, and fast-
changing area. And I know I share the frustration of many of my 
colleagues that our questioning is limited to 5 minutes. It 
could easily take 5 hours or longer, although you may not 
welcome that opportunity.
    [Laughter.]
    Senator Blumenthal. I speak with some humility in the 
presence of Senator Markey, who has a longstanding involvement 
in this area, and thank him for his very important work.
    I would analogize the spectrum and the entire service that 
you provide not so much to oxygen as to the blood supply, 
because it is the blood supply that carries oxygen to parts of 
the body, it carries nutrients and everything that is essential 
to our body working. And I think more and more the spectrum is 
that blood supply, and the American public ought to understand 
how important it is.
    I have endorsed measures that would provide more access to 
spectrum. I believe strongly and I have written and used the 
oversight hearings of the Judiciary Committee, where I serve, 
to encourage the Department of Justice to continue policies and 
to encourage the FCC to adopt policies that ensure that smaller 
carriers have access to spectrum so that they can provide 
competition and competitive discipline, not for the sake of 
competition but for the sake of consumers, not for the sake of 
any companies but for the sake of the people, ultimately, who 
benefit.
    And I appreciate, Ms. Marsh, your concern about producing 
the best fiscal result for the Federal Government, but there is 
a larger interest here, in my view, that is really among the 
core, profound interests that this committee can help serve.
    And so my hope is that Chairman Wheeler's recent comments, 
which seem to signal that he agreed with the Antitrust Division 
of the Department of Justice, are an indication of his 
willingness to entertain some auction eligibility directives. I 
don't like the word restrictions'' as much as ``directives.'' I 
understand they should be neutral and fair, but they have to 
adopt policy approaches that really encourage the public 
interest, and that may not be neutral to everybody who is 
involved. That is the name of this process. But they should be 
fair.
    And so I am hoping, and I am going to ask this question of 
Mr. Epstein, that the FCC will pursue a spectrum policy that 
best enables competitive forces to benefit consumers and will 
adopt the Department of Justice recommendations or the kinds of 
screens or caps that limit the amount of spectrum that any one 
company can have, simply so that there can be more competition.
    Is that the direction that you see Chairman Wheeler going?
    Mr. Epstein. Senator, I do know that Chairman Wheeler has 
stated in the one month he has been here that his mantra is 
competition, competition, competition. And he has stated it 
numerous times----
    Senator Blumenthal. I know that he has stated it a lot 
because I have heard him say it. Can you commit to us that he 
is moving in that direction with screens or caps or specific 
measures that will promote greater access and more competition?
    Mr. Epstein. I can't commit to either what Chairman Wheeler 
will do in the future or what any of my commissioners will do.
    I do know that they take these arguments quite seriously. 
They looked at with interest the recent statements of AT&T, as 
stated by Ms. Marsh here. And I know that they also--I know 
that the chairman has stated that the letter filed by the 
Department of Justice, because it is part of the 
administration, is something that they give persuasive weight 
to, but they also give persuasive weight to the multiple other 
filings. There have been more filings, I think, on this issue 
in the proceeding than, I think, anything else.
    Senator Blumenthal. Ms. Marsh, is that the kind of policy 
that you think AT&T could accept?
    Ms. Marsh. Well, the FCC currently has policies in place 
that do look at spectrum aggregation for the specific purpose 
you identified: to make sure no one carrier is aggregating more 
spectrum or that aggregation wouldn't create a competitive 
impact.
    And we think that tool can be a very effective tool here. 
It has been effective in all the mergers and acquisitions the 
FCC has reviewed. And it needs to be updated, and everybody 
needs to understand the rules of the road very clearly, but we 
think that tool, in and of itself, could be a very effective 
tool if it is used in connection with the auction.
    Senator Blumenthal. My time has expired. I thank you, Mr. 
Chairman. And I may have some additional questions, as well, 
for the record.
    Thank you.
    Senator Pryor. Thank you.
    We have been joined by Senator Warner, the only member of 
the Wireless Hall of Fame that is on this committee.
    [Laughter.]
    Senator Pryor. So thank you for joining us today.

                STATEMENT OF HON. MARK WARNER, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Warner. Well, thank you, Mr. Chairman. Thank you 
for that courtesy.
    I apologize for not being here for most of this hearing. 
This is an area of more than some interest to me. We had our 
final housing finance committee hearing today on a piece of 
legislation that Senator Corker and I have been working on for 
some time. So, my apologies.
    And also my apologies to my colleagues and the witnesses, 
because nothing worse than a member dropping in at the last 
moment and asking questions that have already been asked.
    And it is true, I am a member of the Wireless Hall of 
Fame--the only hall of fame I will ever be inducted into.
    [Laughter.]
    Senator Warner. I was hoping for the Old White Guy 
Basketball Hall of Fame designation, as well, but I am not sure 
that is going to come by.
    Senator Booker. Somehow they gave that to me.
    [Laughter.]
    Senator Warner. There are a lot of directions we could go 
with that.
    [Laughter.]
    Senator Warner. Mr. Chairman, you know, I know we have 
probably exhausted the topic already about, you know, spectrum 
caps and allocations, and I am sure that has been thoroughly 
discussed with the Committee. What I wanted to, you know, start 
with is actually digging in a little bit with Mr. Epstein on 
some of the questions about how we get these auctions right.
    And I--you know, editorial comment--believe that Chairman 
Wheeler is probably right to go ahead and move this to 2015, 
trying to get this process set up the right way. You know, we 
have one crack at this. And as we hear, going forward, not 
knowing completely what the budget deal may be, but there may 
be even more interest in seeing how we can obtain additional 
spectrum going forward, which we all desperately need, or the 
industry and the American public desperately needs, there may 
even be more budgetary constraints on it.
    So, you know, as we think about the reverse auctions, based 
on audience size, population, other factors, one of the things 
that I wanted to talk about was market variation. And I 
understand at the Commission there has been an idea which would 
allow for a common downlink band nationwide but would provide 
variation for uplink bands. And, clearly, this would recognize 
the difference between markets and volume and what have you.
    Broadcasters, obviously, worry about interference issues 
here, which I know has also been probably dealt with.
    So, Mr. Epstein, if you could spend a couple minutes 
talking about market variation, the market variation approach, 
as you think about these auctions. You know, we will get at 
markets in different ways. Is this a way, rather than trying to 
have a one-size-fits-all rule, is this a way that we might be 
able to maximize spectrum but at the same time give, you know, 
the overall marketplace some level of predictability?
    And if you have any specific comments about some of the 
performance issues and interference issues, I would love to 
hear them.
    Mr. Epstein. Yes, Senator. Thank you very much. I think you 
have touched on an extremely important issue.
    You know, what the Commission would very much like to do is 
to have a nationwide reasonable amount of spectrum, the entire 
nation, which would be a good, solid amount.
    We recognize that in certain parts of the country, perhaps 
because of the international issues that we have talked about 
before, perhaps because of some of the inability to repack in 
the crowded northeast part of the United States, that we may 
not be able to recover the core amount of spectrum in those 
areas.
    Therefore, we felt it very important from day one not to go 
to a least common denominator--in other words, not to take the 
least amount of spectrum in every market that we can get in the 
least market. And I think there has been some consensus--it has 
been a controversial issue, but we are, I think, narrowing to a 
band plan which will take that into account, the issue of 
market variation.
    But that raises certain complications, and important 
complications, and complications which the NAB appropriately 
has brought to our attention. That means in some markets where 
you have more spectrum next to adjacent markets where there is 
less spectrum, you have the potential of a broadcast station 
operating on the same channel as you do a base station in 
another market. We can't have that, OK? There would be a 
statutory violation one way and also, potentially, an 
interference with the wireless operation in another.
    So what we are working on is establishing so-called co-
channel interference standards and protections. And so it is, 
again, a balance. We don't want to be driven to the least 
common denominator, but at the same time we know we have 
obligations, both to the public interest and under the statute, 
to protect, you know, the different services operating in 
different areas. And that is the direction that we are looking 
toward going in the recommendations to the Commission.
    Senator Warner. My time has expired. I would simply say 
that I know an issue that I am sure has also been raised, Mr. 
Chairman, is, you know--this also kind of backs us back into 
the definition of, all right, what is the geographic definition 
of the marketplace here? You know, MSA, RSA, other geographic 
definition. How we take into account particularly some of the 
midsize carriers who provide very good quality service but in a 
number of very limited, specific markets, that they don't end 
up getting completely pushed out.
    So there is a lot on your plate.
    And I really appreciate the courtesy of the Chair to let me 
slip in a little bit late.
    Senator Pryor. Thank you.
    And we are going to actually do a second round for all the 
senators who want to stick around if they are able to, if their 
schedule permits.
    Senator Nelson?

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. As a matter of fact, we ought to put you up 
there.
    [Laughter.]
    Senator Nelson. Because you know as much about this as any 
one of them.
    Senator Warner. I was very current circa 2000.
    [Laughter.]
    Senator Nelson. Mr. Epstein, this is going to be a 
sophisticated auction. You are going to have to put together a 
very sophisticated bidding platform to maximize the 
participation and protect the integrity of the information.
    So can you tell us about the FCC, where it is in the 
auction information technology process?
    Mr. Epstein. Yes, Senator.
    This was one of the key issues that Chairman Wheeler 
focused on from the day he walked in the door. We have been 
focusing on it for a long time, but because of his background 
in venture capital, he immediately focused on it. And we have 
some of the best auction design and software people in the 
world working both on the inside and outside as contractors 
with us.
    But that is not sufficient in either our mind or in the 
chairman's mind. And that is one of the reasons that he thought 
a more realistic schedule for the auction was mid-2015 instead 
of beginning 2015. And it was for the very reason of adequately 
testing the software that we are developing with respect to the 
auction.
    Some of the software we are using in the forward auction 
are things that we have been doing for 10 or 20 years already. 
I mean, we have had multiple forward auctions. In the reverse 
auction, we are doing something which hasn't been done before.
    And the combination of both the reverse auction and the 
forward auction, it is a challenge but one which we know that 
we have to meet and we have to make it right. We have to have 
both inside testing, we have to have outside testing, and we 
have to have testing by the participants before we are willing 
to go ahead.
    Senator Nelson. Well, you also have to have confidence by 
all stakeholders in the process. And so, what are you all doing 
to maintain the transparency?
    Mr. Epstein. We will have, as we go forward with respect to 
the implementation of all of the software that is involved, the 
bidding platforms, the interference platforms--we have already 
released a lot of data. We had a so-called data public notice. 
We are encouraged by the fact that the broadcasters and other 
participants have looked at it carefully, given us feedback. 
And we will continue to be transparent there.
    Before we have this auction, you know, we will have a mock 
auction, and we will have the participants actually in there 
trying to stress-test the actual software that gets developed 
before we go to actual market.
    Senator Nelson. Mr. Chairman, as you know, the newspapers 
have speculated on the fact that maybe spectrum sold would be a 
part of the revenues that would be produced for a budget 
agreement. We haven't had the budget agreement announced yet, 
but--so would this be, in that 10-year period that they are 
looking, would this be the source of that revenue?
    Senator Pryor. Well, again, we don't know exactly what the 
budget deal is they are contemplating, but certainly in this 
budget environment that we are in, there are a lot of people 
looking for revenue. And they are looking for it anyplace they 
can get it. So it is very possible.
    And this may not be the last spectrum auction. You guys are 
working on this one feverishly and working triple-time on this 
one, but, you know, in all likelihood, there are more to come.
    Do you have any other questions?
    Senator Nelson. No.
    Senator Pryor. OK. Thank you.
    Senator Ayotte?

                STATEMENT OF HON. KELLY AYOTTE, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Ayotte. Thank you, Mr. Chairman.
    I want to thank all the witnesses for being here.
    Mr. Kaplan, first of all, let me just thank the 
broadcasters for their ongoing role. It has been very 
constructive, in the spectrum-clearing process, so thank you 
very much for that.
    I have a follow-up to a question Senator Klobuchar had 
asked and that is really about New Hampshire as a border state. 
We are in a unique position and I can understand Minnesota 
being in a similar situation. When it comes to the incentive 
auction, because of the need to coordinate channel assignments 
with Canada, we are in a position similar to Minnesota in that 
regard.
    Beyond the impact to New Hampshire television stations and 
viewers, which I have already weighed in on with the FCC, what 
are the potential consequences to the repacking process and, 
ultimately, auction revenues if international coordination is 
delayed in substantial part until after the auction?
    Mr. Kaplan. Thank you, Senator, especially for your 
leadership on this issue. And this actually gets back to, I 
think, even a conversation before about auction revenues.
    One of the key things along the borders--and we are not 
just talking about the most northern or southern border. We are 
talking about, for example, the entire state of New Hampshire, 
within 250 miles of the Canadian border and within 150 miles of 
the Mexican border. Those stations cannot be repacked without 
an agreement with Mexico and Canada. Otherwise, you would have 
to go through some sort of--the current process is 30 to 45 
days at a minimum to get through that process.
    Senator Ayotte. Right.
    Mr. Kaplan. So some agreement needs to be reached.
    And, in our view, both from a broadcasters' standpoint but 
from an auction revenue standpoint, from a creating-the-best-
possible-wireless-band standpoint, so that it is not a separate 
New Hampshire band but you are actually part of the United 
States with the rest of us----
    Senator Ayotte. We think we are unique, but we----
    Mr. Kaplan. Yes. Right. Not that unique.
    Senator Ayotte.--don't want a separate New Hampshire band.
    Mr. Kaplan. Exactly, right--that the FCC needs to take the 
time to get those agreements done. Because that solves a lot of 
technical problems, as you point out, but it also allows you to 
auction off the band as a whole.
    The other thing that many people don't talk about is it is 
very hard to have two repackings. So some people might say, 
repack now and then repack New Hampshire and Minnesota later. 
That, actually, is very, very difficult to effectuate, because 
once you take us and the rest of the country's broadcasters and 
squeeze us together, there is no way for the stations in 
Concord or elsewhere to come down--there is no space for you 
anymore. So once we do the repacking, it doesn't work.
    So it has to be a holistic repacking solution. And it could 
be one that lasts over 10 years and expects that New Hampshire 
may repack later. But it has to be done at once, because you 
can't do it twice, which is why we are happy Chairman Wheeler 
created some more time and space here to try and get that 
agreement done.
    Senator Ayotte. Thank you so much for that answer.
    And, Ms. Marsh, certainly I was very pleased last month 
that DOD, NTIA, and the FCC announced an agreement to get the 
1755 to 1780 megahertz band ready for auction. I have behind 
the scenes, also serving on the Armed Services Committee, 
urging the parties to get together to really take action to 
protect DOD's interests, but we know that we need to get this 
band in particular out to auction.
    What is your perspective on this process? And are you 
confident that commercializing this spectrum is moving in the 
right direction? Are we seeing a moving-forward process here 
that is going to get us to a result that we need?
    Ms. Marsh. So this work is really important. This band, in 
and of itself, could free up 25 megahertz of paired spectrum, 
which would also be very useful and welcome by the wireless 
industry.
    The process itself has been a challenging one just because 
of the number of different services that are in 1755 and 1780. 
We have been encouraged by some of the recent successes and the 
progress that is being made.
    And I think all of the agencies, the NTIA as well as FCC, 
DOD, and the wireless industry are all working together I think 
very productively on this band right now to try to bring it to 
auction within the statutory requirements, which does require 
that it be allocated by I think 2015, February of 2015.
    Senator Ayotte. OK.
    Ms. Marsh. So, yes, we are encouraged by the progress being 
made.
    Senator Ayotte. Good, because I think it sat around here 
for a long time. We all knew that it needed to be done, and 
there wasn't the impetus to move it forward. So I am encouraged 
to hear this.
    And, Mr. Feld, I wanted to get your perspective on Chairman 
Wheeler's announcement of the delay. What I have heard from the 
panel is that no one has been critical of the decision and I 
certainly agree that we need to get it right and make sure we 
go forward, get these issues resolved, and are constructive.
    Do you believe the FCC has the tools and the expertise it 
needs to design the auction in a way that can both maximize 
revenue and, obviously, promote ample competition in the 
marketplace?
    Mr. Feld. I do believe that--first, I applaud Chairman 
Wheeler for taking a step back and saying, you know, we are 
going to do this right.
    What we need is transparency around scheduling the process 
and certainty with regard to when we think it is likely to 
happen. Industry needs that with regard to, like, getting 
capital and being prepared. The TV white spaces also will need 
to know when the resolution of their uncertainty is likely to 
be resolved. So I think the announcement does all that.
    With regard to FCC resources, I think that, yes, the FCC 
has led the way in developing auction software in the world. I 
think this has attracted a lot of interest from experts who are 
eager to work on the first-ever incentive auction. I think that 
the one thing we need to be sensitive to is whether the FCC has 
the money that it needs to buy the equipment and expertise that 
it needs.
    And in this regard, I think that we ought to encourage the 
agency not to be shy. I know we are in a time of sequester, but 
the auction revenue can, in part, be used after the fact to 
help defer the costs of running the auction itself. But you 
need to actually build software and hardware that works to have 
a good auction. So we just need to be sensitive about that, as 
well.
    Senator Ayotte. Thank you.
    I want to thank you all. I know my time is up, but I just 
have to thank Mr. Berry for mentioning my legislation on the 
reform of the Universal Service Fund in his written testimony. 
And I look forward to continuing to work with you on this 
important issue. I thank you all for being here.
    Senator Pryor. Thank you.
    Mr. Padden, let me start with you. We will do a second 
round here; we will do another 5-minute round.
    Let me first ask a little bit of a followup. You said 
earlier that broadcasters weren't sure about the price, about 
how much money they might get. Is that the biggest impediment, 
or is it just kind of the complexity and just, you know, from 
their perspective, perhaps, the lack of clarity about how all 
this is going to work?
    Mr. Padden. I think the price is far and away the most 
important fact that broadcasters need to know.
    And Senator Nelson asked a question about transparency. 
Although the FCC has not yet given us information about 
pricing--I think that is in part because they haven't made up 
their mind yet--those things that they have decided, they have 
been tremendously transparent and open. It has been a great 
experience. They grant you meetings time after time. So the 
process has been very open.
    But in answer to your question, nothing is more important 
to attracting broadcasters than to give them some idea of how 
much money they are going to get paid if they give up their 
spectrum.
    Senator Pryor. Yes.
    And let me ask, just kind of a one-minute tutorial on the 
channel-sharing concept that you mentioned earlier. And just 
tell the Committee how that works. How do two stations share a 
channel?
    Mr. Padden. Sure. In digital, two stations can share a 6-
megahertz channel, both broadcast on the same channel. And so 
one of the options in this auction is for--let's say Rick and I 
each have a station in the same city. We might agree that I 
will turn in my spectrum and get a check from the Government 
that I will then share with Rick, and we will both broadcast 
out of his tower.
    Now, in the FCC's Notice of Proposed Rulemaking, they said 
that if we do that, I need to be able to cover every inch of my 
City of license from Rick's tower or else I can't share with 
him. And it is kind of weird, they are quite fine if I turn off 
my transmitter completely and spend the rest of my life serving 
no one. That is fine. But if I can only serve 85 percent of my 
current audience from the sharing tower, that is a problem. So 
we have urged the FCC to be much more flexible in these sharing 
arrangements.
    And there is an engineering fact that could provide 
tremendous leverage for the Commission here, and that is, all 
the stations that are on a central antenna farm in a city will 
each occupy only one channel in the repack. But stations 
scattered around the perimeter of the market can each take up 
to three channels in the repack. So if you let some of those 
perimeter channels move into the central antenna farm, you 
dramatically reduce the number of channels you need in the 
repack, and it makes reallocating this spectrum much better.
    I should say, in our informal conversations, the FCC has 
shown considerable interest in these arguments. And while no 
final decisions have been made, we are encouraged that they are 
listening to us.
    Senator Pryor. Thank you.
    And let me ask Mr. Epstein--I am going to change gears on 
you. And here again, I would love just kind of a 1-minute-or-
less answer. And that is, some of the broadcasters have 
expressed concerns about translator and booster stations. How 
does FCC intend to address those concerns?
    Mr. Epstein. The translators and boosters and low-power 
television are really important, particularly in rural areas, 
and we recognize that. And one of those balances, in the Act, 
Congress did not determine that they would not be protected and 
were not eligible for compensation. But we still, nevertheless, 
recognize their importance, and there are two ways we are 
attempting to address it.
    One of them is to make it clear that in rural areas we are 
seeking this core amount of spectrum; we are not seeking the 
maximum amount of spectrum. So that potentially could be more 
difficult, but we are not seeking to take all the spectrum.
    And, number two, we are talking to the industry about 
technical solutions, such as multicasting from a single tower, 
alternate programming distribution, and even favorable rule 
modifications to allow them to apply more quickly.
    Senator Pryor. OK.
    Mr. Kaplan, let me ask you a question, as well. The 
legislation that we are all working under here says the FCC is 
to make all reasonable efforts to protect TV stations in the 
repacking process. From your standpoint, is the FCC committed 
to complying with that?
    Mr. Kaplan. We are working very closely with the FCC staff 
on this and have met with them a number of times, and our hope 
is that we get to that place. There are some ideas out there 
now that we think don't meet that standard, but they are not 
the final ideas, they haven't been the things voted on by the 
Commission yet.
    But we want to make sure the Commission understands that, 
you know, as would concern members of this committee, again, it 
is the viewers that matter. The people today who get the 
stations should get them afterwards. So any proposal that 
treats viewers as fungible--you may gain 50,000 here, lose 
25,000 here. Each viewer that relies on those stations that 
still remain on the air should get them. And we are working 
closely with the Commission to try and get to that point.
    Senator Pryor. And does the FCC, from your standpoint, have 
sufficient flexibility to do the repacking?
    Mr. Kaplan. They absolutely do. And they do to both the 
repacking to preserve white spaces, which is very important, as 
well as to get the amount of megahertz that the wireless 
industry says it needs.
    Senator Pryor. Senator Booker?
    Senator Booker. Thank you very much.
    So, you know, first of all, again, I think this is a 
wonderful situation that presents many opportunities. But what 
sort of worries me is that we are just dealing with still table 
scraps compared to what the growing and mushrooming demand is 
going to be. And seeing the incredible growth of the 
information that is being transmitted wirelessly, the demand is 
going up, I am really wondering, looking ahead, if maybe you 
guys could help me understand how we in government could do 
things more efficiently and more effectively.
    And, specifically, the Government is sitting on a 
tremendous treasure trove of spectrum right now. And I believe 
we should be doing everything possible to free up what we can 
for both licensed and unlicensed usages. It could really fuel 
our economy and have a ripple effect in tremendous ways--in 
democratizing forces, in closing the digital divide, and 
promoting entrepreneurialism, innovation, economic growth, and 
more.
    And so, while government spectrum is vital and we obviously 
need to preserve that, with technology obviously coming--I 
think that even for the Government it is going to become more 
and more important, and I have seen the urgencies that are 
often needed in crisis situations. But I am wondering if there 
are ways that we could be doing a better job to identify those 
inefficiencies and convert available spectrum to 
nongovernmental applications with a greater sense of urgency 
and, frankly, predictability.
    And so, really, for the entire panel, and I would love 
maybe to start with Mr. Feld, followed by Ms. Marsh, Senator 
Ayotte pointed it out, that we are about to free up DOD's 1755. 
But from what I am reading, it has taken us about a decade to 
get that out there, which seems remarkably inefficient in this 
time that we are moving not in the speed of decades or years, 
but month to month there are growing demands.
    And so I am just curious what you all believe in an 
informative way, what should we be doing for our next steps to 
meet this urgency and to provide that predictability?
    Mr. Feld. Thank you very much.
    I will say that Public Knowledge, we have issued some white 
papers on this going back to 2010. We believe that there is a 
lot that can be done to promote this efficiency.
    We think that spectrum sharing is the beginning. It is 
allowing broadcasters and the military to now begin to share 
their spectrum to clear for auction. It can also be used to 
allow for access in commercial use. The FCC is looking at the 
next stage of this in its 3.5-gigahertz proceeding.
    But I will suggest that one of the things that we need to 
do is invest in more efficient spectrum equipment for 
government and to have a better, more comprehensive government 
plan. We have suggested a spectrum budget for the Government, 
where agencies would zero-base their spectrum needs, and that 
they would use these more advanced flexible technologies.
    And I will just leave it at that and let others take that 
up from there.
    Senator Booker. Thank you.
    Ms. Marsh. So thank you for this question. It is such an 
important area because, as you observed, there is so much 
spectrum that the Government has, and the government hasn't had 
the same incentives as the industry to use it efficiently. But 
there are also very important Government uses that we have to 
protect.
    So I agree with Mr. Feld, spectrum sharing is going to be a 
piece of this. And we are very active in the 3.5-gigahertz 
proceeding, as well, to determine how we can protect government 
uses while freeing up spectrum for the commercial industry.
    But I also think that there are opportunities here to get 
exclusive licenses for the wireless industry, and I think the 
answer is around incentives. And Mr. Feld mentioned a couple 
things, in terms of aligning incentives for the Government to 
actually try to remodel its spectrum use and drive toward a 
more efficient use. I know there is some legislation that is 
also being considered as well as incentives. It has been a 
difficult challenge, but ultimately I think that is how we are 
going to break through, is make sure incentives align with use 
within the Government bands.
    Senator Booker. Yes?
    Mr. Kaplan. Thank you, Senator. I do want to point out--
nothing replaces smart spectrum policy. That is clear. But I do 
want to point out this is not just a Federal Government issue. 
There is a lot of commercial wireless spectrum that is not in 
use today. DISH has 40 megahertz of spectrum, it will likely be 
50 soon, sitting on the sidelines. There are a lot of other 
companies--and Harold's organization has many times come to the 
FCC with a proposal of ``use it or share it.''
    So when we talk inventory, you know, the Federal Government 
is obviously one place to look, but the wireless industry, too, 
sits on a lot of spectrum it doesn't use, some in certain 
areas. Tribal areas, another great example, where tribes try 
and get access to the spectrum, can't get calls back, wireless 
and otherwise.
    But the bottom line is that I think a spectrum inventory 
about how everyone is using their spectrum, broadcasters 
included, is really important. Then we will really understand. 
Because you are asking a very central question. It applies 
both, though, to Federal and commercial. And we would be happy 
to participate in that.
    Senator Booker. And you are saying tribes cannot get 
their----
    Mr. Kaplan. So when a large license is purchased and it is 
purchased, let's say, in New Mexico over an area where there is 
an Indian reservation, when I was at the FCC not that long ago, 
there was a proceeding that is laying dormant now, but I 
remember in the proceeding there were a number of tribes who 
came to us and said, we are trying to get access but we can't 
get a call back from carrier X, who has that license. We would 
like to pay for it, we would be happy to. But it is not really 
worth the time of a major carrier to do that.
    But there needs to be something--and this is maybe a place 
where the Government could step in--to make sure that the 
commercial industry is using their spectrum across the country 
as effectively as possible.
    Senator Booker. I think I am out of time, Mr. Padden.
    Senator Pryor. Go ahead.
    Senator Booker. I am sorry, go ahead, please.
    Mr. Padden. I would just say, in the quest to get more 
spectrum, I would start in this proceeding. The National 
Broadband Plan calls for this auction to reallocate 120 
megahertz of spectrum. There are some people in the process 
suggesting the FCC should settle for a lesser number, 84 
megahertz or something lower. Given the demand and the dearth 
of other supplies, I think it would be almost unthinkable for 
the FCC to do anything other than go for 120 in this 
proceeding.
    Senator Booker. Mr. Epstein, do you agree?
    Mr. Epstein. The ultimate amount of spectrum that will be 
available will be determined by market forces, by the auction, 
OK? And we certainly would rather have more than less.
    Senator Booker. Thank you.
    Senator Pryor. Senator Nelson?
    Senator Nelson. This is unprecedented, so what do you think 
is the most challenging thing on this incentive to have this 
auction be successful?
    Mr. Padden. I think it is real clear and real simple. The 
FCC has to figure out how to incentivize enough broadcasters to 
walk through the front door of this auction and tender their 
spectrum. If they don't do that, nothing else matters. They 
won't need a band plan, they won't need bidding restrictions.
    And the number one factor to influence the broadcasters' 
decision, like anybody else considering selling something they 
have, is what is the price. And somehow the government has to 
get some pricing information out to the stations.
    Mr. Kaplan. To me, that is an important factor but somewhat 
narrow and only focuses on the buy side. To me, the most 
important thing for this auction--the Chairman mentioned it, 
Gary Epstein mentioned it--is getting the software right to 
make the entire thing work.
    It is not just an auction; it is a repacking of 
broadcasters that has never been done before. So we can even 
have a great auction that divides up the licenses perfectly, 
but at the end of the day, if all the stations of your 
constituents are all messed up and interfering with one 
another, interfering with unlicensed, interfering with 
licensed, it doesn't do anyone any good.
    So the one point I want to make that differs from where Mr. 
Epstein is is I think that software needs to be done and tested 
before the order, not the auction. We shouldn't be sitting here 
in the middle of June, about to press the button on the 
auction, and then realize the software doesn't work. We need to 
know in advance that it can actually do the gymnastics we need 
it to do, which is very unique.
    Repacking every station, every station in the country, or 
500 more stations in the country, which has never been done 
before, during an auction, in 30 minutes, that is pretty 
incredible. So let's make sure we get that right.
    Senator Nelson. Mr. Epstein, I want to ask you a very 
sensitive question. If this thing doesn't go swimmingly and if 
we were, Lord forbid, to have another major terrorist disaster 
and we had to get spectrum to the Government for purposes of 
national security, does the FCC have eminent domain power, that 
they could go and get spectrum for national security?
    Mr. Epstein. Senator Nelson, that is really a tough 
question, one I don't think I am really competent to answer. 
Maybe I could, you know, respond to you.
    The Commission does have strong war powers under the 
Communications Act, but there is not a lot of precedent for, 
you know, actually utilizing them and the conditions under 
which it would utilize them. But there are strong powers in 
certain parts of the Communications Act.
    I am not aware of situations where the Commission had done 
it. And you, indeed, are talking about an extraordinary 
situation.
    Senator Nelson. Thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    Senator Booker, do you have any other questions?
    Senator Booker. Not for this panel, sir, but I have many 
questions.
    [Laughter.]
    Senator Pryor. I understand. Me, too. Thank you.
    Well, listen, I want to say again thank you to the panel, 
and I will need to thank Senator Rockefeller for allowing me to 
chair this and for organizing this hearing today. I want to 
thank all of our witnesses for coming. Again, I know some had 
to rearrange schedules because of the ice and snow and whatnot.
    The record for this hearing is going to stay open for an 
additional 2 weeks. I know we had a couple of Senators who 
could not remain to ask their questions; I am sure we will have 
some submitted for the record.
    And if you could work with us to try to get your answers 
back as quickly as possible, it would be very much appreciated.
    So, again, I want to thank everyone, thank all the Senators 
for participating, thank Senator Rockefeller.
    And, with that, we will adjourn the hearing. Thank you.
    [Whereupon, at 4:24 p.m., the hearing was adjourned.]
                            A P P E N D I X

       Prepared Statement of Hon. John D. (Jay) Rockefeller IV, 
                    U.S. Senator from West Virginia
    Almost two years ago, I authored legislation with Kay Bailey 
Hutchison to give the FCC a new tool, voluntary incentive auctions, to 
make sure the Nation's limited spectrum resources are used smartly. Our 
legislation reflected widespread agreement from both sides of the aisle 
that we must continue to lead the way with innovative spectrum policies 
that generate real benefits for all Americans and help strengthen the 
United States' global leadership in mobile broadband.
    Critical to that bipartisan legislation was the directive that 
those incentive auctions would, in turn, provide an important means to 
help fund a pressing national need--creation of a nationwide, 
interoperable wireless broadband network for our first responders, 
FirstNet.
    There is no doubt that the FCC's incentive auction proceeding is 
one of the most important undertakings in the agency's history. That is 
why we are here today. To hear from the FCC and from various 
stakeholders as to how we can make sure that the upcoming incentive 
auction is a success.
    There is too much at stake to be complacent:

   A successful incentive auction will set a new model for 
        international spectrum policy, just as we did 20 years ago with 
        the first spectrum auctions. It also will pave the way for 
        future incentive auctions in the United States.

   A successful incentive auction will mean more robust 
        wireless communications networks both for voice and data in 
        rural and urban areas around the country. It will make sure the 
        United States continues its global leadership in wireless and 
        preserves room for the innovation brought about by unlicensed 
        spectrum use.

   A successful incentive auction will offer broadcasters an 
        opportunity to relinquish some or all of their current spectrum 
        usage rights for an incentive payment.

   A successful incentive auction will minimize disruptions and 
        expense to those broadcasters who choose to remain in the 
        business.

   Finally, a successful incentive auction will raise 
        significant revenue for FirstNet. As I have said before, this 
        auction must be driven by one simple principle--it must raise 
        the resources needed for the FirstNet network.

    This is a complicated proceeding that affects whole industries. As 
Congress has always done, we deferred the intricacies of auction design 
and development to the expert agency. Having generated approximately 
$50 billion for the U.S. Treasury and awarded tens of thousands of 
licenses through spectrum auctions, the FCC is the undisputed expert on 
spectrum actions.
    The FCC also must be afforded the flexibility necessary to make 
sure that all of the tools it uses as part of the auction are as 
accurate as possible.
    FCC Chairman Tom Wheeler has analogized the challenging and 
interlocking nature of the various parts of the incentive auction to a 
type of Rubik's cube. That is apt. Getting these auctions right and 
making them simple enough to encourage sufficient broadcaster 
participation will be an incredibly complex process. But I know that 
Chairman Wheeler understands better than anyone that, unlike a Rubik's 
cube, this auction is no game. By his own account, he has spent more 
time on the incentive auction than any other issue in his first month 
as chair of the agency.
    Given the stakes, I look forward to a constructive dialogue from 
the witnesses today about their perspectives on how the FCC can craft a 
successful incentive auction. Thank you.
                                 ______
                                 
         Writers Guild of America, West; Public Knowledge; 
                        New American Foundation; Free Press
                                                  December 10, 2013
Hon. John D. Rockefeller IV,
Chairman,
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.

Hon. John R Thune,
Ranking Member,
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.

Dear Chairman Rockefeller and Ranking Member Thune:

    In a wireless industry increasingly dominated by just two 
providers, the United States faces the very real prospect that in the 
months and years to come wireless investment will stall, prices will 
rise, and our Nation's economy will never fully realize the economic 
growth that wireless broadband can enable. For this reason, we urge you 
to protect consumers, content creators, and wireless competition by 
supporting reasonable spectrum-aggregation limits on spectrum below 1 
GHz.
    As you know, low-band frequencies such as the 600 MHz band 
penetrate buildings better and travel farther than other frequencies 
can, and represent a critical building block for any carrier hoping to 
reach consumers where they live, work, and play.\1\ Unfortunately, AT&T 
and Verizon currently control nearly 80 percent of all available low-
band spectrum.\2\ These two dominant incumbents also control more than 
80 percent of the wireless industry's profits and two-thirds of its 
subscribers--up from just 43 percent of wireless subscribers in 
2001.\3\
---------------------------------------------------------------------------
    \1\ See, e.g., Martin Cave & William Webb, Spectrum Limits and 
Auction Revenue: the European Experience, attached to Ex Parte 
Presentation of Sprint Corporation, GN Docket No. 12-268 & WT Docket 
No. 12-269 (July 29, 2013); Competitive Carriers Association Notice of 
Ex Parte, GN Docket No. 12-268 & WT Docket No. 12-269 (Sept. 4, 2013).
    \2\ Sprint Nextel Comments, WT Docket No. 12-269, at 5-6 (filed 
Nov. 28, 2012).
    \3\ Comments of Free Press, WT Docket No. 12-269, at 5 (filed Nov. 
28, 2012) (citing Petition to Deny of Free Press, In the Matter of 
Applications of AT&T, Inc. and Deutsche Telekom AG For Consent to 
Assign or Transfer Control of Licenses and Authorizations, WT Docket 
No. 11-65, at Figure 2 and SNL Kagan Wireless Industry Benchmarks (May 
31, 2011)); Letter from Rebecca Thompson, General Counsel, CCA, et al., 
to Acting Chairwoman Mignon Clyburn et al., Docket No. WT 12-269, at 2 
(May 20, 2013).
---------------------------------------------------------------------------
    Given their commanding share of the market, AT&T and Verizon have 
an incentive to acquire the remaining low-band spectrum they do not 
already control to prevent competitors from undercutting them by 
offering consumers superior service, pricing, terms, or technology. The 
United States Department of Justice has grown concerned enough about 
this anti-competitive outcome to have urged the Federal Communications 
Commission to adopt rules ensuring non-dominant carriers have a fair 
opportunity to access low-frequency spectrum resources.\4\ Protecting 
competitors' access to low-band spectrum, the Department of Justice has 
noted, is essential to ``serv[ing] the dual goals of putting spectrum 
to use quickly and promoting competition in wireless markets.'' \5\ The 
Small Business Administration recently voiced its support for 
reasonable spectrum-aggregation limits as well because reasonable 
aggregation limits have the potential to enhance competition, 
accelerate deployment, and increase auction revenues.\6\
---------------------------------------------------------------------------
    \4\ Ex Parte Submission of the United States Department of Justice, 
WT Docket No. 12-269 (Apr. 11, 2013).
    \5\ Id. at 23.
    \6\ See Letter from Winslow L. Sargeant, Ph.D., Chief Counsel and 
Jamie Belcore Saloom, Assistant Chief Counsel for Telecommunications, 
U.S. Small Business Administration Office of Advocacy, to Thomas E. 
Wheeler, Chairman, Federal Communications Commission, 3 (Nov. 22, 
2013), available at http://www.sba.gov/advocacy/816/766951 (last 
accessed Dec. 2, 2013) (asking the FCC to ``consider seriously the 
possibility that imposing a cap on the amount of sub-1 Ghz spectrum any 
one carrier may acquire will increase participation in the auction, 
drive greater auction revenues, and provide further opportunities for 
competition to flourish in mobile broadband'').
---------------------------------------------------------------------------
    We agree. Vigorous, sustainable wireless broadband competition 
means more innovation and enhanced economic growth as well as increases 
in hiring and investment. The Commission should design its rules in a 
manner that gives bidders of all sizes in the upcoming 600 MHz auction 
a meaningful opportunity to acquire spectrum where needed, rather than 
simply allowing AT&T and Verizon to dominate the auction and continue 
to foreclose competitors' access to vital low-band spectrum.
    Even the two dominant carriers agree that spectrum-aggregation 
limits should exist with respect to low-band spectrum. The only 
question is when and how those limits should apply. In this case, AT&T 
and Verizon prefer post-auction divestitures to clear, upfront rules. 
But after-thefact spectrum aggregation review by the FCC would involve 
more process, delay, and uncertainty than putting clear, upfront 
spectrum-aggregation limits on spectrum below 1 GHz. Worse, an after-
the-fact limit on spectrum concentration would allow the two dominant 
carriers to pick and choose which competitors will have access to low-
band spectrum, thereby blocking or delaying the emergence of meaningful 
competition. An after-the-fact regulation would increase the power of 
the two dominant incumbents, with consumers paying the price.
    Competitive markets are best for the public interest. With the 
upcoming 600 MHz auction, the FCC has a unique opportunity to promote 
competition in the wireless marketplace. We urge you not to let this 
opportunity pass and, on behalf of consumers everywhere, ask you to 
support transparent, well-crafted spectrum-aggregation limits.
            Respectfully submitted,

Ellen Stutzman
Director of Research & Public Policy
Writers Guild of America, West
  

Harold Feld
Senior Vice President
Public Knowledge
  

Michael Calabrese
Director, Wireless Future Project
Open Technology Institute
New America Foundation

Matt Wood
Policy Director
Free Press
  
      
                                 ______
                                 
                                                  December 10, 2013
Hon. John D. Rockefeller IV,
Chairman,
U.S. Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

Hon. John R. Thune,
Ranking Member,
U.S. Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

Dear Chairman Rockefeller and Ranking Member Thune:

    Many times in many different forums our companies have recommended 
that the Federal Communications Commission adopt reasonable spectrum-
aggregation limits on critical, low-band spectrum. The Department of 
Justice, the Small Business Administration, public interest groups, 
consumer advocates, and consumers across the country have joined us in 
support of reasonable limits. Most recently, our chief executive 
officers wrote FCC Chairman Tom Wheeler asking him to encourage 
investment, accelerate deployment and protect consumer choice by 
adopting modest, well-crafted spectrum-aggregation limits. A copy of 
this letter is attached.
    Throughout our advocacy, no one has ever suggested that the two 
dominant incumbents be excluded from the upcoming incentive auction. 
But, they already control nearly 80 percent of all available low-
frequency spectrum. As a result, AT&T and Verizon have a powerful 
economic incentive to acquire the remaining low-band spectrum they do 
not already control to prevent competitors from undercutting them with 
superior service, pricing, terms, or technology. Reasonable spectrum-
aggregation limits can prevent this outcome and help trigger new 
competition that can reduce prices, increase consumer choice, encourage 
investment and innovation, and accelerate next generation mobile 
deployment.
    Reasonable spectrum-aggregation limits also have the potential to 
increase--not decrease--revenue from the incentive auction. They will 
encourage robust auction participation from the non-dominant carriers 
because these companies will no longer risk incurring the substantial 
costs of participation without having any realistic possibility of 
acquiring the spectrum they need. Without spectrum-aggregation limits, 
however, the non-dominant carriers may either avoid the 600 MHz auction 
or may curtail their bidding because they know they cannot outbid the 
dominant carriers. This is especially true among some smaller and rural 
carriers that may struggle to finance auction participation absent 
clear rules that allow them a meaningful opportunity to participate. In 
this scenario, the dominant incumbents--far from paying a premium to 
achieve an anti-competitive result--may take the licenses for far less 
than they are worth.
    Competitive markets are best for the public interest. With the 
upcoming 600 MHz auction, the Commission has a unique opportunity to 
promote competition in the wireless marketplace. We urge you not to let 
this opportunity pass and, on behalf of consumers everywhere, ask you 
to support reasonable spectrum-aggregation limits.
            Respectfully submitted,

Kathleen Ham
Vice President, Federal Regulatory
T-Mobile USA, Inc.

Lawrence R. Krevor
Vice President, Legal and Government Affairs
Sprint Corporation

Eric B. Graham
Senior Vice President--Strategic Relations
C Spire Wireless

Tim Donovan
Vice President--Legislative Affairs
Competitive Carriers Association

Jeffrey Blum
Senior Vice-President and
Deputy General Counsel
DISH Network LLC

Grant Spellmeyer
Vice President, Federal Affairs 
& Public Policy
US Cellular

Cathy Sloan
Vice President, Government Relations
Computer & Communications Industry Association
  
  
  
                                 ______
                                 
                                                  November 14, 2013
Hon. Thomas Wheeler,
Chairman,
Federal Communications Commission,
Washington, DC.

Re: Ex Parte Notice
Expanding the Economic and Innovation Opportunities of Spectrum Through 
Incentive Auctions, GN Docket No. 12-268;
Policies Regarding Mobile Spectrum Holdings, WT Docket No. 12-269

Dear Chairman Wheeler:

    Congratulations on your confirmation as Chairman of the Federal 
Communications Commission. Your leadership of the FCC comes at a 
critical time for the wireless industry. Preserving a framework for 
effective competition is as important as ever.
    Taken together, the companies and industry groups represented on 
this letter employ more than 100,000 Americans, provide service to more 
than 100 million subscribers, and generate greater than $75 billion in 
annual revenue. Beyond the sheer numbers, however, our companies play 
an outsized role in accelerating innovation, investing in new 
technologies, and deploying broadband services throughout the United 
States.
    None of us fears competition. Consumers benefit from the give-and-
take of the competitive market. But to ensure those benefits keep 
flowing, it is vitally important that the two dominant wireless 
incumbents not be allowed to lock competitive carriers out of acquiring 
low-band spectrum in the upcoming 600 MHz auction. That result would 
disserve the public interest by fundamentally undermining the wireless 
industry competition that has served our Nation so well.
    AT&T and Verizon already hold licenses for nearly 80 percent of the 
low-band spectrum available for commercial broadband use. They have 
economic incentives to acquire the remaining low-band spectrum in the 
600 MHz band to stop our companies--their competitors--from offering 
truly sustainable, competitive wireless broadband service across 
America. Low-band spectrum, with its excellent propagation and building 
penetration properties, is an essential element of the spectrum mix 
wireless carriers must have to offer wireless customers spectrally-
efficient competitive pricing, terms, features, and technology.
    Recognizing a real risk to competition, the United States 
Department of Justice has urged the Commission to adopt rules ensuring 
that all wireless carriers have a fair opportunity to acquire low-band 
spectrum at auction. Protecting competitors' access to low-band 
spectrum, the Department of Justice has noted, is essential to 
protecting consumers' interest in continued innovation and investment 
in wireless broadband in the United States.
    We agree with the Department of Justice on this critical topic. To 
be clear, none of us has ever suggested excluding the largest two 
carriers from the 600 MHz auction. Reasonable spectrum-aggregation 
limits, however, will help ensure that carriers of all sizes have a 
meaningful opportunity to acquire the low-band spectrum they need to 
sustain effective and efficient competition. More competition, in turn, 
means more jobs, more investment, faster innovation, and more economic 
growth in America. Competition will also enable the Commission to 
maintain its ``light-touch'' regulatory approach to the wireless 
industry, rather than the aggressive regulation that duopoly tends to 
engender.
    In the upcoming 600 MHz auction, the Commission has a unique 
opportunity to take an important step to promote competition in the 
wireless marketplace. We urge you not to let this opportunity pass.
            Respectfully submitted,

Charlie Ergen
Chairman
DISH Network Corp.

John J. Legere
President and Chief Executive Officer
T-Mobile US, Inc.

Daniel R. Hesse
President and Chief Executive Officer
Sprint Corporation

Hu Meena
President and Chief Executive Officer
C Spire Wireless

Edward Black
President and Chief Executive Officer
Computer & Communications Industry Association

Steven K. Berry
President and Chief Executive Officer
Competitive Carriers Association

Kenneth R. Meyers
President and Chief Executive Officer
U.S. Cellular

Jonathan Foxman
President and Chief Executive Officer
MTPCS, LLC d/b/a Cellular One

Ronald Smith
President and Chief Executive Officer
Bluegrass Cellular
  
  
  
  
  
      
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                              Gary Epstein
    Question 1. The Federal Communication Commission's (FCC) Broadcast 
Television Spectrum Incentive Auction Notice of Proposed Rulemaking 
(NPRM), released in December 2012, requested comments about the process 
of scoring bids in the reverse/broadcaster auction based on factors 
such as ``population coverage, geographic contour, or other relevant 
measurable factors.'' I am glad to see the FCC is exploring innovative 
new concepts as we try to overcome barriers to clearing spectrum in 
major markets. I would like to know more about the scoring bids 
concept. How is the FCC evaluating the potential use of scoring bids?
    Answer. As you note, the Incentive Auction Notice of Proposed 
Rulemaking (NPRM) sought comment on whether and how the Commission 
should recognize the heterogeneous nature of the television spectrum 
that different broadcasters might contribute to the auction. In 
particular, the Commission introduced the possibility of ``scoring'' 
broadcaster bids, to reflect the differences between the spectrum 
contributions of different bidders. We are not considering taking into 
account a station's value as an ongoing broadcasting concern. We are 
currently considering whether scoring bids could lower the cost of 
clearing spectrum in the auction by improving how the auction selects 
the stations that are assigned a channel and those that are paid to 
relinquish spectrum rights. The record currently is under review, and 
there have not been any final recommendations made to the full 
Commission.

    Question 1a. Is it possible that such a model could be applied in 
larger markets (i.e., markets where spectrum is in demand, expected to 
be competitive)?
    Answer. If the Commission adopts a scoring process, it could be 
applied in larger markets.

    Question 1b. Do you have a sense of whether such a valuation 
process may yield more spectrum than the more traditional options--
single round or multiple round?
    Answer. Staff is currently considering whether scoring bids could 
lower the cost of clearing spectrum in the auction by improving how the 
auction selects the stations that are assigned a channel and those that 
are paid to relinquish spectrum rights. Regardless of auction type, 
lowering these costs could increase the likelihood of a successful 
auction that clears the maximum amount of spectrum.

    Question 1c. Should the FCC focus most of its attention on 
overcoming barriers to clearing spectrum in major markets?
    Answer. Staff expects that clearing spectrum in major markets will 
be a key Commission priority, and has focused significant attention to 
those markets to date. However, given the potential for market 
variation due to border and other potential constraints, and the 
resulting potential for inter-service interference to adjacent markets, 
staff has not limited its analysis to major markets.

    Question 2. During the hearing, I asked you about a proposal that 
would allow for a common downlink band nationwide, and would provide 
for variation in the uplink band. Do you have any additional 
information you would like to provide, to expand upon your answer?
    Answer. In the NPRM the Commission identified the ability to 
accommodate market variation (i.e., the varying amounts of spectrum 
that the auction could recover in different geographic areas) as an 
important objective. In order to accommodate market variation, the NPRM 
proposed implementing a band plan that keeps the downlink spectrum 
consistent nationwide while varying the amount of uplink spectrum in 
more spectrally constrained markets. The Commission has examined 
approaches to accommodating market variation through a thorough and 
transparent comment and reply comment process, band plan workshop, and 
public notice. We continue to explore how the 600 MHz band plan can 
accommodate different levels of spectrum recovery and have made this a 
central factor in our band plan consideration.

    Question 3. In their December 2012 Broadcast Television Spectrum 
Incentive Auction Notice of Proposed Rulemaking (NPRM), the Federal 
Communications Commission (FCC) sought comment on the use of spectrum 
aggregation limits in the forward auction. There is a wide range of 
opinions on this issue. What is the most equitable way for the FCC to 
administer a spectrum screen? Should the FCC require carriers to divest 
comparable spectrum below 1 GHz in order to meet limits? Why or why 
not?

    Question 3a. Given the fact that it is less expensive to build 
networks using lower-band spectrum, should the FCC consider these costs 
in its evaluation of competition? Why or why not?

    Question 3b. Has the FCC considered applying a market-by-market 
review of spectrum assets limited to major markets, since these are the 
areas which have the greatest demand for spectrum? Why or why not?
    Answer. The longstanding directives of Section 309(j) of the 
Communications Act require that, with respect to spectrum auctions, the 
Commission ``shall include safeguards to protect the public interest in 
the use of the spectrum,'' and seek to ``promot[e] economic opportunity 
and competition and ensur[e] that new and innovative technologies are 
readily accessible to the American people by avoiding excessive 
concentration of licenses and by disseminating licenses among a wide 
variety of applicants . . .'' The relationship between spectrum policy, 
competition and consumer choice was reinforced in a filing submitted to 
the Commission by the Antitrust Division of the Department of Justice 
in April 2013. Commission staff also recognizes that under Section 6404 
of the Middle Class Tax Relief and Job Promotion Act of 2012, no 
qualified bidder may be excluded from the auction, but that Section 
6404 affirms the Commission's authority ``to adopt and enforce rules of 
general applicability, including rules concerning spectrum aggregation 
that promote competition.''
    The United States has a long and successful history of spectrum 
auctions that have promoted competition, facilitated profound benefits 
for consumers, and generated substantial revenue for the U.S. Treasury 
as a means of recovering for the public a portion of the value of the 
public spectrum resource. Commission staff is committed to recommending 
to the Commission an auction that fully meets all statutory obligations 
and objectives, including freeing up a significant amount of spectrum 
for commercial use in a manner that promotes competition and drives our 
economy forward.
    Commission staff is carefully reviewing the records in both the 
Mobile Spectrum Holdings proceeding and the Incentive Auction 
proceeding, including the record on the specific questions you raise, 
and has not yet presented a recommendation to the Commission.

    Question 4. The Middle Class Tax Relief and Job Creation Act of 
2012 allows the Federal Communications Commission (FCC) to create new 
guard bands in the 600 MHz band for unlicensed use. I am supportive of 
white spaces, and I hope that the FCC will be successful in creating a 
guard band that is adequate for unlicensed and licensed uses. According 
to some estimates, the unlicensed ecosystem generates as much as $50 to 
$100 billion per year for the U.S. economy. How important do you think 
it is to maintain white spaces?
    Answer. Unlicensed spectrum use has a powerful record of driving 
innovation, investment, and economic growth, and the record in the 
Incentive Auction proceeding demonstrates significant support for 
unlicensed use. In the NPRM, the Commission proposed measures that, 
taken together, would make a substantial amount of spectrum available 
for unlicensed uses, including a significant portion that would be 
available on a uniform nationwide basis for the first time. 
Specifically, under the proposal:

   Television white spaces would continue to be available for 
        unlicensed use in the repacked television band;

   Guard band spectrum in the 600 MHz band plan would be 
        available for unlicensed use;

   Channel 37 would be available for such use; and

   Two channels currently designated for wireless microphone 
        use would be made available for white space devices.

    The Commission also noted that proposed measures to promote 
unlicensed spectrum use are limited by the bounds of the Commission's 
statutory authority. Staff continues to carefully review the record 
related to unlicensed use.

    Question 5. In March 2010, the Federal Communications Commission 
(FCC) released its National Broadband Plan (NBP). I was hopeful that we 
could clear 120 MHz in the incentive auction, but now it looks like 
there will not be more than 84MHz cleared in most markets. What do you 
believe will happen to the band plan if less than 84MHz is made 
available for the incentive auction? It's important to me that we 
maintain room for innovative uses of spectrum, such as white spaces, 
for instance.
    Answer. We will not know the actual amount of spectrum we will 
recover until we conduct the incentive auction, and we are not limiting 
our plans to recovering 84 MHz. The amount of spectrum we recover will 
depend on a range of factors, including broadcaster participation in 
the reverse auction, the proceeds generated by the forward auction, the 
600 MHz band plan, our ability to repack stations that will remain on 
the air after the auction, and international coordination with Canada 
and Mexico. Commission staff is diligently working to recommend an 
auction design that will maximize the amount of 600 MHz spectrum 
repurposed for flexible licensed use, while also promoting unlicensed 
use.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                              Gary Epstein
    Question. Mr. Epstein, earlier this year, the DOJ weighed in with 
the FCC on the spectrum auction rules emphasizing the importance of 
competition in the wireless market and the need for smaller national 
networks currently lacking in low-band spectrum have a chance to 
acquire it. Chairman Wheeler has said that a major focus of his term 
will be promoting competition. In a recent speech he said, ``We must 
protect competition where it exists. We must promote competition where 
it may not be fulsome.'' As Chairman of the Antitrust Subcommittee, I 
have seen how strong competition in the wireless industry has been a 
tremendous benefit to consumers. A competitive market is the best way 
to ensure that consumers will benefit from low prices and quality 
service and thus I'm pleased to see that the new Chairman is so focused 
on competition. Do the amount and quality of spectrum held by a 
wireless carrier impact its ability to compete? Is the FCC's current 
method of measuring competition adequate or is it in need of upgrading?
    Answer. The longstanding directives of Section 309(j) of the 
Communications Act require that, with respect to spectrum auctions, the 
Commission ``shall include safeguards to protect the public interest in 
the use of the spectrum,'' and seek to ``promot[e] economic opportunity 
and competition and ensur[e] that new and innovative technologies are 
readily accessible to the American people by avoiding excessive 
concentration of licenses and by disseminating licenses among a wide 
variety of applicants . . .'' The relationship between spectrum policy, 
competition and consumer choice was reinforced in a filing submitted to 
the Commission by the Antitrust Division of the Department of Justice 
in April 2013. Commission staff also recognizes that under Section 6404 
of the Middle Class Tax Relief and Job Promotion Act of 2012, no 
qualified bidder may be excluded from the auction, but that Section 
6404 affirms the Commission's authority ``to adopt and enforce rules of 
general applicability, including rules concerning spectrum aggregation 
that promote competition.''
    The United States has a long and successful history of spectrum 
auctions that have promoted competition, facilitated profound benefits 
for consumers, and generated substantial revenue for the U.S. Treasury 
as a means of recovering for the public a portion of the value of the 
public spectrum resource. Commission staff is committed to recommending 
to the Commission an auction that fully meets all statutory obligations 
and objectives, including freeing up a significant amount of spectrum 
for commercial use in a manner that promotes competition and drives our 
economy forward.
    Commission staff is carefully reviewing the records in both the 
Mobile Spectrum Holdings proceeding and the Incentive Auction 
proceeding, including the record on the specific questions you raise, 
and has not yet presented a recommendation to the Commission.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Amy Klobuchar to 
                               Joan Marsh
    Question 1. Ms. Marsh, in your written testimony you wrote that 
``network deployment is based on network capacity needs, not 
coverage.'' While I understand that this is in reference to the 
spectrum crunch that exists in more urban markets, I would also like to 
make sure that carriers continue to invest in those parts of America 
where cell coverage is not what we would expect in the 21st century. Is 
AT&T committed to making sure its investments and spectrum are 
effectively utilized to reach consumers, even in rural areas?
    Answer. Yes. Over the past five years (2008-2012), AT&T invested 
nearly $98B into its wireless and wireline networks; investing more 
capital into the U.S. economy than any other public company. The 
investment in our wireless and wireline networks in 2013 was in the 
range of $21B, with increased spending in wireless. In a September 2013 
report, the Progressive Policy Institute (PPI) again ranked AT&T No. 1 
on its list of U.S. ``Investment Heroes.'' \1\ In addition, through its 
Project Velocity IP (Project VIP), AT&T plans to invest billions of 
dollars over the next three years (2013-2015) to significantly expand 
and enhance our wireless and wireline IP broadband networks. Project 
VIP is a major commitment to invest in the 21st Century communications 
infrastructure for the United States and bring high-speed IP 
broadband--wireless and wireline--to millions more Americans. Through 
this investment we plan to: expand our 4G LTE network to cover 300 
million people by year-end 2014, more than 9 out of 10 Americans; 
expand our wired IP broadband network to approximately 75 percent of 
customer locations in our 22-state wireline service area by year-end 
2015; deploy fiber to 1 million additional business customer locations 
in AT&T's wireline service area by year-end 2015; bring high-speed IP 
Internet access via IP wireline broadband and/or 4G LTE to 99 percent 
of all customer locations within our 22-state wireline service area by 
year-end 2015; and increase the density of our wireless network through 
the deployment of small cell technology (40,000+), macro cells 
(10,000+) and additional distributed antenna systems (1000+). This 
densification will further improve network quality and increase 
spectrum efficiency.
---------------------------------------------------------------------------
    \1\ U.S. Investment Heroes of 2013: The Companies Betting on 
America's Future, September 2013, http://www.progressivepolicy.org/wp-
content/uploads/2013/09/2013.09-Carew-Mandel_
US-Investment-Heroes-of-2013.pdf. AT&T ranked No. 1 in the PPI list 
issued in July 2012. Investment Heroes: Who's Betting on America's 
Future?, July 2012, http://progressivepolicy
.org/wp-content/uploads/2012/07/07.2012-Mandel_Carew_Investment-
Heroes_Whos-Betting-on-Americas-Future.pdf.

    Question 1a. Is AT&T supportive of build-out requirements as a rule 
for the auction?
    Answer. Yes. 47 USC 309(j)(3) already requires the Federal 
Communications Commission, in designing auction rules, to promote the 
``development and rapid deployment of new technologies, products and 
services for the benefit of the public, including those residing in 
rural areas.'' Subparagraph 4 encourages the Commission to ``include 
performance requirements . . . to ensure prompt delivery of service to 
rural areas.'' This evidently is intended to encourage the Commission, 
through performance requirements, auction rules or otherwise, to ensure 
that whoever buys a license that includes ``hard to serve, unserved or 
underserved areas'' would deploy there. Build out requirements on 
spectrum auction winners ensure that spectrum is utilized quickly and 
efficiently or is relinquished so that other entities may make use of 
it.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                               Joan Marsh
    Question 1. In their December 2012 Broadcast Television Spectrum 
Incentive Auction Notice of Proposed Rulemaking (NPRM), the Federal 
Communications Commission (FCC) sought comment on the use of spectrum 
aggregation limits in the forward auction. There is a wide range of 
opinions on this issue. What is the most equitable way for the FCC to 
administer a spectrum screen? Should the FCC require carriers to divest 
comparable spectrum below 1 GHz in order to meet limits? Why or why 
not?
    Answer. In 2001, as mobile data services were being launched, the 
Commission adopted a forward-looking spectrum policy framework that has 
facilitated the growth of one of the most successful and competitive 
marketplaces in the world. Recognizing that competitive bidding and 
freely-functioning secondary markets allow spectrum to flow to its 
highest-valued uses, the Commission abandoned rigid, ``bright-line'' 
spectrum aggregation caps and replaced them with a safe harbor screen 
and flexible, case-by-case consideration of proposals to exceed the 
screen. This basic framework--as originally conceived--strikes the 
appropriate balance between regulatory certainty (by assuring licensees 
that spectrum accumulations within the safe harbor will be approved) 
and regulatory flexibility (by ensuring that the Commission's rules do 
not punish success and innovation and can accommodate any spectrum 
assignment that does not pose any true risk of foreclosing 
competition).
    The benefits of this balanced, consumer-focused policy are obvious 
and dramatic. The U.S. wireless marketplace is the most dynamic and 
innovative in the world. As a result, at present, only a few simple 
adjustments are required to achieve ``the most equitable way for the 
[Commission] to administer its spectrum screen'', including in the 
context of the incentive auction.
    First, the Commission should update the screen to include all of 
the available spectrum that is ``suitable'' for mobile wireless 
services. Most prominently, the Commission should correct the most 
glaring omission by including the entire 194 MHz of BRS and EBS 
spectrum held mostly by Sprint, rather than the mere 55.5 MHz the 
Commission has included to date.
    Second, the Commission should reaffirm that the ``safe harbor'' 
provided by the screen is truly safe--i.e., that the Commission will 
not entertain spectrum aggregation-related challenges to any proposed 
spectrum acquisition that does not exceed the safe harbor level. The 
Commission should also make clear that its case-by-case analysis of 
proposals to exceed the safe harbor level in any market will remain 
tightly focused on whether the spectrum available to competitors and 
potential competitors remains sufficient to enable robust facilities-
based competition to continue. This process should not result in 
``conditions'' that have no link to any legitimate spectrum aggregation 
concern.
    The Commission's case-by-case analyses should also be informed by 
the reality that today's screen, which is set at about one-third of 
suitable and available spectrum, is almost certainly too low and 
discourages transactions that would promote the public interest by 
putting spectrum to its best and most valuable uses. The Commission's 
screen threshold of roughly one third of the available spectrum dates 
back to a time when the wireless industry was nascent and there were 
only two facilities-based competitors in each market. Under those 
circumstances, the Commission was concerned that it would be relatively 
easy for the incumbent carriers to obtain new spectrum that became 
available and thereby prevent new entry. But there is no basis upon 
which the Commission could rationally equate the risk of foreclosure 
today to the risk of foreclosure at the time of the initial PCS 
auctions. In today's far more competitive wireless marketplace, a 
foreclosure strategy would be virtually impossible to implement. There 
are multiple facilities-based competitors with substantial spectrum 
holdings. Those competitors, large and small, compete aggressively for 
new spectrum when it is available at auction or in secondary markets. 
Moreover, the high cost of new spectrum, coupled with strict Commission 
build-out requirements, ensures that, even if it were theoretically 
possible to cripple competition through spectrum acquisitions, it would 
be prohibitively expensive to do so. In this environment, it is simply 
not realistic to assume that any holding of more than a third of the 
available spectrum in any market may create a risk of market 
foreclosure.
    One step the Commission should definitely not take is to 
micromanage a carrier's spectrum divestiture choices upon a finding 
that such a divestiture is necessary under the case-by-case screen 
analysis. In particular, the Commission should not require carriers to 
divest comparable spectrum below 1 GHz. As described in detail in 
response to Question 1b below, there is no meaningful distinction 
between spectrum above 1 GHz and spectrum below 1 GHz for competitive 
purposes. More generally, the Commission has long recognized that the 
acquiring carrier should be permitted discretion to address competitive 
concerns by divesting sufficient spectrum to bring its holdings in the 
affected markets below the level determined to be excessive. Allowing 
the licensee maximum discretion to dispose of ``excess'' spectrum in 
the secondary market is by far the most efficient way to ensure that 
the spectrum will be allocated to its highest valued use; but those 
public interest benefits can be obtained only if the Commission does 
not place artificial limits on the provider's discretion. So long as 
the divestiture solves the spectrum aggregation concern at issue, there 
is no basis for the Commission to become involved in deciding the 
particular band(s) of spectrum that the licensee must divest to come 
into compliance. Allowing providers to rationalize their spectrum 
holdings improves spectral efficiency and benefits large and small 
providers alike, and the Commission's spectrum aggregation policies 
should not prevent carriers from ``trading up'' through auction or 
secondary market purchases to spectrum that is a better fit for their 
networks or business plans.

    Question 1a. Given the fact that it is less expensive to build 
networks using lower-band spectrum, should the FCC consider these costs 
in its evaluation of competition? Why or why not?
    Answer. In its evaluation of competition in a particular market, 
the Commission should not consider in isolation whether it is less 
expensive to build networks using lower-band spectrum. While it is true 
that, all else being equal, signals can propagate farther over low band 
spectrum, there is no inherent network quality advantage in using low 
frequency spectrum versus high frequency spectrum. As a matter of both 
physics and engineering, a provider can achieve the same coverage with 
either type of spectrum; it is merely a question of how the provider 
builds out its network. Likewise, all providers can address in-building 
penetration challenges with high frequency spectrum by increasing 
network density and deploying femtocells, picocells, Wi-Fi offload, and 
other means. To be sure, denser networks cost more to build, but to the 
extent high band spectrum entails higher build out costs, the spectrum 
itself will sell for lower prices in the marketplace. This is critical 
because the cost of provisioning a service includes spectrum 
acquisition costs as well as network build out costs.
    Beyond that, and in all events, it is no longer the case that low 
band spectrum permits significantly lower build out costs than high 
band spectrum. To the contrary, the explosive growth of mobile 
broadband services has dramatically diminished differences in the real 
world costs of building out low band and high band spectrum, and that 
trend will only accelerate in the coming years. As a result of this 
dramatic growth, the industry faces what former FCC Chairman Julius 
Genachowski referred to as a ``looming spectrum crisis,'' under which 
the principal challenge facing wireless providers today is meeting 
rapidly escalating demand for bandwidth. What that means is that in 
today's broadband world, unlike the voice world of yesterday, network 
deployments are driven by network capacity needs, not coverage. 
Regardless of whether a carrier is using high band or low band 
spectrum, it must build dense networks in all but the most rural areas 
where network congestion is not an existing or looming challenge. And 
to optimize building penetration, they must deploy small cells as well. 
Indeed, the superior propagation of low band spectrum leads to certain 
relative disadvantages in the form of increased interference between 
cells, particularly in densely populated cities.

    Question 1b. Has the FCC considered applying a market-by-market 
review of spectrum assets limited to major markets, since these are the 
areas which have the greatest demand for spectrum? Why or why not?
    Answer. To AT&T's knowledge, the Commission has not considered 
applying a market-by-market review of spectrum assets limited to major 
markets. Perhaps this is because application of the spectrum screen 
analysis already includes, among many other factors, assessment of the 
degree of demand for spectrum in the market at issue.

    Question 2. In March 2010, the Federal Communications Commission 
(FCC) released its National Broadband Plan (NBP). I was hopeful that we 
could clear 120 MHz in the incentive auction, but now it looks like 
there will not be more than 84MHz cleared in most markets. What do you 
believe will happen to the band plan if less than 84MHz is made 
available for the incentive auction? It's important to me that we 
maintain room for innovative uses of spectrum, such as white spaces, 
for instance.
    Answer. AT&T remains hopeful that the incentive auction will result 
in the repurposing to commercial wireless use of at least 84 MHz of 
spectrum, especially in non-border areas. Even if it does not, however, 
there will likely be significant spectrum available in the duplex gap 
and/or guard bands for innovative unlicensed uses, as long as such uses 
do not harmfully interfere with licensed uses. For example, AT&T has 
submitted to the Commission an exemplar ``2x25'' band plan (reproduced 
below) addressing clearing scenarios ranging from as much as 114 MHz to 
as little as 54 MHz. In every scenario, a material amount of spectrum 
in a duplex gap and/or guard bands is potentially available for 
unlicensed use, assuming no harmful interference. (See Comments of 
AT&T, Inc., GN Docket No. 12-268 (filed June 14, 2013)). The same is 
true of a ``2x35'' band plan submitted jointly by T-Mobile and Verizon 
that AT&T has conditionally endorsed if certain circumstances exist. 
(Letter from Joan Marsh, AT&T, to Ruth Milkman and Gary Epstein, FCC, 
GN Docket No. 12-268 (Ex parte Oct. 21, 2013)).
    Of course, the Commission will be guided by the statutory directive 
that guard bands (of which a duplex gap is a form) be ``no larger than 
is technically reasonable to prevent harmful interference between 
licensed services.'' Spectrum Act Sec. 6407(b). Moreover, regardless of 
what happens in the 600 MHz band, substantial white spaces will likely 
remain in the 500 MHz band, because (i) only the upper parts of the TV 
broadcast band are likely to be repurposed, and (ii) the distances that 
separate broadcasters for interference mitigation purposes must remain 
large.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 ______
                                 
     Response to Written Question Submitted by Hon. Mark Warner to 
                          Hal J. Singer, Ph.D.
    Question. In March 2010, the Federal Communications Commission 
(FCC) released its National Broadband Plan (NBP). I was hopeful that we 
could clear 120 MHz in the incentive auction, but now it looks like 
there will not be more than 84MHz cleared in most markets. What do you 
believe will happen to the band plan if less than 84MHz is made 
available for the incentive auction? It's important to me that we 
maintain room for innovative uses of spectrum, such as white spaces, 
for instance.
    Answer. At the FCC's recent conference on this subject, the 
Commission stated that in geographic areas where insufficient spectrum 
was cleared, they intended to first avoid clearing an uplink block. 
This would allow the auction to move forward and still maintain the 
integrity of the band plan overall. The feasibility of clearing certain 
amounts of spectrum in different geographic areas, while it is a 
subject under ongoing study both in the industry and by the FCC, will 
depend significantly on how eager broadcasters are to show up to the 
auction.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                            Steven K. Berry
    Question 1. In their December 2012 Broadcast Television Spectrum 
Incentive Auction Notice of Proposed Rulemaking (NPRM), the Federal 
Communications Commission (FCC) sought comment on the use of spectrum 
aggregation limits in the forward auction. There is a wide range of 
opinions on this issue. What is the most equitable way for the FCC to 
administer a spectrum screen? Should the FCC require carriers to divest 
comparable spectrum below 1 GHz in order to meet limits? Why or why 
not?
    Answer. CCA has called for completing the Mobile Spectrum Holdings 
proceeding currently pending before the FCC in order to provide 
certainty to the industry. This generally applicable rule will ensure 
that all carriers have access to the finite spectrum needed to serve 
consumers' increasing demand for mobile broadband services. In updating 
the spectrum screen, the FCC should:

   Replace the current, single-trigger approach with separate 
        thresholds for identifying competitive harms, including (1) 
        spectrum below 1 GHz in local markets, (2) aggregate spectrum 
        holdings in local markets, and (3) aggregate spectrum on a 
        nationwide basis;

   Adopt clear rules including or removing spectrum from the 
        screen going forward; and,

   Establish a rebuttable presumption that transactions 
        exceeding the screen thresholds are contrary to the public 
        interest and placing the burden of proof that the transaction 
        would benefit competition and the public interest on the 
        applicant.

    Where the screen is exceeded and the burden of proof that the 
transaction would benefit competition and the public interest has not 
been met in a transaction, divestitures of comparable spectrum may be 
an appropriate remedy; however, the applicant should not be allowed to 
use the divestiture process to foreclose competitors from accessing 
needed spectrum resources. In the context of spectrum auctions, there 
should be clear, ex ante rules regarding spectrum aggregation that 
allow carriers of all sizes a meaningful opportunity to bid for 
spectrum; no carrier should be allowed to aggregate all spectrum 
available at auction. Divestitures should include spectrum below 1 GHz, 
particularly when transactions or auctions involve spectrum below 1 
GHz.

    Question 1a. Given the fact that it is less expensive to build 
networks using lower-band spectrum, should the FCC consider these costs 
in its evaluation of competition? Why or why not?
    Answer. Due to its unique propagation characteristics, which have 
particular advantages for rural coverage and in-building penetration, 
special consideration should be given to transactions and auctions 
involving spectrum below 1 GHz. While it is less expensive to build-out 
coverage using lower-band spectrum, particularly in rural areas, it is 
also important to note that absent low-band spectrum it may not be 
economical for a carrier to efficiently compete in a market.

    Question 1b. Has the FCC considered applying a market-by-market 
review of spectrum assets limited to major markets, since these are the 
areas which have the greatest demand for spectrum? Why or why not?
    Answer. The FCC should not consider limiting a market-by-market 
review of spectrum assets to major metropolitan markets, as the 
spectrum needed to continue to deploy mobile broadband services to meet 
consumers' demands exists nationwide. Indeed, the benefits of mobile 
broadband, particularly using low-band spectrum, may have an even 
greater impact on education, employment, and safety in rural areas.

    Question 2. In March 2010, the Federal Communications Commission 
(FCC) released its National Broadband Plan (NBP). I was hopeful that we 
could clear 120 MHz in the incentive auction, but now it looks like 
there will not be more than 84MHz cleared in most markets. What do you 
believe will happen to the band plan if less than 84MHz is made 
available for the incentive auction? It's important to me that we 
maintain room for innovative uses of spectrum, such as white spaces, 
for instance.
    Answer. Policymakers should continue efforts to ensure that as much 
spectrum as possible is reallocated through the incentive auction for 
mobile broadband use. In the unfortunate event that less than 84 MHz is 
made available through the incentive auction, Congress should consider 
if further policy efforts or incentives are necessary to ensure that 
finite spectrum resources are being used efficiently, including both 
licensed and unlicensed spectrum.
    To ensure that as much spectrum is made available for auction 
nationwide, the FCC should use sufficiently small geographic license 
sizes, which provide opportunities for carriers of all sizes to 
participate and create a greater number of unencumbered licenses that 
can be available for auction. Using sufficiently small geographic 
license sizes, there will likely be more areas with greater amounts of 
cleared spectrum available in the incentive auction. Under this 
approach, even if 120 MHz is not available nationwide, the auctioneers 
are not left with a least common denominator amount of spectrum.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                             Preston Padden
    Question 1. In March 2010, the Federal Communications Commission 
(FCC) released its National Broadband Plan (NBP). I was hopeful that we 
could clear 120 MHz in the incentive auction, but now it looks like 
there will not be more than 84MHz cleared in most markets. What do you 
believe will happen to the band plan if less than 84MHz is made 
available for the incentive auction? It's important to me that we 
maintain room for innovative uses of spectrum, such as white spaces, 
for instance.

    Question 2. Do you have a sense of how much spectrum will be freed 
up in major markets, based on what you have been hearing from the 
broadcasters you work with?
    Answer. Our Coalition continues to believe that reallocation of 120 
MHz from broadcasting to wireless broadband is a critical public 
interest goal. Given the skyrocketing consumer demand for wireless 
services, and the dearth of other sources of spectrum, it would be 
unthinkable for the FCC to settle for anything less than reallocating 
120 MHz in the Incentive Auction.
    Our Coalition also believes that 120 MHz is achievable if the FCC 
permits market pricing to determine broadcaster participation. As a 
test, one Member of our Coalition has undertaken a rigorous and 
detailed repacking analysis of the television stations in the Los 
Angeles market and was able to clear 120 MHz for reallocation. This 
analysis took into consideration the ``daisy chain'' effect in adjacent 
markets.
    If the FCC interferes with market pricing and limits the payments 
to particular stations based on some administrative scheme, then the 
FCC will fail to attract a critical mass of broadcasters and the 
auction will fail. The FCC can fulfill all of its financial 
obligations, including funding FirstNet, if the FCC meets the market 
price expectations of willing broadcast spectrum sellers and clears 120 
MHz. On the other hand, if the FCC tries to interject administrative 
pricing in a mistaken effort to achieve some pre-determined ``spread'' 
between the forward and reverse auctions, the result will be failure.
    It is important to note that the FCC will be buying spectrum in 
only a (currently unknown) limited number of markets. In most markets, 
the FCC will be able to clear 120 MHz merely by repacking the existing 
TV stations. In that majority of markets, the forward auction revenues 
to the FCC will be essentially free. These ``free'' revenues are the 
leverage that will enable the FCC to meet the prices expectations of 
broadcasters where the FCC does need to buy spectrum and still fulfill 
the FCC's other financial obligations.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Amy Klobuchar to 
                              Rick Kaplan
    Question 1. Mr. Kaplan, as broadcasters continue to discuss their 
participation in the auction to help free up spectrum for mobile 
wireless, what do you think should be included as ``eligible expenses'' 
for funds from the TV broadcaster reallocation fund?
    Answer. Senator Klobuchar, thank you for this important question 
and your leadership through this complex process. The Spectrum Act 
includes two key requirements that inform consideration of which 
expenses should be included as eligible for reimbursement. First, the 
Spectrum Act requires that broadcasters not electing to participate in 
the spectrum auction are to be held harmless for costs reasonably 
related to repacking and channel reassignment. Second, the Spectrum Act 
requires that service to the same coverage areas and populations of 
viewers be preserved to the greatest extent possible following 
repacking. Taken together, these provisions require that broadcasters 
be reimbursed for all reasonable repacking expenses necessary to allow 
them to continue to serve essentially the same coverage area and 
population they served prior to repacking.
    Precisely what costs will be required to ensure that a particular 
station is able to serve the same coverage area and population 
following repacking will depend on numerous factors specific to that 
station. Many stations have highly customized transmission facilities 
tailored to take a number of variables into account--such as tower 
location, location of population centers, spectrum congestion, climate 
and other considerations. Thus, relocation expenses resist 
generalization and categorization. With this caveat, the following is 
an illustrative, non-exhaustive list of expenses that should be 
eligible for reimbursement from the fund.
Transmission-related expenses

   New transmitter or retune existing transmitter

   New auxiliary transmitter or retune existing auxiliary 
        transmitter (where existing auxiliary facility is licensed)

   New antenna or modify existing antenna

   New auxiliary antenna (where existing auxiliary facility is 
        licensed)

   New mask and other filters

   New combiner (for stations sharing feed line or antenna)

   New exciter

   New transmission line or wave guide

   Temporary antenna

   Temporary transmitter

   Temporary transmission line

   Temporary electrical power

   New controllers and other equipment associated with above 
        when existing equipment is not compatible with new equipment

   Equipment to change translator input channels

   Proof of performance testing

   Removal and disposal of old and/or temporary equipment

   Installation for all of above, including third party and 
        internal labor costs (e.g., personnel time spent on 
        modifications and accounting/cost reconciliation, overtime, 
        etc.)
Tower and other facilities-related expenses

   New tower or existing tower upgrade or modifications to main 
        and/or backup towers

   New building or modifications to existing building to house 
        new transmitter and other equipment

   Land (for new tower or new facility)

   Contractual liability to current tower landlord if new tower 
        is necessary

   Contractual liability to other site users when they are 
        directly impacted (e.g., service interruptions, temporary 
        facilities, shared antenna)

   Difference in tower rent

   New power plant equipment, including extension of 
        electricity to new site

   New HVAC equipment

   New STL and ICR to new site

   Moving costs to haul equipment to new site

   Removal and disposal of waste
Professional, legal, and other fees

   Engineering fees (for designing new facility; for tower 
        loading evaluation; for site surveys; for building 
        modifications)

   Fees for tower and RF compliance testing

   Expenses and fees associated with obtaining FAA clearance 
        for a new or modified tower proposal

   Permitting fees

   Legal and expert fees (for applications; for zoning, 
        environmental, and historical preservation compliance issues; 
        for real estate (acquisition or leasehold); for tax advice on 
        how new/replacement equipment is taxed)

   FCC filing fees for construction permits and new licenses 
        (if not waived by FCC)
Ancillary expenses necessitated by repacking process

   Microwave, fiber, or other delivery expenses to ensure 
        delivery to cable headends or satellite local receive 
        facilities that are reached by existing facilities but are not 
        by new facilities or that are necessary on a temporary basis to 
        bridge any gap in full power operations (e.g., extended periods 
        of silence)

   Replacement of wireless microphones, interruptible foldback 
        (IFB), and headsets that are displaced from now unused TV 
        channels

   Additional or ``bridge'' insurance

   Expenses associated with educating viewers about rescanning

   Expenses associated with possible medical telemetry 
        interference notifications

   Tax consequences (e.g., depreciation schedules rendered 
        inaccurate)
                                 ______
                                 
     Response to Written Question Submitted by Hon. Mark Warner to 
                              Rick Kaplan
    Question. In March 2010, the Federal Communications Commission 
(FCC) released its National Broadband Plan (NBP). I was hopeful that we 
could clear 120 MHz in the incentive auction, but now it looks like 
there will not be more than 84MHz cleared in most markets. What do you 
believe will happen to the band plan if less than 84MHz is made 
available for the incentive auction? It's important to me that we 
maintain room for innovative uses of spectrum, such as white spaces, 
for instance.
    Answer. There are a number of productive band plan variations 
should the Commission recover less than 84 megahertz of spectrum across 
the country in the voluntary broadcast spectrum incentive auction. The 
goal of these band plans should be to maximize licensed paired 
spectrum, as that plan is most desirable for the vast majority of 
potential bidders in the auction.
    One of the most potentially problematic aspects of the auction 
under almost any band plan is its threat to white spaces. As 
broadcasters are repacked across the country, white spaces will 
inevitably disappear. This presents a great challenge for the FCC, 
since it pushed hard for a workable white spaces regime just a few 
years ago, but now faces the real possibility of destroying their worth 
in the broadcast band through repacking. The best way to limit the 
damage to white spaces is to focus on creating a nationwide band plan 
and not one that transfers more spectrum from white spaces to 
commercial wireless operations in rural areas.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                              Harold Feld
    Question 1. In their December 2012 Broadcast Television Spectrum 
Incentive Auction Notice of Proposed Rulemaking (NPRM), the Federal 
Communications Commission (FCC) sought comment on the use of spectrum 
aggregation limits in the forward auction. There is a wide range of 
opinions on this issue. What is the most equitable way for the FCC to 
administer a spectrum screen? Should the FCC require carriers to divest 
comparable spectrum below 1 GHz in order to meet limits? Why or why 
not?
    Answer. Public Knowledge submitted comments to the FCC in its 
pending proceeding reevaluating the spectrum screen urging the FCC to 
adopt an across the board screen that weights spectrum based on 
frequency and market. A copy of the comments, and the supporting 
comments of Professor Jon Peha of Carnegie Mellon University, is 
attached.
    To summarize, Public Knowledge proposes that the FCC's spectrum 
screen takes into account that physical reality that low-band spectrum 
has the best set of physical characteristics in terms of propagation 
characteristics for mobile broadband. Thus, the screen would weigh more 
heavily low-band spectrum under 1 GHz. As the frequency increases, the 
spectrum screen would decrease the weight assigned to frequency 
holdings the higher frequency. Spectrum between 1 GHz and 2 GHZ would 
thus count more toward the screen than spectrum between 2 GHz and 3 
GHz, reflecting the higher energy cost, poorer penetration 
characteristics, and other factors that make this spectrum less useful 
and more expensive to deploy.
    In addition, Public Knowledge proposes that the FCC recognize that 
in rural markets the problem is not generally a shortage of spectrum 
but that lower population density means a lower rate of return on 
higher investment. The FCC should therefore weight the screen to 
reflect this reality by having a higher screen in urban areas (to 
promote competition among the many carriers trying to offer service) 
and a lower screen in rural areas (to lower the cost to the few 
carriers providing rural service by permitting greater aggregation of 
rural low-band spectrum).
    Finally, Public Knowledge proposes a specific penalty to discourage 
warehousing spectrum by increasing the weight for unused spectrum over 
time. With regard to divestiture, Public Knowledge believes that 
providers should divest spectrum if they exceed the screen. Companies 
that exceed the screen as a result of auction wins should be required 
to divest spectrum post-auction before the FCC issues a license for the 
new spectrum.

    Question 1a. Given the fact that it is less expensive to build 
networks using lower-band spectrum, should the FCC consider these costs 
in its evaluation of competition? Why or why not?
    Answer. The Commission absolutely must consider the realities of 
spectrum deployment when evaluating competition policies. We rely upon 
competition to replace regulation as the means of protecting consumers 
in the marketplace. For competition to discipline the largest players 
in the market, the competitive threat must be real.
    If the largest providers can either deprive competitors of needed 
spectrum, then there is no competitive threat. The lack of spectrum 
means that competing carriers can only grow so far before their quality 
of service degrades based on spectrum congestion.
    Dominant carriers can achieve the same effect by driving up the 
cost of spectrum to a point where competitors cannot offer service 
profitably, or cannot afford to undercut the price offered by dominant 
carriers. This is not a function of the ``true'' value of the spectrum, 
but a result of the fact that spectrum is licensed by the Federal 
Government. Unlike almost any other resource, licensed spectrum is a 
true ``zero sum'' game, making it possible for dominant carriers to 
foreclose competitors or artificially drive up cost.
    Because low band spectrum is (a) unique in its physical 
characteristics that lower the cost of deployment, (b) held almost 
entirely by two dominant carriers and (c) limited to a small, set 
number of licenses, it is logical for AT&T and Verizon to attempt to 
foreclose rivals from acquiring it. The FCC must take this reality into 
account.

    Question 1b. Has the FCC considered applying a market-by-market 
review of spectrum assets limited to major markets, since these are the 
areas which have the greatest demand for spectrum? Why or why not?
    Answer. The FCC does not currently distinguish between major urban 
markets and other areas where demand for spectrum is not as great. This 
is problematic, especially as licenses come in a variety of geographic 
areas and there is no clear method for resolving questions of overlap 
in an acquisition. As a result, a carrier may exceed the screen in 
parts of a market post-acquisition without needing to divest.

    Question 2. In March 2010, the Federal Communications Commission 
(FCC) released its National Broadband Plan (NBP). I was hopeful that we 
could clear 120 MHz in the incentive auction, but now it looks like 
there will not be more than 84 MHz cleared in most markets. What do you 
believe will happen to the band plan if less than 84 MHz is made 
available for the incentive auction? It's important to me that we 
maintain room for innovative uses of spectrum, such as white spaces, 
for instance.
    Answer. It is critical to maintain sufficient spectrum for the 
TVWS. An auction that reclaims less than 84 MHz can successfully 
achieve this by using a 12 MHz duplex gap and a 10 MHz guardband 
between the surviving broadcast service and the new 600 MHz service. 
Such a guard band could also include Channel 37, the channel set aside 
for the Wireless Telemetry Medical Service (WMTS).
    The auction will still succeed if it reclaims less than 84 MHz of 
spectrum. In any auction that yields sufficient reclaimed spectrum to 
succeed financially, careful planning can ensure access to the TV bands 
for unlicensed use. It is imperative that the FCC recognize the 
importance of this and structure the band plans accordingly. If 
insufficient spectrum is made available in urban areas for unlicensed 
use, then chip manufacturers cannot achieve the necessary economies of 
scale for rural broadband or innovative urban uses, such as deployment 
as part of the ``Internet of things.''
    Some have proposed that existing vacant TV channels in rural areas 
be auctioned off for supplementary downlink (SDL) regardless of the 
amount of spectrum reclaimed in urban markets. This would be a huge 
mistake. As noted above, the problem in rural areas is not generally a 
shortage of spectrum, but a shortage of providers. In rural areas, 
wireless ISPs (WISPs) using unlicensed spectrum--especially the TVWS--
are providing this service. To deprive these WISPs of needed spectrum 
to auction SDL for trivial amounts to providers that do not need 
additional spectrum for rural deployment would rob rural areas of 
needed broadband services for no worthwhile return.

    Question 3. The Middle Class Tax Relief and Job Creation Act of 
2012 allows the Federal Communications Commission (FCC) to create new 
guard bands in the 600 MHz band for unlicensed use. I am supportive of 
white spaces, and I hope that the FCC will be successful in creating a 
guard band that is adequate for unlicensed and licensed uses. According 
to some estimates, the unlicensed ecosystem generates as much as $50 to 
$100 billion per year for the U.S. economy. How important do you think 
it is to maintain white spaces?
    Answer. Unlicensed in the TVWS represent a unique public resource 
and an enormous economic opportunity for the United States. Because of 
the unique characteristics of the spectrum, availability of unlicensed 
spectrum in the TV bands dramatically lowers the cost for providing 
broadband services. In rural areas, this translates to enhanced 
competition and deployment of quality broadband in unserved areas. In 
urban areas, this translates into a means to extend access to fiber 
through wireless ISPs and hot spots that permit deployment of low-cost 
or even free broadband access to those who cannot afford cable or other 
forms of high speed wireline broadband.
    But more importantly, the TVWS represents the first generation of 
cognitive radio devices. No single application, even the possibility of 
vastly improved low-cost broadband, can adequately capture this value. 
First, the development of this ``next generation'' unlicensed spectrum 
technology provides new means of managing wireless networks that will 
maximize efficiency of all wireless networks by enabling ``smart'' 
radios to use available blocks of spectrum. As with previous 
innovations developed in the unlicensed space, these innovations will 
ultimately be adapted and incorporated into the licensed space to the 
benefit of all, creating a multiplier effect for the wireless economy 
as a whole.\1\
---------------------------------------------------------------------------
    \1\ It is important to understand that these innovations will take 
place in the unlicensed space rather than the licensed space because 
the open nature of the unlicensed space encourages ``innovation without 
permission.'' In economic terms, the lower transaction cost associated 
with developing devices and uses in the unlicensed space (because a 
would-be innovator does not need to find a willing licensee and 
negotiate for access) lowers barrier to entry and facilitates 
innovation in a way wholly different from that of licensed spectrum 
access. See Kevin Werbach and Aalok Mehta, ``The Spectrum Opportunity: 
Sharing As the Solution To The Spectrum Crisis,'' 8 Int'l J. of 
Communication 128 (2014) available at: http://ijoc.org/index.php/ijoc/
article/view/2239/1054 (copy attached).
---------------------------------------------------------------------------
    Additionally, the wealth of devices and new uses that will develop 
using the superior propagation characteristics of the TVWS for 
specialized purposes will create hundreds of billions of dollars in 
revenue and economic surplus annually. A new study by Columbia School 
of Business Professor Raul Katz shows that the availability of 
unlicensed spectrum contributed over $220 billion dollars to the U.S. 
economy in 2013, and directly contributed $6.7 billion to U.S. GDP.\2\ 
Access to the TVWS, because of the unique physical characteristics of 
this spectrum, can be expected to increase this value exponentially 
over time.
---------------------------------------------------------------------------
    \2\ See Raul Katz, ``Assessment of Economic Value of Unlicensed 
Spectrum In the United States,'' available at: http://
www.wififorward.org/wp-content/uploads/2014/01/Value-of-Unlicensed-
Spectrum-to-the-US-Economy-Full-Report.pdf (copy attached).
---------------------------------------------------------------------------
    Finally, by enabling all Americans to directly access this valuable 
spectrum, preservation of the TVWS permits entry for all Americans 
rather than the handful of entities able to afford licenses at auction. 
This is particularly important for small businesses, rural communities, 
and women and minority owned businesses. Preserving the TV white spaces 
allows these traditionally marginalized businesses and communities to 
build their wireless future themselves, rather than wait passively as 
consumers for licensed providers to recognize their worth. The 
unlicensed TV spectrum makes the promise of American entrepreneurialism 
a reality to those who would otherwise stand excluded on the sidelines, 
and converts passive consumers into active creators. We should 
recognize this value, so wholly consistent with our values as 
Americans, despite the fact that it cannot be measured in mere dollars.

                                  
