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Auction Rules and Process

For the 700-MHz auction, the FCC designed a new multi round process that limits the number of package bids that each bidder can submit (12 items and 12 package bids) and the prices at which they can be submitted, provides computationally intensive feedback prices similar to the pricing approach. This package bidding process (which is often referred to as combinatorial auctions) was the first of its kind to be used by the FCC in an actual auction. Bidders were allowed to bid on individual licenses or on an all-or-nothing bid which could be done up to twelve packages, which the bidder determined at any point in the auction. Doing the auction this way allowed the bidder to avoid the exposure problem when licenses are complements. The provisional winning bids are the set of consistent bids that maximize total revenues. The 700 MHz auction represented a good test-case for package bidding for two reasons. First, the 700 MHz auction only involves 12 licenses: 2 bands (one 10 MHz and one 20 MHz) in each of the 6 regions. Secondly, perspective bidders had expressed interest in alternative packaging because some Internet service providers had different needs and the flexibility would benefit them. The FCC issued Public Notice DA00-1486 adopted and described the package bidding rules for the 700 MHz auction.

The FCC’s original proposal allowed only nine package bids: the six 30 MHz regional bids and three nationwide bids (10, 20, or 30 MHz). Although these nine packages were consistent with the expressed desires or many perspective bidders, others felt that the nine packages were too restrictive. The activity rule is unchanged, aside from a new definition of activity and a lower activity requirement of 50%. A bidder must be active on 50% of its current eligibility or its eligibility in the next round will be reduced to two times its activity. Bids made in different rounds were treated as mutually exclusive and a bidder wishing to add a license or package to its provisional winnings must renew the provisional winning bids in the current round.

The FCC placed important rules on public safety for the auction. 20 MHz of the valuable 700 MHz spectrum were set aside for the creation of a public/private partnership that will eventually roll out to a new nationwide broadband network tailored to the requirements of public safety. The FCC offered the commercial licensee extra spectrum adjacent to the public safety block that the licensee can use as it wants. The licensee is allowed to use whatever bandwidth that is available on the public safety side of the network to offer data services of their own.

Results of the Auction

Auction 73 generally went as planned by telecommunications analysts. In total, Auction 73 raised $19.592 billion. Notably, Verizon Wireless and AT&T Mobility together accounted for $16.3 billion of the total revenue. Of the 214 approved applicants, 101 successfully purchased at least one license. Despite their heavy involvement with the auction, Google did not purchase any licenses. However, Google did place the minimum bid on Block C licenses in order to ensure that the license would be required to be open-access.

The results for each of the five blocks:

• Block A – Verizon Wireless and U.S. Cellular both bought 25 licenses each. In this block, Verizon targeted urban areas, while U.S. Cellular bought licenses primarily in the northern portion of the U.S. Cavalier Telephone and CenturyTel also bought 23 and 21 licenses, respectively.

• Block B – AT&T Mobility was the biggest buyer in the B block, with 227 licenses totaling $6.6 billion. U.S. Cellular and Verizon bought 127 and 77 licenses, respectively. AT&T Mobility and Verizon Wireless bought licenses around the country, while U.S. Cellular continued with its strategy to buy licenses in northern regions.

• Block C – Of the 10 licenses in the C Block, Verizon Wireless bought the 7 that cover the continuous 48 states (and Hawaii). Those seven licenses cost Verizon roughly $4.7 Billion. Of the other three, Triad Broadcasting bought the two covering the Alaska, Puerto Rico and the U.S. Virgin Islands, while Small Ventures USA L.P. bought the one covering the Gulf of Mexico.

• Block D – Amid some controversy, no licenses were sold in Block D because the reserve price was not met. The FCC had set the reserve price on the spectrum at $1.3 billion, but the highest bidder (Qualcomm) only bid $472 million. This piece of spectrum remains unsold and has not been scheduled for another auction.

• Block E – EchoStar spent $711 million to purchase 168 of the 176 available Block E licenses. This block, made up of unpaired spectrum, will likely be used to stream television shows. Qualcomm also bought 5 licenses.

After the end of Auction 73, there remained some licenses that either went unsold or were defaulted on by the winning bidder from Blocks A and B. On April 15, 2011, the FCC announced that a new auction, Auction 92, would be held on July 19, 2011 to sell the 700 MHz band licenses that were still available.