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Cable Technology Feature Article

August 16, 2013

Will Economic or Political Rationality Prevail for TV Spectrum Auctions?

By Gary Kim, Contributing Editor

It is not uncommon, nor irrational, for national regulators, intent on creating and maintaining robustly competitive mobile markets, to conclude that some minimum amount of competition is required to obtain the benefits of innovation in the business.

For many national regulators, that results in a belief that four national competitors are necessary to ensure the benefits of robust competition. The corollary is that any proposed reduction of providers to three, for example, is opposed on policy grounds.

Whether or not that is a realistic expectation is the larger issue. Over time, capital-intensive communications markets have a “natural” tendency to feature just a handful of viable providers, with sustainable business models.

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On the assumption that a monopoly is to be avoided, the policy questions begin when the number of sustainable competitors is just two. Is a duopoly the best way to promote competition?

Ignoring for the moment intermodal competition (fixed network, mobile network, satellite, for example), some might argue that, on an intramodal basis (all contestants using wired fixed networks, for example), two robust competitors, especially with distinct legacy cultures and values, can provide a reasonable amount of competition.

Up to this point, competition between cable TV companies and fixed network telcos in the U.S. market provides an example. But many not question how well that might work in the future.

Recent deals between Verizon (News - Alert) and some U.S. cable operators, allowing each to distribute the other provider’s products, have raised the specter of diminishing competition. The argument is that Verizon increasingly will emphasize its mobile offerings, while cable TV operators increasingly are allowed to take fixed network broadband share, reducing the potential amount of competition, at least in the high speed access business (both fixed and mobile)

With spectrum formerly used by TV broadcasters coming up for auction, a similar line of thinking is that more competition would occur if AT&T (News - Alert) and Verizon Wireless, the market leaders, were not allowed to bid on, or acquire, as much spectrum in those auctions as might be possible.

Instead, one line of thinking goes, the other contenders, especially T-Mobile (News - Alert) US and Sprint, should have some sort of set-asides. Some might argue that AT&T and Verizon Wireless should not be allowed to bid at all, though that policy is likely so extreme it has no chance of emerging.

To be sure, any policy favoring T-Mobile US or Sprint (News - Alert) would enhance the equity values of those two firms. Whether, in the long term, either would effectively be able to leverage the additional spectrum into a disruptive market position is the issue.

Some would argue that the greatest consumer benefit would result if the best-placed competitors could use the spectrum, if allowed to buy as much as the auction process permits.

As always, that might be the “best” economic rationality. Whether it ultimately is the best political rationality always is the question. One might argue that, over the long term, economic rationality tends to prevail.

None of that means political rationality will not win, in the short term.

Edited by Alisen Downey

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