From: stig@netcom.com (Stig)
Date: Thu, 16 Sep 93 10:29:21 PDT
To: cypherpunks@toad.com
Subject: Fwd: PERSONAL COMMUNICATIONS SERVICES (PCS) SPECTRUM AUCTION
Message-ID: <9309161725.AA28448@netcom2.netcom.com>
MIME-Version: 1.0
Content-Type: text/plain



I thought the Cypherpunks might take an interest in this...

In <9309151633.AA29877@essential.org>, james love wrote...
> 
> Taxpayer Assets Project
> Information Policy Note
> September 15, 1993
> 
> 
>      TAXPAYER ASSETS PROJECT FILES COMMENTS WITH FCC ON
>      PERSONAL COMMUNICATIONS SERVICES (PCS) SPECTRUM AUCTION
> 
>      On Friday September 10, 1993 the Taxpayer Assets Project
> (TAP) filed comments with the Federal Communications Commission
> (FCC) on the proposed auction of spectrum for Personal
> Communications Services (PCS).  PCS is the name for a new class
> of wireless telecommunications services that industry groups
> claim will generate more than $200 billion in revenue by the year
> 2010.
> 
>      TAP's comments addressed two issues, the size of the
> spectrum blocks to be auctioned, and the bidding methods used to
> allocate the PCS licenses.
> 
> BACKGROUND
> 
>      Congress and the Clinton Administration will use auctions to
> award licenses to use new spectrum that was previously allocated
> to the government and other uses.  Industry groups are engaged in
> intense lobbying over the terms of the auctions, which will be
> designed by the FCC.  A key issue is the number of licenses to be
> awarded in each market.  PCS Action, Inc., an industry trade
> group, wants the FCC to limit the number of licenses in each
> market, in order to limit "excessive" competition, that would
> "marginalize" PCS services.  PCS Action prefers two licenses per
> market, and "certainly no more than three."  PCS Action, Inc. has
> also argued that large blocks of spectrum (40 Mhz) are needed for
> each license for technical reasons.  If the large 40 Mhz blocks
> are used the FCC can award no more than 3 license per market.
> 
>      Other potential license holders or PCS competitors have
> argued that much smaller spectrum blocks are technically
> feasible, and would provide more post auction competition.  MCI
> and Bell Atlantic have filed comments with the FCC saying that 20
> Mhz blocks are adequate, and some PCS bidders have indicated that
> blocks as small as 10 Mhz may be large enough.  The issue of the
> size of spectrum blocks is important, since it will determine the
> maximum number of licenses that can be issued in each local
> market.
> 
>      A second issue that has received less attention concerns the
> methods used to receive revenues from winning bidders.  The
> government can require bidders to submit up front cash payments,
> or payments over time, including royalties against future PCS
> revenues.
> 
> 
> 
> TAP COMMENTS ON THE SIZE OF PCS SPECTRUM BLOCKS
> 
>      Regarding the size of the spectrum blocks to be auctioned,
> TAP said:
> 
>      The FCC should allow bidders to purchase the smallest
>      possible blocks of the spectrum, while providing for
>      mechanisms that will allow bidders to aggregate or
>      consolidate blocks, subject to FCC approval. . .
> 
>      By choosing the smallest possible blocks of spectrum to
>      auction, the FCC will assign the initial rights to use the
>      spectrum to a potentially large group of license holders,
>      who can be expected to consider a wider range on innovative
>      PCS services.  However, some important PCS services may
>      require the larger bandwidth.  The FCC can easily
>      accommodate this problem by allowing bidders to aggregate
>      and consolidate spectrum blocks, in order to offer higher
>      bandwidth services.  The aggregation and consolidation of
>      spectrum blocks should be subject to an FCC finding that the
>      new allocation is in the public interest. This procedure
>      would allow more flexibility in determining the size of
>      allocation blocks with each market, and provide better
>      opportunities for smaller firms to bid on spectrum.
> 
>      The initial size of spectrum blocks will be an important
> decision, since it is unlikely that the FCC will "split"
> licenses, even if it turns out that smaller blocks are adequate
> to provide useful PCS services.  By beginning with the "smallest
> possible blocks," the FCC can always allow license holders to
> aggregate and consolidate blocks, if the larger blocks are truly
> needed.  This will also allow local markets to consider a wider
> range of configurations, including combinations of small and
> large blocks, as PCS markets develop.
> 
> 
> TAP CAUTIONS AGAINST BIDDING METHODS THAT RELY EXCESSIVELY UPON
> UP FRONT CASH PAYMENTS
> 
>      TAP also told the FCC the auction should not rely
> excessively on up front cash payments.  The federal government
> can structure the payments on the license in a number of ways,
> including up front cash payments, fixed payments spread out over
> several years, or payments which are contingent on future cash
> flows, such as royalties on future revenues or units of services
> provided.
> 
>      The PCS spectrum auction will be the largest non-financial
> auction held by the federal government.  But the economic value
> of a PCS license will depend upon a highly uncertain cash flow
> over the long period of time.  If the FCC auctions the licenses
> to the highest cash bidders, the government will be asking firms
> to pay now for the rights to enter a business that will not be
> fully developed for many years.
> 
>      TAP raised two objections to excessive reliance upon up
> front cash payments to auction the spectrum.  First, many smaller
> firms will be unlikely to raise enough cash to bid against the
> larger incumbents in the telecommunications markets.  Second,
> bidders will discount the future "economic rents" from licenses
> by a higher "discount rate" than the government's costs of
> capital (the rate of interest on its bonds), leading to excessive
> discounting of license revenues.
> 
>      In order to promote more competition in the auctions, and
> also to increase the present value of license payments, TAP urges
> the FCC to consider a bidding system that combines cash payments
> with payments that are contingent upon future PCS revenues, such
> as a royalty on future PCS revenues.  We believe that over the
> long run, the government (the taxpayers) will earn more from
> royalties on a mature PCS market, than it will earn from up front
> cash payments for licenses.
> 
> ---------------------------------------------------------------
> Taxpayer Assets Project, P.O. Box 19367, Washington, DC 20036
> v. 202/387-8030; f. 202/234-5176; internet:  tap@essential.org
> ---------------------------------------------------------------
> Subscriptions to tap-info are available by sending an email
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> ---------------------------------------------------------------




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