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«Chairman Pryor, Ranking Member Wicker and members of the subcommittee, I am Ted Carlson, Chairman of United States Cellular Corporation. Thank you ...»

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basis of geographic license areas no larger than Economic Areas (“EAs”). Only by offering smaller license areas can the FCC preserve opportunities for small and regional carriers, as well as new entrants, to provide an important source of competition, variety, and diversity in rural and less densely populated areas. Small license areas permit entities which are only interested in serving rural areas to acquire licenses for these areas alone and avoid acquiring licenses covering high population areas that would be prohibitively expensive for these carriers.

See id.at 129.

Of vital relevance to today’s hearing, licensing the 600 MHz band using service areas no larger than EAs therefore would be the most effective means for the FCC to foster the prompt availability of competitive wireless broadband services to rural markets. At the same time, all carriers would benefit because small license areas would allow more targeted spectrum acquisitions, while not discriminating in favor of any single business plan.

In contrast, nationwide or super regional license areas, which U.S. Cellular strongly opposes, would significantly disadvantage small and regional carriers, as well as consumers in small and rural markets, to the benefit of the already dominant national carriers. The use of these large service areas skews auctions in favor of large financially stronger bidders, effectively foreclosing smaller bidders from participating in an auction. Not only do small carriers lack the need for large swaths of territory, they lack the financial resources to compete for nationwide or large regional licenses. Unlike the national carriers, smaller carriers cannot afford to acquire and “warehouse” spectrum for future use that does not meet their near-term business objectives. Thus, the practical effect of having a band plan that includes very large market areas is to place a significant portion of the auctioned spectrum in the hands of the few national carriers, which historically have not given priority to small and rural markets. As a consequence, rural deployment of the innovative and advanced types of services made possible by the 600 MHz spectrum would likely be significantly delayed, if not precluded entirely, if the FCC licenses this spectrum on a nationwide or large regional basis. At the same time, larger carriers would not be disadvantaged by the use of smaller license areas because they would still have realistic opportunities to aggregate licenses individually.25 In other words, auctioning small license areas benefits all carriers by allowing them to take a building block approach and assemble as much coverage area as is needed.

U.S. Cellular further urged the FCC to ensure that smaller carriers are adequately protected if the FCC decides to auction generic licenses in the forward auction. For instance, the generic licenses should be as similar and technically interchangeable as possible, and the FCC should establish only two classes of generic licenses – those for paired spectrum blocks and those for supplemental, downlink-only blocks. Not only would additional subdivisions further complicate the auction, they would make interoperability less likely because the largest carriers could dominate a particular subdivision to the exclusion of other bidders. In addition, the subsequent license assignment process must be entirely random. If the FCC instead incorporates any preferences into this process, it would greatly advantage the largest carriers, which will be both more likely to have multiple blocks in the same market and licenses in adjacent markets. The result could be to force all other 600 MHz licensees into distinct portions of the 600 MHz band that are devoid of the largest carriers and their ability to drive the device ecosystem. Even more important, under no circumstances should the FCC establish an allocation process that involves additional bids. Such a process would leave bidders who have already made financial commitments subject to an uncertain further commitment and would increase the likelihood of relegating smaller carriers to spectrum assignments which lack any of the largest carriers and a device ecosystem.

See Incentive Auction NPRM, 27 FCC Rcd at 12411 (“EAs nest within and may be aggregated up to larger license areas … for operators seeking larger service areas.”).

Another action necessary to ensure adequate opportunities for small and regional carriers is for the FCC to adopt an auction-specific spectrum aggregation limit that prohibits any applicant from acquiring more than 25 percent of the 600 MHz spectrum made available in a single geographic market. Absent such a limit, the FCC would risk another Auction 73, which was dominated by the two largest carriers and which resulted in a lack of interoperability among Lower 700 MHz band handsets and the “stranding” of 700 MHz A Block licenses. Such a limit also would be consistent with the mandate of Section 309(j)(3)(B) of the Communications Act26 to “avoid excessive concentration of licenses” and to disseminate licenses among “a wide variety of applicants.”27The FCC should impose this limit in advance of the forward auction, which would deter applicants from acquiring more spectrum than they can use and preventing smaller bidders from acquiring the spectrum. Allowing post-auction divestitures is not really a solution because this would enable the largest carriers to choose among the competitors to which to divest their spectrum, which could further harm competition.

U.S. Cellular does not ask for a ban on the ability of the largest carriers to participate, but only a reasonable limit on how much spectrum one carrier may acquire.

Prohibiting the use of combinatorial, or “package,” bidding is another action necessary to ensure adequate competition during the auction by small and regional carriers. Permitting combinatorial bidding for any portion of the 600 MHz licenses would harm small, rural and regional carriers, as well as prospective new entrants, while benefiting only the largest carriers. Combinatorial bidding would add unnecessary complexity to what is already likely to be the most complicated spectrum auction in the 47 U.S.C. §309(j)(3)(B).

See Incentive Auction NRPM, 27 FCC Rcd at 12484.

nation’s history. The burden of such complexity and the increased risk it creates, would fall disproportionately on smaller bidders and could deter their participation. The lesson of past auctions is clear. The rules required to enable combinatorial bidding create unintended opportunities for larger bidders to enhance their bidding power, exploit the rules, and ultimately win licenses at lower prices. Even absent the use of “strategic bidding”, combinatorial bidding would increase the likelihood that large bidders will tieup multiple licenses in nationwide or super-regional package bids, and thereby exclude smaller carriers with targeted business plans from acquiring the spectrum necessary to serve rural areas. The benefits achieved by offering small geographic license areas can be undone by package bidding rules.

Further, unlike a license-by-license aggregation strategy, combinatorial bidding could create a situation where the FCC is forced to accept a package bid for a group of licenses even though small or rural carriers may have placed higher bids, on a per-pop basis, for one or more of the licenses included in the package. The result is that combinatorial bidding biases auction results in favor of the combination bid, disadvantaging all but the largest bidders and likely excluding small bidders from any meaningful auction success. These adverse consequences of combinatorial bidding raise legal issues as to whether the Commission has actually granted licenses to the parties that valued them most highly. Moreover, the bias against all but the largest bidders potentially has the effect of forcing all other bidders to bid more aggressively on the remaining licenses that are not included in any package. This distortion would increase the prices of these licenses, resulting in an extra burden on smaller bidders that may easily deprive them of licenses. At the same time, package bidding is unnecessary because adequate spectrum aggregation opportunities are available under the FCC’s standard auction procedures.

Similarly, if the FCC is seeking a robust auction that will truly allow the spectrum to be sold at its highest value, all participants should know the identities of the other bidders, their bid amounts, and their eligibility. Particularly for smaller bidders, license valuations are based on certain factors that are dependent on the business plans of other licensees, who together provide the scale to support an interoperable ecosystem of devices, network equipment, and roaming arrangements. While a large bidder may be able to “go it alone” and may in fact be advantaged by an exclusive ecosystem, smaller bidders need to know they will have help building that ecosystem. Because these opportunities are essential for a smaller carrier’s network to be economically viable, a lack of such information would create substantial risks for these bidders, likely reducing or eliminating their participation in the forward auction.

A transparent auction process is particularly important for small and regional carriers for other reasons as well. For instance, the process of valuing spectrum is extremely complex and challenging, all the more so here because of the uncertainty about what spectrum will be available in the forward auction. In this way, smaller bidders face additional risks from the use of blind bidding because they lack the more sophisticated market intelligence and analytical capabilities of the larger bidders. An open auction therefore would help to level the playing field, as well as to provide information that is uniquely beneficial to smaller bidders. For instance, because smaller bidders may have less experience with spectrum auctions and lack the resources used by large carriers in making valuation decisions, smaller bidders often find it helpful to take note of how larger carriers value spectrum. Smaller bidders also may assign a lower value to a market in a region dominated by a few larger carriers, compared to a region with several other smaller carriers. Because blind bidding prevents these carriers from knowing this information, they face greater risks in the auction process compared to large bidders, and therefore rationally reduce their level of participation and the size of their bids. For these reasons, the information disparities created by blind bidding will have a disproportionately adverse effect on smaller bidders.

Further, while blind bidding gives rise to substantial public interest harms, its advantages are largely theoretical and marginal, making blind bidding unnecessary.

There have been no serious allegations of collusive bidding in recent auctions and, since the early auctions that were affected by collusion, the FCC and the Department of Justice have revised their standards and pursued enforcement actions. Moreover, publicly disclosing bidding information actually assists the FCC with enforcing its anticollusion rules because the FCC is most likely to learn of collusive behavior by being alerted to suspicious activity by other auction participants. In contrast, when participants are denied bidding information, they are less likely to be able to identify and disclose suspicious bidding patterns.

Additional Federal and Non-Federal Auction Spectrum:

As the FCC recently noted, it is critical that additional spectrum be made available for mobile broadband in order to “help ensure that the speed, capacity, and ubiquity of the nation’s wireless networks keeps pace with the skyrocketing demand for mobile service.”28 It is for this reason that the Spectrum Act required the FCC and NTIA to take a number of actions to make additional wireless broadband spectrum available for commercial licensed use. Specifically, the Spectrum Act identified the spectrum to be withdrawn from Federal uses so that it could be allocated, auctioned, and licensed by the FCC for commercial use. It also required the FCC to auction and license additional non-Federal bands and set a February 2015 deadline by which the auctioning and licensing of all such Federal and non-Federal spectrum must be completed.

The FCC is currently preparing to hold the auctions involving three sets of spectrum that must be auctioned and licensed before the February 2015 statutory deadline, including: (i)an auction of AWS-2/H Block non-Federal spectrum commencing possibly late in 2013; (ii) 1.6 GHz reallocated Federal spectrum to be paired with unidentified spectrum commencing in 2014; and (iii) a proposed auction of 1.7 GHz reallocated Federal spectrum to be paired with AWS-3/Upper J Block non-Federal spectrum to be held in late 2014/early 2015. The following table provides additional detail regarding these auctions, which likely will be completed prior to the 600 MHz incentive auction, which is not subject to the same statutory deadline.

–  –  –

Considering the skyrocketing demand for mobile broadband services and the fact that the last FCC auction for commercial mobile spectrum took place more than five years ago, deployment of the spectrum to be offered in these upcoming FCC auctions is expected to play a critical role in ensuring that rural carriers, as well as other wireless providers, meet rising consumer demand and continue to provide the public with The 1.7 GHz portion of the 1.7-2.1 GHz pairing will only be available for auction if it is repurposed from Federal to non-Federal uses, which the FCC requested that NTIA consider in a recent FCC letter to The Honorable Lawrence E. Strickling dated March 20. 2013.The upper half of this pairing particularly AWS-3 is required by statute to be auctioned before February of 2015.

transformative innovations. This spectrum is particularly well-suited for mobile broadband as it is adjacent to the widely-deployed PCS and AWS bands, which are used by carriers of various sizes to offer mobile service across the nation. The fact that this spectrum can be auctioned and made available for deployment sooner than the 600 MHz band also makes this spectrum uniquely valuable to rural and regional providers in meeting their near-term needs, considering that they have not been able to meet their spectrum needs through auction purchases for many years.

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