FCC Won’t Order Blind Bids if Auction Ranked Competitive

Rather than require blind bidding per se, the FCC voted to test ahead of time to decide if, based on the number of bidders, the sale is likely to be competitive. If so, the auction will follow time-honored procedures that reveal the identity of bidders at the end of each round.

Comr. Adelstein voiced strong doubt about whether anti- competitive bidding is a problem in spectrum auctions. He asked if collusion was an issue at all in recent FCC auctions. “I understand that some of the Commission staff believe that in adopting blind bidding we are correcting a problem with the current auction structure,” he said: “But while we have identified and fixed harms in the past related to auctions -- such as trailing digits, time stamping, or bid withdrawal signaling -- it is unclear to me what specific harms this proposal is intended to address.”

Adelstein said he is concerned at the opposition of so many small carriers to blind bidding. “I was originally told that small companies would benefit from our blind bidding proposal because it would protect them from becoming victims of large carrier bidding strategies,” he said: “In an interesting twist, it is the smallest carriers who have spoken the loudest against the proposal.”

The Commission adopted, in modified form, a T-Mobile proposal that prior to the auction the FCC examine the “threshold eligibility ratio.” If that ratio is 2 or higher, the FCC will names bidders via standard procedure. Under the test, an auction has a value of 1 if every single license in the auction has one bidder.

U.S. Treasury auctions generally rank 2 on that scale, T-Mobile said. The FCC said it will hold the industry to a still-higher standard and only name bidders if the ratio is 3 or higher. A value of 3 means that at least 3 bidders made an upfront payment for each license.

Chmn. Martin said collusion remains a problem, according to evidence presented to the Commission. “If there were enough people actually competing in the auction, if there were enough providers that were trying to compete in each geographic there wasn’t the same concern,” Martin told reporters: “That was something that was pointed out by one of the parties and actually our staff agreed and said that was a helpful suggestion.” Asked if AWS, owing to its potential size, is the correct auction in which to test blind bidding, Martin replied: “I'd be concerned in such a major auction to allow collusion to go forward and to not make changes.”

The FCC will complete work on an item on designated entity issues prior to the AWS auction, Martin said. “Several of the commissioners talked about [how] it was important to end up getting it done, and I think so too,” he said: “As a matter of fact that’s why I circulated an item trying to address it several weeks ago.”

Comr. Copps said he has concerns about the public notice. “There remains concern that our decision could lead to unintended consequences,” he said: “It’s often the case when significant change is quickly arrive at. A worst case scenario here, of course, would involve fewer bidders participating in the auction and less revenues raised in the process.”

Comr. Tate said she generally supports markets and opposes regulatory intervention except when necessary spectrum auctions present different issues. But “I had to step back from this and think this really isn’t the marketplace, this is an auction,” she said: “We are the auctioneers and there are rules that the auction needs to have in place for the parties to abide by.”

The AWS auction is expected to begin June 29, offering 90 MHz of spectrum and 1,122 licenses. The auction is expected to net $8 billion to $15 billion.

FCC officials said they have not checked to see how many recent auctions would pass the new test. But T-Mobile said based on its calculations auction No. 5 (PCS C block) in 1995-96 had an eligibility ratio of 6.72, but the ratios of other auctions fell below the threshold. Auction No. 58 in 2005 (PCS mainly C and F blocks) came in below the threshold at 2.94. Auction No. 4 (PCS A and B blocks) in 1994-95 had an eligibility ratio of 1.93.

Even if bidder identity remains secret as the auction progresses, the FCC will provide names of bidders when they file short forms prior to the auction and information on which bidders meet eligibility requirements, the amounts of all the bids at the end of each round for each license and identities of each winning bidder at auction’s conclusion.

Medley Global Advisors said in a research report: “Now that these rules have been established, the probability of the auction being delayed is extremely low, which is good news for both carriers and manufacturers.”

The FCC will run the event in a traditional simultaneous multiple round auction format, rather than experiment with other procedures.