Small Carriers Face Tough Fight on Reverse Auctions

The FCC’s two Republicans, Robert McDowell and Meredith Baker, oppose flash-cut proposals, but generally support auctions as a way of injecting “market efficiencies” into the USF, said an agency official. Commissioner Michael Copps reluctantly supported a reverse auction pilot program as part of a broader USF overhaul push that came just short of being approved by the commission in late 2008. Commissioner Mignon Clyburn has yet to take a stand. All five commissioners supported an Oct. 14 notice of proposed rulemaking on a new Mobility Fund, which included a reverse auction proposal (CD Oct 15 p5).

The Federal State Joint Board on Universal Service has weighed in against reverse auctions (CD May 4 p2) as have numerous carriers, at public forums and in filings at the commission.

"Reverse auctions certainly imply fiscal discipline, which is where the political energy is these days,” said MF Global analyst Paul Gallant. “If auctions are done fairly, there shouldn’t be a radical impact on any particular set of companies."

Small carriers aren’t in a great bargaining position, though that could change if the Hill engages on USF and intercarrier compensation issues, said Jeff Silva, analyst at Medley Global Advisors. “My sense is what you see with reverse auctions is but a microcosm of the kind of angst rural carriers -- wireline and wireless -- will experience as universal service fund/intercarrier compensation reform plays out in coming months,” Silva said. “It will be a difficult process for rural telecom operators, but because major stakeholders are anxious to craft an industry consensus for FCC consideration, I believe serious efforts will be made to accommodate rural carriers where it is possible."

Public Knowledge Legal Director Harold Feld said he doubts Genachowski will push forward on reverse auctions without solid support from at least one of his fellow Democrats. “That said, opponents of reverse auctions need to propose alternatives that offer some element of cost control/cost containment,” Feld said Monday. “Small carriers are fighting a well-entrenched narrative that USF is awash in waste, fraud and abuse and that we can solve our USF problems through greater efficiencies. Regardless of the truth, it is a very convenient narrative in a world where we want to cap USF contributions.”

A wireless industry official opposed to reverse auctions said he has been assured by Genachowski that he has not made up his mind yet on whether to push auctions as part of a broader USF overhaul. “I believe it is fair to say that the bureau staff is locked in on reverse auctions,” the official said. “In isolation, the concept of auctions is attractive but it needs to work as part of comprehensive reform and I think that the recipe for that stew is still in the initial stages."

Rural Cellular Association President Steve Berry said his group remains opposed to reverse auctions. “Reverse auctions are an invitation for the largest of carriers to come into a market and eliminate the competition in one fell swoop,” Berry said. “The FCC recognized they have a problem -- so one of the things the FCC did was to include a modeling concept for a minimum bid structure in the reverse auction process, in an attempt to counter the reality that a larger carrier could under bid everyone and create another monopoly market area.” Berry said the FCC model doesn’t “factor in the long term costs to the consumer” of “eliminating competition in the market place for rural America.”