AWS Auction Success Kills DBS As Viable Competitor to Cable
AWS Auction Success Kills DBS As Viable Competitor to Cable
AWS Auction Success Kills DBS As Viable Competitor to Cable

    Get Involved Today

    Although the results were pretty clear a month ago, the FCC officially declared the AWS Auction (aka Auction No. 66) over. The auction raised about $14 billion dollars and, unsurprisingly, the folks are rushing to declare success. FCC Chairman Martin observed that 104 companies won licenses in the auction and that he fully expects to see mobile tv and other advanced services deployed. Scott Clealand, shill for telco anti-net neutrality group, declares once again that the auction will produce even more competition into the already super competitive market of broadband. Even the usually sensible Blair Levin of Legg Mason is quoted in this Washington Post story saying “there's no bad news in this auction for consumers.”

    Well, I suppose, in the sense that we will continue to have exactly the same players locking up the wireless and broadband markets, the auction wasn't bad. We could look at it as the incumbent telcos and the cable cos paying $14 Billion to keep competitors out. I guess that's something.

    Confused? I argued awhile back that letting incumbent cable operators win wireless licenses was a huge, anticompetitive mistake. If we wanted to create competition in video and broadband services, we needed to prevent the dominant incumbents from blocking new entrants by outbidding them on licenses. (A recommendation echoed by Free Press in their recent Broadband Reality II Report). For similar pro-competitive reasons, I pushed for anonymous bidding in spectrum auctions to keep incumbents from blocking potentially disruptive new entrants.

    In the lead up to the auction, I predicted that DBS providers absolutely needed to win licenses to stay competitive with cable companies, and that the cable cos would therefore block (or drive up the price) of licenses the DBS providers wanted. Sure enough, “Spectrum Co.” and the large incumbent wireless providers knocked out the Echostar-DIRECTV partnership in the first two weeks.

    The result? DIRECTV owner Rupert Murdoch has taken to referring to DIRECTV as a “turd bird” and has reportedly offered his controlling interest in DIRECTV to Liberty Media owner John Malone in exchange for Malone's 17% interest in Murdoch's News Corp. Why is Murdoch looking to sell after he spent so much effort to block Echostar from acquiring DIRECTV and acquire it himself only 3 years ago? Because DIRECTV has no viable broadband strategy. And without a viable broadband strategy, DIRECTV cannot take customers away from incumbent cable operators.

    The DBS companies hoped to stay in the game with the AWS auction. They were blocked by Spectrum Co., aka Comcast and Time Warner (the dominant cable companies). This is the wonderful world of competition that the AWS auction has given us?

    Checking out the rest of the “104 companies” that one shows similar disappointments from a competition standpoint. The biggest winners in addition to Spectrum Co. were Verizon and T-Mobile, followed by a list of regional wireless companies looking to expand their footprints. The only potentially disruptive bidder was Alen Salmesi's AWS Wireless partnership. Salmesi gained fame as the man who bid outrageously in the 1994 PCS auction to get licenses for Nextwave Communiations, declared bankruptcy to avoid payment, then — thanks to a Supreme Court decision that the bankruptcy code outranked the Communications Act — sold out at a tidy profit to Nextel. This history does not inspire me to believe that Salmesi intends to rock the wireless boat.

    And don't look to Spectrum Co. to get agressive in wireless by offering their own cellular service. Comcast has already made it clear they have no intention of competing in the cellular market.

    On the network neutrality front, I have observed before that the incumbent wireless providers are even worse on blocking and otehrwise controlling the user's online experience than the wireline incumbents. And, given that the biggest wireless incumbents are either owned by wireline incumbents (Verizon, AT&T) or have partnerships with them to jointly provide services (Sprint/Nextel with Comcast & TW), I don't see cellular wireless/wireline competition as impacting either price or user control. EVDO and the like will provide a good supplement in the form of mobile services, or areas that can't otherwise get wireline broadband. But the idea that Verizon Wireless provides enough competition to Verizon DSL that Verizon DSL won't dare degrade rival content because I will switch seems rather ludicrous.

    Again, given the rush to declare the AWS auction a success, I doubt we will see any real change in the rules governing the upcomming 800 MHz auction for the returned analog tv spectrum. Given the huge political push-back against anonymous bidding in the AWS auction, I expect the “success” of the AWS auction will provide sufficient justification to keep open bidding and allow wireline incumbents to compete. I also predict much lower bids in the 800 MHz auction, because the potentially disruptive players (like the DBS folks) will not waste their time and resources to come play in a rigged game, even if it is the only game in town.

    Of course, that assumes the survival of potentially competitive bidders until the 800 MHz auction in 2008. Given our great “success” with developing a “highly competitive” broadband market and a “highly competitive” wireless market, wherein the chief cable competitor is a turd bird and the chief overbuilder competitor is looking hard at exiting the business, I'm not that confident that we will have competitive bidders left by the time the 800 MHz auction rolls around.