Rethinking telecom regulation

You’d think that Congress would be thrilled that the FCC raised $19 billion in the 700 MHz auction. That wasn’t the case, though, as they had to testify as to what went wrong with the largest swatch of bandwidth being auctioned: The C-Block. Thanks to some lobbying by Google, the winner of that block is required to allow any device to run on the network, as well as any application. So, what could possibly have gone wrong with an auction that raised a dump truck of money?

I’ve written about this at length before, so I won’t rehash. But the point we’re considering is that Google prevailed with their open-access request, yet didn’t make a huge push to actually win the spectrum involved. In fact, some lawmakers believe they gamed the auction for their own gain. Google actually didn’t deny that:

“Based on the way that the bidding played out, our participation in the auction helped ensure that the C Block met the reserve price,” wrote Richard Whitt, Google’s Washington, D.C., telecom and media counsel, and Joseph Faber, Google’s corporate counsel. “In turn, that helped increase the revenues raised for the U.S. Treasury, while making sure that the openness conditions would be applied to the ultimate licensee.”

What basically happened was that Google put the bid over the $4.6 billion reserve mark — something it had promised it would do anyway. Verizon then topped them, and that was the end of the bidding for the C-Block. AT&T didn’t even bother. They opted to pick up smaller licenses rather than conform their network standards to heavy regulation.

Of course, Google had every reason to want open access. Clearly, they had already planned Android, their open-source mobile operating system. Afraid of resistance from the big telecoms, they wanted to ensure that phones featuring their operating system wouldn’t be shut out. Removing carrier-based restrictions was their plan, and it worked…to an extent.

The biggest problem, as noted by Democratic lawmakers, was that the auction brought little new competition to the marketplace. The areas most ripe for new entrants were in the A- and B-Blocks, which were smaller swaths of spectrum. However, because AT&T disdained the regulation on the top spectrum, it bought up much of the lower end, shutting out many would-be competitors.

Rather than letting this be a calling card for deregulation, I think it’s more a cry against careless regulation. To answer Congress’s question of where the auction went wrong, I’d be the first to answer “Google.” They knew what they wanted, and they argued well enough that they got some of it. However, they didn’t share a goal with the FCC, who wanted to 1) raise a large sum of money and 2) supposedly let a new competitor or two into the market.

This could have been accomplished if the commission created the rules for the auction based on its goals, not on what Google wanted and lobbied for. If they really wanted to bring in new competition, they could have taken a note from our neighbors to the north. Canada is holding a spectrum auction, and they’re reserving a block for companies with little to no market share. Combined with a rule that the existing big carriers — Rogers, Telus, and Bell — must allow the new entrants access to their networks while the new networks are being built, and you have rules that are conducive to the goals set.

If we had done something similar in the U.S., the FCC might not be coming under fire for raising $19 billion.