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DOC-327109A6

DISSENTING STATEMENT OF

COMMISSIONER MICHAEL O’RIELLY

Re:
Policies Regarding Mobile Spectrum Holdings, Report and Order, WT Docket No. 12-269
Today’s order effectively replaces our centuries-old belief in the American free market system, as
embodied in the Commission’s auction process, with one that seeks to produce a specific outcome to
benefit a select few. I am sure some will assert that this market manipulation is all in the “public
interest,” but I can’t agree with such an argument or the resulting outcome.
At the heart of the item is an enormous thumb the agency places on the scale of future secondary
market transactions involving low-band spectrum and, most concerning, the upcoming Broadcast
Incentive Auction. Substituting the proven success of market-based spectrum allocation with the
Commission’s subjective judgment goes against the spirit and, more importantly, the letter of the law. It
also will result in consumer-harming inefficiencies, and could readily lead to a failed Incentive Auction.
Accordingly, I strongly dissent.
The Spectrum Act directs the Commission to set up a market mechanism to determine the highest
valued use of the 600 MHz band.1 A free and unfettered market is critical to the Incentive Auction. It
will determine whether broadcast or wireless broadband is the best economic use of this spectrum and it
will allocate new licenses among wireless providers. The revenues raised should also fund the First
Responder Network Authority, the Next Generation 911 program and deficit reduction, among other
Congressional priorities. With revenue so intrinsic to success, the statute specifically prohibits the
Commission from excluding certain parties from participating in the auction, but it allows rules of general
applicability for spectrum aggregation to guard against undue spectrum concentration in any market.2
The language in the law was a hard-fought compromise. It was intended to prevent the exact
circumstances now contained in the order: specifically targeting the two largest nationwide wireless
providers. The item blatantly disregards the statute and sadly adopts the concept that the ends justify the
means.
Throughout this rulemaking process, some companies have insisted that the Commission tip the
scales in their favor in the upcoming Incentive Auction. We are told that the government must use this
opportunity to correct a “historical accident” that has resulted in some providers claiming they need more
low-band spectrum. And the order falls for this argument by effectively creating a set-aside within the
Incentive Auction for these parties. Specifically, the item states that once the final stage rule is met, any
bidder that is a nationwide service provider and holds 45 megahertz or more of spectrum below 1 GHz
will be precluded from bidding on a certain amount of “reserved” spectrum. In contrast, the non-
restricted bidders are free to bid on all available spectrum—reserved and non-reserved—regardless of
their total spectrum holdings.
But what some call correcting a “historical accident,”3 I call corporate welfare for certain
multinational companies with large market capitalizations and access to global capital markets. In some
cases, the companies also have strong backing by foreign governments. Why, with so much riding on the

1 Middle Class Tax Relief and Job Creation Act of 2012, Pub. L. No. 112-96, §§ 6402, 6403, 126 Stat. 156, 224-230
(2012).
2 Id. § 6404, 126 Stat. at 230.
3 See, e.g., Letter from Tom Wheeler, Chairman, Federal Communications Commission, to Tammy Duckworth,
Member, U.S. House of Representatives (Apr. 17, 2014); Kate Tummarrello, FCC Chief Defends Plan to Limit
Large Carriers in Auction
, THE HILL, Apr. 17, 2014, http://thehill.com/policy/technology/203822-fcc-chief-defends-" title="http://thehill.com/policy/technology/203822-fcc-chief-defends-">http://thehill.com/policy/technology/203822-fcc-chief-defends-
limits-in-airwave-auction.

success of this auction, would the Commission add to the complexity and risk lowering auction revenues
in order to allow a favored few to buy this spectrum at below-market rates? If this set-aside is so critical
to wireless competition, why may it only be triggered if the Commission hits a certain revenue target?
Over the years, wireless providers have made deliberate and strategic decisions regarding when
they should and should not participate in various auctions (including low-band spectrum auctions), when
and where to invest and build, whether to focus on urban or rural markets, and what mergers or secondary
market transactions to enter into. Where the various companies are today is a direct result of such
decisions, not by accident. Some companies now want a spectrum subsidy to acquire the same kind of
low-band spectrum that they passed on previously in favor of high-band frequencies.
Free market spectrum auctions award licenses to those who value the spectrum the most and
will put it to its greatest use. In attempting to equalize outcomes between competitors, unintended
consequences may result and consumers may not receive the benefits of the best the marketplace has to
offer. Even if these set-asides do not tank the Incentive Auction, we will never know the full opportunity
cost of these decisions, i.e., the counterfactual. How much money could the auction have raised without
intervention? Would non-favored companies, if allowed to bid freely and win, have provided consumers
with superior products or services? We will never know the extent, but those societal losses are real.
Today’s action also penalizes American consumers who subscribe to the wireless providers confined to
unreserved spectrum. Why should those consumers endure slower Internet speeds due to network
congestion to satisfy an arbitrary policy goal?
There can be no justification for going down this path of picking winners and losers in the auction
process. If the concern is spectrum concentration in a market, the spectrum screen addresses that issue. If
rural markets are the top concern, as some claim, then why distort the highly competitive urban markets?
If the concern is warehousing, that can be addressed through our build out rules that require licensees to
invest in a network and serve customers by a date certain. If the claim is competitive foreclosure, show
me the evidence, not abstract theoretical possibilities.
I hope that we will reverse course and hold a free and open auction in which all parties can
compete for spectrum licenses equally. But as we go forward, licensees who obtain “reserved” spectrum
should not look to me for any type of special relief, including any extensions of build out deadlines or
sign off when they seek permission to “flip” their licenses.

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