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FRED UPTON, MICHIGAN

HENRY A. WAXMAN, CALIFORNIA

CHAIRMAN

RANKING MEMBER

ONE HUNDRED THIRTEENTH CONGRESS

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COMMITTEE ON ENERGY AND COMMERCE

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WASHINGTON, DC 20515-6115

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May 2, 2014

The llonorable Tom Wheeler

Chairman

Federal Communications Commission

445 12'h Street SW

Washington, DC 20554

Dear Chairman Wheeler:

The broadcast incentive auctions that Congress authorized in the Middle Class Tax Relief

and Job Creation Act of 2012 are an incredible opportunity for the United States to continue its

world leadership in spectrum innovation, bring valuable spectrum to market to meet our nation's

wireless broadband demand, and generate needed revenue for the Treasury. Unfortunately, and

in conflict with the plain language of the statute, it appears that the Commission intends to set

aside spectrum licenses within the auction and prohibit certain bidders from winning those

licenses. This type of market manipulation has been tried before to the detriment of auction

participation, revenue, and wireless broadband progress. We have serious concerns with the

Commission's intended course of action and urge you to adopt auction rules that allow the free

market to decide the fate of the broadcast band.

One goal of the incentive auction legislation was to bring market forces, via auctions, to

bear on the question of how best to allocate spectrum resources. A pure market-based approach

would allow all qualified bidders to freely bid on spectrum licenses, thereby determining whether

broadcasting or commercial wireless is the highest economic use of the spectrum. The

Commission's proposed methodology would substitute these market mechanisms with market

manipulation, artificially limiting supply to generate faux demand.

This attempt to manipulate the market is best exemplified by the Commission's plan for a

scenario with 60 MHz of spectrum available tor auction. In this case, the FCC would set aside 30

MHz of spectrum (3-2x5 MHz pairings)- half of all spectrum available for auction- for bidders

the Commission favors, and prohibit disfavored bidders from bidding on those licenses. That

would leave 30 MHz available for disfavored participants to bid on. Because modem wireless

broadband networks are best deployed in spectrum bands at least 10 MHz wide, disfavored

bidders will be bidding against

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Letter to the Honorable Wheeler

Page 2

each other to win two ofthe three licenses not because of a lack of available spectrum to meet

bidder demand, but because the Commission has made a decision to artificially restrict supply.

This is not how a market-based auction should function; it is how a cartel controls price.

Artificial set-asides, restrictions on bidder eligibility, and contortions in auction design

alter the playing field and distort the outcome. The Commission is not better able than the market

to dictate the worth of spectrum and attempts to do so jeopardize the success of the auction.

Recently, a group of 78 of our Democratic colleagues wrote to you urging an auction that

maximizes participation by all bidders. We join them and urge the FCC to refrain from

manipulating the market to force the hands of a select group of bidders.

Some have argued that it is within the ability of the bidders to trigger additional broadcast

buyouts through higher bids. Unfortunately, this makes the assumption that clearing more than

60 MHz is even a possibility. Because this auction is voluntary, it requires both willing buyers

and willing sellers. There may not be enough willing sellers- at any price -

to clear more than

60 MHz for auction. Structuring the auction in an attempt to force a particular outcome is bad

policy; when that outcome is potentially impossible, it borders on reckless.

If past is prologue, this type of interference by the FCC will negatively impact the

auction. The FCC must not be in the business of picking winners and losers by excluding parties

from the auction or constraining parties' ability to bid. We urge the Commission to reconsider

any plans that would further cloud an already complex auction and threaten the outcome for

providers, consumers, and the public safety community.

If you have any questions, please contact David Red! with the Energy & Commerce

Committee staff at (202) 225-2927.

Sincerely,

Subcommittee on Communications and

Jo;k. /Jr-~

Technology

Bob Latta

Vice Chairman

Chairman Emeritus

Subcommittee on Communications and

Technology

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Letter to the Honorable Wheeler

Page 3

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The Honorable Henry A. Waxman, Ranking Member

House Committee on Energy and Commerce

The Honorable Anna Eshoo, Ranking Member

Subcommittee on Communications and Technology

The Honorable Mignon Clyburn, Commissioner

Federal Communications Commission

The Honorable Jessica Rosenworcel, Commissioner

Federal Communications Commission

The Honorable Aj it Pai. Commissioner

Federal Communications Commission

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Letter to the Honorable Wheeler

Page 4

The Honorable Michael O'Rielly, Commissioner

Federal Communications Commission

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