Next year the FCC will conduct the first-ever “Incentive Auction,” which will harness market forces to reallocate valuable low-band (below 1 GHz) spectrum from television broadcasters who voluntarily choose to relinquish their channels in exchange for incentive payments, to wireless providers who will bid against each other to buy those frequencies to provide mobile broadband services. 

The low-band spectrum we will auction is particularly valuable because it has physical properties that increase the reach of mobile networks over long distances at far less cost than spectrum above 1 GHz.  It also reaches deep into buildings and urban canyons. 

Today, however, two national carriers control the vast majority of that low-band spectrum.  This disparity makes it difficult for rural consumers to have access to the competition and choice that would be available if more wireless competitors also had access to low-band spectrum.  It also creates challenges for consumers in urban environments who sometimes have difficulty using their mobile phones at home or in their offices.

To address this problem, and to prevent one or two wireless providers from being able to run the table at the auction, I have proposed a market based reserve for the auction.

Any party desiring to bid on any license area will be free to do so.

When the Incentive Auction commences, all bidders will be bidding and competing against each other for all blocks of spectrum.  We expect a fulsome bidding process.  There will be no “reserved” spectrum during this initial stage of the auction.

When the auction reaches a “trigger” point that the Commission will set in advance of the auction – largely based on meeting a price threshold – wireless providers with a dominant low-band position in a license area will be constrained from bidding on a few “reserved” spectrum blocks.  The exact amount of “reserved” spectrum available will depend on how much spectrum non-dominant providers are actively bidding for at the trigger point, but in no instance will the reserve exceed 30 megahertz.

Those “reserve-eligible” bidders who are still actively bidding at the trigger point will then begin bidding for reserved spectrum against only other eligible bidders, and not against bidders who already hold a dominant low-band position in that license area.  Of course, all bidders will be able to continue to bid on all of the “unreserved” spectrum. 

Bidders who are not eligible to bid on reserved spectrum will continue bidding for the unreserved spectrum blocks.  The auction will end only when all bidding stops. 

The net effect of the market based reserve, therefore, is to promote a robustly competitive auction with all parties vying to establish a fair market price.  Only when the auction reaches the trigger point will bidders split into two groups.  Those without much low-band spectrum will complete against only each other for a limited amount of reserved spectrum, and competitive bidding for unreserved spectrum will also continue for those bidders who already hold a lot of low-band spectrum.

As a result of this design, it will not be possible for one or two bidders to sweep the auction.  At the same time, we will maintain a vibrant and competitive bidding process to assure the spectrum is priced at a realistic market valuation.