 We have our economists and analysts, and I'm going to, I think what I'll do is just, probably move this a little bit here, what I'll do is I think just introduce all four just really quickly. Again, there's, you know, hopefully you picked up the bio bios on your way in and we can just do a very simple introduction and then go down. It'll actually be Mark and then I think Peter, you go second and George and Fred last. So Mark Cooper is director of research at Consumer Federation of America. Peter Crampton is a professor of economics at University of Maryland and I guess Reed already introduced them as a noted auction expert. George Ford is the chief economist at the Phoenix Center for Advanced Legal and Public Policy Studies here in Washington, D.C. and is written quite extensively on this particularly with respect to the Department of Justice and I Trust Division filing. And Fred Campbell, who will be back in one, just a second or two, is a fellow and director of the Communications, Liberty and Innovation Project at the Competitive Enterprise Institute and a former chief of the Wireless Bureau at the FCC. So let's start with Mark Cooper and you can either come up or stay there. I guess I'll stay here since I have to move the slides through. High-level philosophizing is great. The last panel was wonderful, but I want to get closer to the nitty-gritty of reality and facts on the ground. The dominant incumbent wireless carriers, the baby bells, charge higher prices and have lower caps in spite of the fact that they have a huge advantage in holdings of high quality spectrum. These are classic indicators of the abusive market power affirmed by their market shares and ongoing concentration and exit in the sector. Therefore, the primary purpose of this very rare auction of low-frequency high-value spectrum from the consumer and economic points of view should be to de-concentrate the sector. One way to do so is to prevent deep-pocket dominant carriers from increasing their already substantial advantage in high-quality spectrum. The first slide shows you the results of a comprehensive national survey I personally conducted to find out the reality that consumers face in the world. And in point of fact, the baby bells charge more and have more limited prices. That's the reality that my members face. Interestingly, the evidence from the FCC shows that they not only charge higher prices, but they earn excess profits. Now, if they had higher profits and lower prices, they would be seen to be earning their rents through efficiency. But when you charge higher prices to get higher profits, there's a really good suspicion that you're using market power. Their market power is evident in their huge market shares and the growing trend of concentration and exit from the industry. This is a highly concentrated industry, even by the recently modified and ridiculously lacked standards adopted by the Federal Trade Commission and Department of Justice in their merger guidelines. And you heard it in the last session. Four is few and six is many. A little aphorism from the economics profession. We've got barely four not very equal-sized competitors. If they had high market share with lower-quality spectrum, again, they would be seen as efficient innovators, but they don't. They have more high-quality spectrum, which means they're not particularly efficient. We clearly know why the high-quality spectrum is preferred. It has much better propagation characteristics. That's physics, folks. A law of physics. Now, you can say that concentration doesn't tell you the whole story. You can say that exit and entry doesn't tell you the whole story. You can say that pricing doesn't tell you the whole story. You can say that pockets don't tell you the whole story. You can say that service terms don't tell you the whole story. But when they say or all say the same thing, you better look and listen. And in this case, they all say there's market power there that's being abused. And you don't have to look very far to see where the market power comes from. And you heard some of this in the previous panel. Incomeancy, ownership of local middle-mile bottleneck facilities, integration with the local communications network, control of high-quality spectrum, brand recognition, deep pockets, and political connections. That's the basis for this economic power that has persisted. It is difficult to dislodge such market power, and we made a huge mistake by letting the most important barrier to entry in an industry with barriers to entry become concentrated in spectrum. So what we have to do is begin to reverse that. With that technological and economic background, the claims you hear from the defenders of the dominant incumbents are simply wrong. The claim that the large dominant incumbents will pass along the rents for more efficient access to spectrum equally is wrong. The big guys will pocket it because they have market power, and the little guys will be forced to pass it through because they want to get market share. The claim that the propagation characteristics of spectrum do not affect the cost of deploying networks is wrong. The claim that setting limits on bidding by dominant incumbents will dramatically reduce auction revenues is vastly overstated and wrong for two reasons. One, bidders will bid for what they can, and if there's less of it, they'll raise the price. That's what Reid Hunt told you, and the little guys will bid more for the stuff that they can. The total revenue won't go down, but more importantly, if we get a competitive sector, we will grow the economy faster, and the total revenues enjoyed by the government will increase rather than decrease. And so the simple answer is well-designed auction rules that deconcentrate this sector in the public interest, the consumer interest, and the national economic interest. Thank you. The incentive auction represents a tremendous opportunity to enhance competition and wireless services. I, however, agree with the Department of Justice that an effective competition policy is needed in order to achieve that very desirable goal. Spectrum caps, as been suggested by distinguished keynote speakers, have a long and successful history in limiting concentration and promoting competition, and that's not just in the United States in the early auctions, but throughout that history in the United States and then in countries throughout the world. The low-band spectrum is special. Low-band spectrum caps have been adopted in nearly all recent major spectrum auctions around the world. Auctions in the UK, Germany, Canada, Australia. The US 700 megahertz auction is the lone exception. So it's not something, Spectrum caps aren't something that are strange, it's something that's routinely done by virtually every country in the world conducting major spectrum auctions involving the low-band spectrum. The caps limit concentration of the holdings and thereby encourage participation in the auction. A bidder is unlikely, a smaller bidder is unlikely to participate, it's costly to participate in these auctions, but they're unlikely to participate if they think they're just setting themselves up for defeat. And so what the Spectrum Camp does is it creates an opportunity for the smaller players. They know there'll be smaller players winning in the auction and they come to the table and they come to the table with capital. This then of course leads to a more competitive wireless industry. The low-band concentration is relevant and that's because the low-band spectrum, as has been pointed out, has much better propagation characteristics for in-building coverage, difficult terrain coverage and coverage in less densely populated areas, of which we have a lot in the United States. Consumers value this coverage and just an example of that is the current advertisements of Verizon where they're trumpeting as they have for multiple years, trumpeting their coverage superiority over competitors and pointing to consumers that this is actually something important that you should care about and of course all of us as consumers are well aware of this. Coverage does matter and if a few firms have dominance in the low-band holdings, they will have a coverage advantage just because of the simple economics and physics and as a result they'll be in a position to charge premium prices for this premium service that they can offer. The question is does a low-band cap make any sense in the incentive auction? And so first let's look at the setting. Well in this setting we do have a highly concentrated wireless market. The big two Verizon and AT&T have 67% of the market share by subscribers. They hold 80% share of the low-band spectrum and they have an even greater share of the industry earnings. So this is a highly concentrated industry. There is a problem here. Because of this concentration in the low-band and the competitive advantage they derive from, the big two have a strong incentive to weaken competition by maintaining the dominant position in the low-band spectrum and that is the concern. That played out in the 700 auction and it would be a mistake for it to play out again in the incentive auction. A difference in the incentive auction is that revenues are critically important to the success of the auction. And that is because in order to clear as much spectrum as possible, revenue target has to be met in order to motivate the clearing of the incumbent TV broadcasters. And so we have to look at the revenue impact of a potential cap on low-band spectrum. And here, I think that if I was to give advice to the FCC on what I thought a sensible policy would be, it would be avoid the extremes. So no cap, lazy fare, no cap, I think is a bad idea. Both from the competitive side, the industry that creates post-auction, but that also from the auction revenue side. An auction without any restrictions on the big two could likely lead to an outcome of dominance in the 600 auction, cementing the dominant position in the low-band spectrum and undermining competition in the industry to the detriment of consumers to the benefit of the big two. And if firms anticipate, if the smaller firms anticipate this possibility, that discourages their participation because you're just spending a lot of money and effort participating in the auction that you're ultimately going to lose. So why bother? At the other extreme would be excluding Verizon and AT&T. Now that would lead to the most competitive outcome in the post-auction market, but I believe that we've reached a point now where that would take too much money from the auction that in fact the capital of Verizon and AT&T is needed in this auction in order to generate sufficient revenues. There are some other advantages of having AT&T and Verizon's participation because that would enable an inter-ectoral band to roll out sooner across the country and have all the market participants enjoy greater economies of scale with equipment manufacturers. So I don't think complete exclusion is a good idea. Instead I think a approach of moderate caps is what's needed, either a cap of one paired lot or two paired lots on each of the big two. This creates, in the case of two, let's say it was a cap of two of the paired lots, there's seven in the band plan that's currently under consideration. That means that there's three lots, at least three lots available for the small guys. And that's going to motivate participation. Of course if it was a one cap limit there would be at least five available which would motivate even more participation by the smaller players. This opportunity, this sure opportunity creates a strong incentive for participation, a more competitive auction and potentially higher revenues and certainly not dramatically lower revenues as some have argued. This participation effect is not abstract theory. This has been borne out in a great number of spectrum auctions around the world, both auctions from 20 years ago and auctions today. I can point to for example the UK 3G auction which achieved record setting revenues. The cap on winnings of the big guys was instrumental in motivating entry there and leading to those record revenues. Much more recently the Canadian AWS auction also had a set aside for the small guys which motivated entry and very high revenues, much higher revenues than would have been achieved in an unrestricted auction. And most recently just a few weeks ago the Taiwan 4G auction concluded and there again tight spectrum caps on the major incumbents and how much they could win in the low band and the other bands. And that also led to a lot of entry of capital, very high spectrum prices. So we've seen it throughout the world including the United States. This is a real factor and so I'm not concerned. I think the FCC does make an appropriate judgment about what a low band cap would be that it will be successful and promote competition during the auction leading to substantial revenues and then encourage post auction competition. Thank you. I think that's stuck there. I'll take a slightly more general approach. I've written specifics about this topic. You can download the papers and read them. I'm not big on repeating what I've already worked on. One thought that I had is I just got back from Thailand on Monday. If I fall asleep, I apologize while I'm up here looking at their spectrum markets and they gave me some insight I think on what I'm going to talk about today or some motivation. When I was at the FCC I had took an interest in broadcast mergers, radio mergers in particular. My senior official, my mentor as well, drug me into his office and sent me down and said, George, let me tell you something. Issues of ownership are far too important to be determined on the merits. I'll repeat that. Issues of ownership are far too important to be determined on the merits and essentially what he was saying is you're wasting your time trying to bring analytics to the process. I think that's a rule that I've observed over my 20 years in this business of almost biblical proportion. It's truth. Normally I think about that in terms of mergers, but it's also true that options and comparative hearings in the past, whatever, it's a form of establishing ownership. And now I think what we're seeing is the rule of too important for the merits to begin to be applied in spectrum allocation. I think I worry that we're at the end of the era of spectrum auctions, not the beginning of it, which is unfortunate because I think we've made great strides in it. To demonstrate that, we had the recent PCAST report, which just flat-out says no more spectrum auctions. We've had ideas from previous administrations, for example, the M2Z proposal, I think the C-Block proposal would likewise qualify. Where we're not auctioning spectrum rights anymore, we're auctioning business plans. You'll provide this service for free, you'll filter pornography, you'll do this, that, and the other. Even the D-Block auction might qualify, where we're essentially not really saying, here's a license to do what you want to with a flexible license, but really a business plan that we're selling people. And I think this entry begins to have that flavor, and I don't mean this to be critical in any way. I'm just observing what's going on. What we're trying to do now with this auction, and if I think you think about auctions, what I think about an auction is, is we used to have comparative hearings, or lotteries, or wherever they were. I think comparative hearings is probably the best analogy. Where the government chose who won something. It was sort of an auction at zero price, I guess. It was a suck-up auction, beauty pageant. And we decided the government wasn't really good at that, and we'd rather just set it out there for auction, and whatever's willing to pay the most have it. That's sort of what an auction is about. It's saying, let's get the government out of choosing who gets something. And now we're right back in the case of where we're having the government choose who gets something. The DOJ's filing was explicit. We're going to rig this thing so T-Mail wins point one. I mean, she's just playing his day. Now, you might feel, like Peter feels, that we should have spectrum caps, that sort of thing. And I suppose there are good arguments for that. I haven't heard very many of them, at least not in an analytical way. I've heard many of the arguments, and DOJ certainly didn't provide any analytics. But we're sort of in this thing where we believe now that the purpose of the auction, the purpose of the auction is not to sell it to the highest bidder, kind of the highest use value, which is the thing, right? We say we're going to surrender to the auction. We're not going to surrender to the auction anymore. We're going to use the auction to manipulate market share. We're going to change industry structure. So we're no longer saying, here's a bunch of spectrum, we're going to auction at the highest bidder win, and that's what generates the most consumer benefit. We're going to say, we're going to rig this auction so that certain people get it, so that we hope to God that when they do get it, their market shares will go up. Assuming in the process that it's really the spectrum that's restraining the market share and not their general incompetence, which I don't know if that's true or not. Maybe it works out that way. I don't know. Sprint's got a lot of spectrum, historically, and you've got to wonder why the market shares have been what they have been over a long time. The Thailand experience is interesting because they had, I guess, what you'd consider a failed auction, most people do. It raised a billion and a billion, $1.3 billion or something like that, and they essentially had three carriers and three interested parties in spectrum. And this is what happens over time, and it's sort of where we are now. On a big scale, we've got four parties interested in spectrum. There's some small guys, too. Oh, they only have three, just three. And the government sets the thing up. They had nine licenses. They cut them. They had a world that says, you can't buy more than three. And they had three bidders. So what happened? They got the minimum bids across the board, except for one, the largest carrier who bid 5% above or 2.5% above the minimum bid. And then regretted it later, but apparently the commission had sat down with the carriers and said, we all please pretend like we're going to have some competition here and raise the bids, even though you don't have to. One of them agreed to do it apparently the other two said, no, we'll win at the minimum bid. And so then you get into this situation where you're thinking, if I've only got a few bidders, and I want everybody to have some, then you're not having an auction. And we're going to end up paying Peter and other people to spend more time figuring out what's the minimum bid? What's the right minimum bid? Because there's going to be no competition because everybody's got to have some. Otherwise something bad's going to happen. Okay, well, we want to shift to these two guys and not these two guys. So then you don't have a lot of bidding in that case either. So the minimum bid becomes very important because it's probably all you're going to get. Then you go to the P-Cast case. Let's say we just abandoned it all together because we're really not letting the auction determine who wins. We're going to choose who wins ahead of time. And the P-Cast report explicitly says we're not going to have options anymore. And now you've got a case where you're just leasing it. So then we've got to have guys determine what the lease amount is. And I don't know how you do that. What's interesting about the P-Cast is you're not going to have license exclusive, you don't have auction exclusive licenses. But then you've got to determine how you determine priorities and how you determine long-term leases. So I'm not sure exactly how that works. So I don't know if this has been that helpful. I think I'm so jet lagged. But my thought is really, I think, and Tyler in case taught me this and certainly as I watch this and have seen the past year on the M2Z P-Cast that we've done all this work on auctions. And I think we may have just given up on them and are returning it back to politics. And we may dress it up in the form of an auction. But really the outcomes were predetermining and trying to manipulate prices, outputs, market shares, whatever it is through the auction process. That's not to say that people who want to analyze this issue and have various rules should be ignored or anything of that nature. They should be listened to if they offer analytically valid stories. But I do think we're headed in an any direction, I would even call it dangerous, but in a direction of not really having spectrum auctions anymore. Thank you. Thanks. Our final panelist for some opinion marks. Thanks. In some ways the story in this auction reminds me of the boy who cried wolf. I guess that boy was eventually right. But how many times going to what Mr. Ford said, are we going to do this where we try to influence the outcome of these spectrum auctions? So I did a paper recently with empirical analysis. I looked at every single license sold in nationwide mobile spectrum auctions and figured out what happened to it. And in the two restricted auctions, the FCC has held that only held two where they restricted the bidding to small entities only and said large carriers can't participate and ended up delaying the provision of service to the public to 68% of the population coverage in those blocks on a megahertz pop basis and then delayed that service by nearly seven years. So then people say, oh, well, yeah, but those were small companies. Here it's T-Mobile, it's Sprint. They're not going to go bankrupt. Well, again, how can we predict this? A couple years ago Sprint was on Bankruptcy Watch according to some analysts. And I'm not picking on Sprint. They just got a huge investment. So good for them. They're probably not on Bankruptcy Watch at this time. But predicting what's going to happen two years from now after the spectrum auction, anyone here to do that accurately because in the past, the smartest analysts in the world haven't been able to do it. I sat there while the 700 megahertz auction was ongoing in the war room at the FCC with all the big monitors and watched the bidding live that was anonymous. And then I would read the report every day from very smart people, Blair Levin, for example, trying to predict what was happening and he was wrong. Blair Levin is a really smart person. The problem is it is impossible to predict what multiple competing companies who aren't sharing information with each other about their plans are actually going to do. The assumption underlying these arguments about we need to make sure they have an opportunity, they have an opportunity, pay for it. Well, the assumption is they're too small to pay for it. Well, small by what measure? And that's what I want to talk about incentives. And in this case, not the incentives for the broadcasters. I looked at the, you know, annual report for 2012, you know, some months after 2012 and it was filed for T-Mobile, which at the time was a wholly owned subsidiary of Deutsche Telecom. Deutsche Telecom says we're one of the largest communications companies in the world and indeed how many subscribers does Deutsche Telecom have and as a wholly owned subsidiary T-Mobile was Deutsche Telecom, or part of it. They're 136 million subscribers, as of the end of 2012. But oh, we're small, we're small. Can they get the financing to compete if they want to? What incentive are we providing in the United States? You also look at the historical investment levels. These are the numbers that weren't on the previous chart. T-Mobile, Deutsche Telecom has invested a lot less in the U.S. over the last however many years than some of the other carriers. Okay, fine, not critical of that. But then we say, oh, well your reward for under investing, because apparently it hasn't worked well, is that we're going to subsidize spectrum purchase in the United States. In the international trade context, if they were selling cars here to below market price, we'd call it dumping and say it's illegal. Here, the incentive that we are providing is, hey, come to America, we'll subsidize your spectrum purchase and then with the savings you have, go invest in Germany. I mean they're building fiber in Germany right now. Was I in a report saying we're benefiting from the favorable exchange rate between the U.S. and Germany? I want to be clear, I am not anti-free trade at all. That is not the point of this. Fair trade is not dumping. It's everybody can bid, come and invest in the United States. I want them to invest in the United States. What I don't want to see happen is companies say, hey, let's take a discount here because more empirical evidence, there's only one FCC auction in which it made available one block of restricted spectrum and two blocks of unrestricted, the number's not relevant. The point is restricted, unrestricted, same auction, same license areas, same amount of bandwidth per license. They're virtually identical. And net bids for the restricted block were 31% less. There are only three blocks, so going to the argument about, well, there's a restricted amount, right? So there'll be more for the other ones. Still 31% less for the restricted block. The other two blocks sold for within literally $21,000 of each other. So that kind of establishes, given the almost exact same overall aggregate net bids for the other two blocks, that's what the market was saying this spectrum is worth. You get to the restricted block, 31% less. The congressional budget office, in fact, former chairman Hunt at the time, acknowledged that because there was this installment payment plan in that auction, that was actually a benefit to the restricted bidder, so it would have sold for even higher. CBO said, if you calculate in, depending on the percentage you apply, of the value of the government subsidized financing, maybe it's up to 61% less in that aggregate bids. Going to the bull-eared-crowed roof thing, the FCC wanted to influence policy with the D block, and I was part of that. And the FCC was pretty, if I think they felt good when the order was done, that this is a good chance this will work. It didn't work. Every commissioner in the order adopting the restrictions of the PCS, band blocks that I'm talking about, every commissioner in a separate statement said, I think we've achieved a good balance here. Well, it didn't work out that way. The C block, I think the evidence shows. Sold for just barely enough to meet the government's threshold, and that's it. At one point, Metro PCS, I believe I'm going off memory, had the winning bid on the entire northeast reag in that auction in the C block, and decided to drop it. They didn't want to win. And I think they ended up spending around, it was between 300 and 400 million just for a license covering Boston in that auction. And the northeast reag, and by restricted in this case, it wasn't on participation, it was an open platform thing. Sold for the entire northeast, New York, Boston, Philadelphia, all of it, around 500 and some million. So was it that Metro PCS couldn't afford the northeast reag, or did they decide we don't want that platform? I don't know, by the way. You can speculate there's numerous possibilities. What I do know is the empirical evidence shows. Every time the FCC thinks it can predict market outcomes accurately, and that certain companies just can't win if we don't do something, and other companies will absolutely win if we do do something, they usually have proven not to be very accurate. And the most recent example is I, they imposed a very high reserve price on the H block, and again Wall Street analysts thought Sprint was a shoe-in to participate, and they decided not to. And I had written a blog before they announced that, that, you know, this reserve price is going to affect people's decisions here, potentially, and it's problematic. And I don't know if that's why they made the decision. And that's not a criticism of Sprint, but there is the danger here. The story is, they'll have an opportunity to win if we do this. The flip side is, if you tell other bidders they can bid on those blocks, they have no opportunity. None. All right. That's, sorry. Okay. No, thanks. Thanks, Fred. All right. So I guess it's fair to say there's a bit of disagreement among the panel on this. So I'd like to ask a couple of questions, and then we can open it to the audience as well. So I guess the first thing I want to ask about is, you know, there's this concern about, which I think both Peter and George in particular mentioned, that this is an unusual, the incentive option is an unusual option because the broadcasters will have to be compensated for volunteering to give up either, you know, their entire channel or sharing a channel or moving after the auction. And so in a sense, what you might call the reserve price is implicitly much, much higher. So T-Mobile has proposed something that they've called the dynamic market rule as a sort of a fallback because, you know, also mentioned before was the D-Block. That was the, which is now public safety spectrum, which was initially put up for auction back in 2008, TV band spectrum, and it was a reserve price set and the auction didn't meet the reserve price. And so, you know, in that sense, it was a failed auction for the D-Block. So here, you know, one argument has been, well, we can't have a failed auction. We have to make sure we raise enough money. We might need money for FirstNet. You know, we'll get back to that again, but we definitely need money to pay the broadcasters and for the relocation fund for all the other broadcasters who remain on the air but are going to need to be moved down lower in the band. So T-Mobile has proposed that after the initial bidding, if the minimum revenue target is met with the limits, with the aggregation limits, then the auction's over. So that would be a success because you've accomplished both goals. But if the bids fall short, the limits are gradually reduced until the revenue target is met. So I'm just wondering if, you know, what you all think about, you know, does that satisfy any concern about the auction failing to raise the revenue needed to pay the broadcasters to relocate them and if there's any remaining need for FirstNet under the statute? Peter. So if I could address that, the FCC has to make a difficult judgment when it comes to setting the parameters of the spectrum cap. They don't want to, you know, because you have a very good example of a country screwing up and doing the wrong thing. But countries can do the right thing and the FCC is fortunate to have the capability to think hard on this and make an informed decision. But there's some things that are unknowable. Like, you know, for example, I was trying to argue very quickly that to avoid the extremes, that complete exclusion of the big two is probably a bad idea and complete lazy fare, letting them win the whole thing is a bad idea. So, but there's a lot of points in between. Actually, there's not that many points. I mean, I really think it would come down to, at the end of the day, do we want a one-lot limit on each of the big two or a two-lot limit? Because that creates either more opportunity for the smaller players or still significant opportunity, but smaller opportunity. And the dynamic market rule allows the auction to make that determination. Because effectively, the way it would work is first, the reverse auction is conducted with the clearing target of 120 megahertz or whatever the FCC decides, but that's a perfectly reasonable target. And that's going to determine how much revenue is needed from the forward auction in which the mobile carriers participate. The forward auction is first conducted with a more stringent cap, say a one-lot cap. And then, if the revenue is satisfied, fine, it's over. If it's not, then the cap is weakened to say a two-lot cap. The forward auction is continued with this, where now the big two can expand demands in every market by an additional lot, and the improved revenues are recorded and hopefully sufficient now to end the auction. So that's the basic idea. Let the dynamic market rule, let the auction make that determination. One advantage of the dynamic market rule is that it's not actually that complicated. I really see it as sort of this two-step approach as opposed to some wildly complicated thing. But the advantage is if the auction starts out with a more stringent cap on the big two, that's creating more opportunity for the smaller players, motivating them to bring more capital so that hopefully this thing can end with this more stringent cap and opportunity at 600. But at the end of the day, the FCC's got an insurance policy because if the revenue isn't sufficient, then the cap's relaxed and the revenues expand. But all that money that was motivated by the more stringent cap has been brought, the smaller carries have decided to participate in the auction. And so, in fact, the dynamic rule could have this extra benefit of enhancing the revenues, sort of irrespective of where the auction determines is the appropriate spectrum cap. Georgia Fred, any alternative view on that? When Peter Krampus says it's not that complicated, you'd have to consider the source. But auction theory is quite complicated. I mean, here we are, as I was talking about earlier, we're spending a lot of time thinking about minimums and making sure we satisfy some minimum. And it's largely because we're limiting the participation of people. We're not really having an auction, really. We're sort of admitting that we're probably not really going to have it, so let's just put a price on it and sell it to who you want to have it and be done with it. If that's what you want to do, that's okay. If that's the way the price they want to take, let's figure out how much it's worth, make a guess, and say, said sprinting over to us, are you willing to pay this? And if they say, yeah, then we'll go home. I mean, if that's the way you want it, if you have the outcome to be that, then just do it that way. Why don't go through all this rigmarole? I mean, it's just kind of pointless. We could do this in an afternoon. Simple observation. I understand the dynamic, the purpose of the dynamic auction is to give people some sense that there's other stuff. There's a backstop here that will help to show it's a success, and the two-sided means you can't just say let people buy it because we've now got another constraint on it. The interesting thing to me is that I don't think it's necessary. I don't think it'll hurt. And the reason is the following. Looking back at history, the encumbrances on past auctions, tended to be either geographic or affect the long-term value of the spectrum by imposing obligations on those. That's not what's going on here. The idea of a limit only affects the short-term price, and it does not affect the long-term value of that spectrum to the bidders. So I think you'll have plenty of bidders. We know who the likely bidders are. And a fallback that makes people feel a little more comfortable about there'll be enough money in the pot is okay as long as it's carefully designed to not disincentivize people from bidding early on. But I also must say, Michael, to tell me that I need to induce them to voluntarily give up their spectrum. To me, it is I have to bribe them to give me back my spectrum. And frankly, if this doesn't go, and I've said this before, and I think people need to start talking about it, if this doesn't go, the next time those licenses come up, they ought to be forced to bid for them. And we know who will lose that bidding because they don't generate the revenue. So let's be clear. We have an incumbence on this auction that is based on pure historical political muscle. And if this doesn't work, we ought to then take a hard look in the mirror and say it's time to change the way we think about who has a right to use this spectrum. Well, there is one... I can't help but mention one irony along the lines of... I mean, now we're having these incentive auctions that's in the spectrum reform act, although folks who would along memory... This isn't the first incentive auction that was scheduled. Back in 2001, under Michael Powell, there was a...in a Peter and I battled about that, there was an incentive auction that was scheduled for June of 2002 for broadcasters to give up channels between 52 and 69. And it was scheduled in Congress with the share of the revenue going to the broadcasters who would voluntarily give up one of their two channels because at that time they were dual-casting analog digital. And Congress actually passed a law that President Bush signed the night before the auction. As Powell, to his credit, stood his ground, night before the auction canceled it. That led, in turn, years later to the 2008 TV band auction, which raised $20 billion that all went to the Treasury. So actually for those who wanted money for the Treasury, it was actually a better thing not to pay off the broadcasters in that context. So what Mark said may come true in the end since they will still be there. But one other question I have is... And I think it was Mark who mentioned this economic concept of foreclosure, foreclosure value. And one thing that's really interesting is, you know, Chip and Reeber were mentioning that the TV incentive auction, that's not the only spectrum. It's probably not going to be the largest amount of spectrum that's auctioned in the next two years. There's also, for example, this AWS-3 spectrum, 50 megahertz, a very good spectrum for mobile broadband, $17.55 to $17.80 and $21.55 to $21.80, very paired, very valuable. And yet this whole debate around caps or spectrum aggregation limits has centered largely on the TV spectrum, on the incentive auctions. So I'm wondering if that has something to do with the sphere of foreclosure. Because currently the two dominant carriers, first they have legacy grants of spectrum in the 800 megahertz block. And then that 2008 auction of TV spectrum in 700 megahertz, they ended up with 80% of that. So since they have about, I think, 86% of all of the spectrum below one gigahertz, spectrum with these unique propagation characteristics that Mark was describing. Is that where this idea of foreclosure comes into the words? Is the incentive auction a different auction in some respects in terms of this concept of foreclosure and risk to competition? Can I address this one? Yes. So the DOJ says, because spectrum below one gigahertz has different propagation characteristics, it has this potential, if one company were to get it all, it doesn't matter how much higher frequency spectrum other companies have, the company with low frequency spectrum will have a competitive advantage. A couple of, I don't see how the FCC can reasonably make that conclusion. Given that in 2011 they found it's the semi-quinon of competitive analysis. This is a paraphrase, but there's the quote in my paper that if AT&T were to, this is in the context of the AT&T T-Mobile transaction, if AT&T were to unilaterally raise prices, consumers would switch to T-Mobile or some other carrier. If T-Mobile, which at that time had very little, they have a little bit, but not much below one gigahertz, if they couldn't effectively compete without spectrum below one gigahertz, how could the FCC make that finding? It is the semi-quinon of antitrust analysis, right there. I don't understand. Reason decision-making would say two years ago they can compete just fine and have for a decade with spectrum primarily above one gigahertz, now they can't. It's arbitrary and capricious. You know, there's also the idea, I mean, Sprint has at least 14 megahertz nationwide of spectrum below one gigahertz, and yet they wouldn't be restricted. Wouldn't they have an incentive to foreclose T-Mobile from getting any if this were a real risk? If you can compete effectively without spectrum below one gigahertz, foreclosure in this auction wouldn't appear possible because the other spectrum that's already out there, you can't prevent those companies from having it. They already hold it. You know, yes. If somebody who operates energy plants and you could only use coal, if they had a contract for all available coal supplying the entire world, yes, you'd have a monopoly. But if a bunch of other companies already have coal, securing the rights to a particular mine, this is one spectrum auction, not going to allow you to prevent them from using coal and their power plants. I just, I don't understand how both DOJ and FCC can make findings of effective competition. And then all of a sudden it changed. And I'm so skeptical because going to the point about we've abandoned auctions, you know, lots of decisions were made, the FCC decided not to auction any of the MSS spectrum. There's been other examples of spectrum recently, not auction, but then the first big auction they're going to do, we have to change our rules so that there's kind of a new nuance to create restrictions. And so it's, I don't understand the facts. So if I could address the foreclosure issue, because I think there is, this is the basic market failure while you have a competition policy. And there is a real risk here of excessive concentration. We already have excessive concentration. I would argue of the low band spectrum. It does have special properties that are well understood and the superior coverage of the big two in in building and in difficult terrain in rural areas is points to that. So I completely agree with the Department of Justice and their analysis. And the FCC is also well aware that there's serious competition issues. It's not possible for T-Mobile or Sprint to foreclose the competition because even if they win all of the spectrum, Verizon and AT&T will have substantial low band spectrum and be able to provide excellent coverage. So the only parties that can foreclose competition are those who have high concentration of the low band spectrum now and can maintain and cement that position by dominating the 600 megahertz auction. And so that's the concern of the DOJ. That's the concern of the FCC. And it should be. And that's the concern that every country that I know of has recognized when they've imposed low band spectrum limits in Europe, in North America, in Asia and Australia, New Zealand, everywhere. It's been done for this reason and I think it's a perfectly valid reason that's well understood. I'll answer your question. I don't think it's specific to this merger or this auction. I think as we have other auctions, the foreclosure argument will pop up again. It's a profit, a function of the profit and every firm has foreclosure value and it'll be used. It's like the flow through argument from the long distance days. It just pops up everywhere and the argument is not specific at all to this merger and it would be, if we were auctioning off 1,500, the foreclosure argument would be bad, I think. I mean it's a handy argument to get a favorable position in the merger and the auction. It's a handy argument that doesn't work if the underlying market is not highly concentrated. I mean that's the fundamental point. But existence of potential competition has never been dispositive of antitrust policy since its inception in this country. We look at actual competition. So George, if this market were HHI was 1,500, we would not be having this debate. But it is almost 3,000 and in that reality on the ground, the fact that somebody else might win another customer, even though they're at a severe disadvantage in terms of their access to spectrum, is not dispositive. We have a concentrated market in reality, not in theory. And so I agree with you. I wouldn't be sitting here if this were not a highly concentrated market because it doesn't make sense to argue about it on the different circumstances. These circumstances are very sharp. The graph showed it. We made a huge mistake in the 2000s where we let the market become highly concentrated and now consumers are paying the price. What is the opportunity to address that? It's a fallacy to say that market power is directly related to spectrum holdings. It is absolutely not. If you had lower cost spectrum, you would be able to lower your prices even more and eventually make that guy with market power give up some of his access. Which brings you back to the question of whether it matters. In other words, the fact that their mayor may not be market power doesn't answer the question. We have to go deeper into the analysis. In fact, the graph shows the higher spectrum holdings. I should have mentioned at the beginning for those who are interested in the details of Mark's argument earlier. He also couldn't necessarily see the charts with any of the fine print. Mark released a research note this morning here at the event. It was out on the table, but I'm sure we have more to talk about. Basically the competitive landscape, actually it answers some of the critics of New America's recent report on broadband pricing, but gets quite a bit into the wireless market and the competitive or non-competitive nature of it. We want to get Tom Power up here pretty quickly because I know he's got a tight schedule. Maybe we can take one question if the answers are brief and then, yes, can you identify yourself too? I think we'll break or end it there. Please don't take a break although grab a little more coffee because we'll be passing lunches around shortly right at the end of Tom Power's remarks. So if you could join me in thanking the panel for the presentation.