With Sprint making clear it will not bid in the upcoming 600-MHz incentive auctions, some think the whole auction design --which is complicated enough--could be more questionable.
The reason boils down to likely lower incentives for broadcasters to give up their licenses.
That is likely because Sprint’s non-participation means T-Mobile US is the only bidder already committed to participate in those portions of the spectrum set aside for smaller providers.
“Prices for spectrum might not be as high as some have predicted,” said Roger Entner, Recon Analytics principal. “There is not so much spectrum or bidders.”
Sprint and T-Mobile US were expected to bid against each other. The big question now is whether any other big companies with deep pockets and appetite to enter the business are going to show up as bidders for the 25 percent of spectrum that AT&T and Verizon are not allowed to contend for.
“It’s positive for T-Mobile US,” said Jim Patterson, Patterson Advisory Group principal. “The effect on the other (possible) entrants is not clear.”
The point is that incentives matter, especially for an auction that must first promise high enough payments that licensees are willing to surrender their spectrum. Many will conclude their spectrum is more valuable if kept.
Consider the scandal Volkswagen faces over its tampering with emissions controls on its diesel vehicles. To bring some 482,000 U.S. vehicles into compliance with emissions standards, the vehicles have to be voluntarily brought into dealerships for repairs. In a few cases there might be laws compelling owners to do so. But not always.
That means owners might have clear incentives not to participate. The reason is simply that the evasion of emissions controls results in better fuel economy and better performance. Some users might rationally conclude they are better off not getting the modifications.
That's the same sort of problem the incentive auction will face. There is no spectrum to auction until existing licensees agree to sell.
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